United States: What's Really Remarkable About The Appeals Court Ruling On The CFPB

Last week's Appeals Court ruling strikes at the heart of the authority of the Consumer Financial Protection Bureau. While most of the media attention has focused on the court's holding that the CFPB's organizational structure is unconstitutional, the court made two other critical rulings that put a stop to the CFPB's aggressive exercise of its enforcement authority.

The decision is also noteworthy for its tone. The DC Circuit is the Court of Appeals that primarily hears appeals from administrative decisions and determines whether the agency has acted correctly. It is not unusual for the court to reverse an agency's decision or to vacate its actions. But here, the unanimous court went further, as it was harsh in its criticisms of the CFPB and questioned the agency's commitment to following the rule of law. Such a decision is very rare.

First, the court rejected in its entirety the CFPB's position that it is not subject to any statute of limitations with respect to administrative enforcement actions that the CFPB commences.

Second, the court rejected the CFPB's attempt to rewrite Section 8 of the Real Estate Settlement Procedures Act, holding that that provision is subject to statutory interpretation by the court, and not entitled to any agency deference with respect to its meaning.

The court's strong rebuke of the CFPB makes clear that the court has rejected the CFPB's enforcement efforts against PHH Corp. as an arbitrary and unlawful exercise of the statutory authority that Congress vested in the CFPB.

In rejecting the various legal positions taken by the CFPB, the court excoriates the rationale advanced by the CFPB for its unsustainable interpretation of its enforcement authority. Indeed, it is probable that these rulings contributed to the court's decision regarding the unconstitutionality of the agency's structure, as reflected by the comment that the more traditional commission structure for independent agencies reduces the risk of arbitrary decision making and abusive power, and therefore helps protect individual liberty.

Bureau is Subject to Statute of Limitations

The court held that the CFPB is subject to all of the substantive limitations periods for the 19 statutes that Congress delegated in the Dodd-Frank Act to the CFPB for enforcement. In the case, the CFPB took the extraordinary and unprecedented view that, when it exercises its discretion to use an administrative enforcement proceeding, as opposed to a court action, it is not subject to the statute of limitations—the CFPB contended that it is subject to the limitations period only if it chooses to commence an action in a district court.

The court said that the absurdity of the CFPB's position is illustrated by CFPB's assertion, in response to a hypothetical question, that it has the discretion to bring an administrative enforcement action as long as 100 years after the allegedly unlawful conduct. "This court looks askance now at the idea that the CFPB is free to pursue an administrative enforcement action for an indefinite period of time after the relevant conduct took place," the decision states.

As the court noted, if this proposition was accepted, the statute of limitations would not apply to any of the 19 statutes that the CFPB enforces when the CFPB pursues enforcement actions administratively as opposed to judicially. The court held that the CFPB misread the enforcement provisions of the Dodd-Frank Act, specifically Section 5563 that provides that the CFPB may enforce the various federal laws "unless such Federal Law specifically limits the bureau from conducting a hearing or adjudication proceeding."

As the court tartly stated: "Obviously, one such 'limit' is a statute of limitations."

The court rejected the CFPB's strained attempt to draw a semantic distinction between Congress' use of the word "proceedings" as compared to the word "actions", noting that the Dodd-Frank Act itself repeatedly used the "action" to encompass both court actions and administrative proceedings. It concluded that, if Congress had intended to relieve the CFPB of compliance with the statute of limitations, the text of the statute should have expressly so stated.

The court held that CFPB's interpretation "is especially alarming because the agency can seek civil penalties in these administrative actions. But the Supreme Court has emphatically stressed the importance of statutes of limitations and civil penalty provisions."

No Deference on Statutory Interpretation

In the ruling regarding the CFPB's interpretation of Section 8 of the Act, the court held both that the CFPB's interpretation was wrong as a matter of law and that the CFPB's attempt to apply retroactively its new interpretation rejecting the decades-long interpretation of Section 8 by the Department of Housing and Urban Development was a clear violation of due process.

The court expressly rejected the CFPB's interpretation that Section 8 prohibited a mortgage insurer's payment for reinsurance if it was part of a tying arrangement. In addition to noting that tying arrangements are ubiquitous and are outlawed only in certain specific circumstances, the court hheld that "A payment for a service pursuant to a tying arrangement does not make the payment any less bona fide, so long as the payment for the service reflects reasonable market value."

The decision states that the CFPB's interpretation "flouts that statutory goal and upends the entire system of unpaid referrals that has been part of the market for real estate settlement services."

The court specifically rejected the CFPB's attempt to use Chevron deference as a shield, holding that there was no ambiguity in the statute and that therefore no deference was due to the agency. Under the Chevron doctrine developed by the Supreme Court, courts will defer to an agency's judgment when it concerns an issue of interpreting and applying general directions and prohibitions enacted by Congress. An agency, however, is not accorded that deference when the question is what Congress' words mean. Construction of statutes is an exclusive province of the courts.

The court would not permit the CFPB to change the law. "The CFPB obviously believes that captive reinsurance arrangements are harmful and should be illegal," the decision states. "But the decision whether to adopt a new prohibition on captive reinsurance arrangements is for Congress and the President when exercising the legislative authority. It is not a decision for the CFPB to make unilaterally."

Violation of Due Process

Further, the court held that, even assuming that the CFPB's interpretation of Section 8 is permissible, the CFPB's "complete about-face from the federal government's longstanding prior interpretation of Section 8" retroactively was a clear violation of due process. The court rejected the CFPB's argument that there was no prior government position.

The court concluded by mocking the CFPB using the following metaphor: "Put aside all the legalese for a moment. Imagine that a police officer tells a pedestrian that the pedestrian can lawfully cross the street at a certain place. The pedestrian carefully and precisely follows the officer's direction. After the pedestrian arrives at the other side of the street, however, the officer hands the pedestrian a $1,000 jaywalking ticket. No one would seriously contend that the officer had acted fairly or in a manner consistent with basic due process in that situation. Yet, that's precisely this case. Here the CFPB is arguing that it has the authority to order PHH to pay a $109 million even though PHH acted in reliance upon numerous government pronouncements authorizing precisely the conduct in which PHH engaged."

Based on these two substantive rulings, the court remanded the action to the CFPB to determine solely whether, consistent with the applicable three-year statute of limitations, the relevant mortgage insurers paid more than reasonable market value to the PHH-affiliated reinsurer.

In sum, the Court of Appeals' decision constitutes a comprehensive rejection of the legal positions taken by the CFPB as well as a rebuke of the CFPB's aggressive and unprecedented assertion of authority. In addition to the constitutional change in the CFPB's structure, the CFPB is now bound by all of the statutes of limitations incorporated in the 19 statutes that the CFPB is charged to enforce. Further, the CFPB will not be permitted to rewrite or expand Section 8 of the Act to prohibit tying relationships in the real estate servicing industry. And finally, the decision may well cast meaningful doubt about the fairness of the CFPB's actions and the perception that the agency is willing to act within its legal constraints.

Originally published in Asset Securitization Report on October 20, 2016.

» Read the full article on Asset Securitization Report (with subscription).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Kilpatrick Townsend & Stockton LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Kilpatrick Townsend & Stockton LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions