United States: CFPB Petitions D.C. Circuit For Review Of PHH Ruling By Full Court

With just a week to spare before its 45-day deadline for appeal expired, last week the Consumer Financial Protection Bureau (CFPB) petitioned the U.S. Court of Appeals for the D.C. Circuit for en banc review of the October three-judge panel decision in PHH Corp. v. CFPB. Penned by Judge Brett Kavanaugh, that ruling declared the CFPB's single-director structure unconstitutional and rejected the CFPB's interpretation of Section 8 of the Real Estate Settlement Procedures Act (RESPA). The CFPB's petition does not come as a surprise. If the D.C. Circuit agrees to rehear the constitutional and/or RESPA arguments, the three-judge panel ruling will be stayed pending the full court's decision and the CFPB will return to business as usual, at least for now.

As we wrote previously, the CFPB had issued a final ruling in 2015 that PHH Corp. (PHH) violated RESPA by doing business exclusively with mortgage insurance companies that agreed to purchase reinsurance from a wholly-owned PHH subsidiary. The CFPB concluded the reinsurance premiums constituted illegal kickbacks for PHH's referrals of the initial mortgage insurance business in violation of Section 8(a), which prohibits giving or receiving any "thing of value" in return for settlement service business. The CFPB required PHH to disgorge all of the reinsurance premiums its subsidiary received from mortgage insurers since 2008, totaling $109 million as compared to the $6 million disgorgement order from the administrative law judge.

Then, as indicated above, a three-judge panel of the D.C. Circuit overturned the CFPB's order on October 11, 2016. The panel: (1) held (by a 2-1 vote) the CFPB's single-director structure unconstitutional given the President's ability to remove the Director only "for cause;" (2) unanimously rejected the CFPB's RESPA interpretation of Section 8 and found its retroactive application of a new interpretation to violate constitutional due process; and (3) unanimously rejected the CFPB's claim that its enforcement proceedings outside of federal court are not subject to RESPA's three-year statute of limitations. The court stayed the issuance of its opinion pending the CFPB's decision whether to seek review by the full Court of Appeals. On Friday, the CFPB sought en banc review of the court's constitutional and RESPA holdings, but did not dispute the statute of limitations ruling.

The CFPB is challenging the court's decision that the CFPB is unconstitutionally structured on the premise it conflicts with two U.S. Supreme Court cases. First, it argues the decision conflicts with Humphrey's Executor v. United States (1935), which allows Congress to create independent agencies headed by Presidentially-appointed officers removable by the President only for good cause. Second, it argues the decision conflicts with Morrison v. Olson (1988), which holds that the President does not have infinite power over independent agencies, and a "for cause" provision does not impede the President's ability to perform his or her constitutional duties, since it allows the President to remove the agency head if he or she fails to meet statutory obligations. The CFPB further argues the court erred in finding that a single agency head is less accountable to the President than a commission by explaining that commission members have no power to remove each other from office. The CFPB states a single director may actually be more accountable, since there is no question whom should receive blame for any wrongdoing at the agency. The CFPB characterizes the PHH Corp. case as "what may be the most important separation-of-powers case in a generation" and criticizes the court's decision as contrary to Supreme Court precedent, not based on separation-of-powers principles, unduly restrictive of Congress' ability to respond to crises through such means as creating single-director independent agencies, and potentially damaging to other similarly structured independent agencies such as the Social Security Administration, Federal Housing Finance Agency, and Office of Special Counsel.

In addition to challenging the court's constitutional holding, the CFPB is challenging the court's RESPA ruling on the theory the judges misinterpreted RESPA in a way that fundamentally defeats the statute's purpose. The three-judge panel rejected the CFPB's position that Section 8(c)(2) of RESPA does not provide a substantive exception to the anti-kickback provision in Section 8(a) and fair market value payments for real services performed are insufficient when referrals are present. The panel found that applicable statutory and regulatory language, legislative history, and prior RESPA interpretations by the Department of Housing and Urban Development (HUD) all make clear RESPA prohibits payments for referrals but allows "bona fide" payments (i.e., payments at reasonable market value) for actual services performed. The CFPB is claiming the court interpreted Section 8(c)(2) to allow what Section 8(a) prohibits as long as kickbacks are disguised as compensation for goods or services. The CFPB charges the judges with two statutory mistakes. First, it argues that while Section 8(a) proscribes the exchange of any "thing of value" in return for referrals, the panel ignored the term "thing of value" in holding Section 8(a) proscribes only payments, and thereby ignored the fact PHH received a thing of value in the form of reinsurance premiums in return for referrals of mortgage business. Second, the CFPB argues the panel's definition of "bona fide" to mean reasonable market value conflicts with the very translation of the term as "in good faith" and with case law noting the purpose of requiring something to be bona fide is to disallow evasion. The CFPB asserts the three-judge panel decision would allow lenders to condition referrals on the purchase of goods or services in any related or unrelated business line, which flouts the core purpose of RESPA to protect consumers from unnecessarily high settlement charges caused by abusive practices, encourage evasion, and hamper the ability of both private citizens and public officials to enforce RESPA.

Lastly, the three-judge panel ruled that, even if the CFPB's RESPA interpretation were correct, it conflicts with prior HUD pronouncements and its retroactive application, therefore, violates constitutional due process. While the CFPB acknowledges the court's due process holding may be insufficient alone to justify en banc review of the three-judge panel decision, it notes a prior D.C. Circuit holding (Clark-Cowlitz Joint Operating Agency v. FERC (1987)) that an agency may reverse an interpretation and apply it to the case at hand unless there is a severe impact to the respondent and justifiable reliance on contrary agency pronouncements. The CFPB asserts PHH did not justifiably rely on prior HUD opinions and requests an opportunity to address this holding if the court rehears the RESPA arguments.

While the CFPB awaits the court's consideration of its petition, the CFPB will continue operating as an independent agency with a single director removable by the President only for cause and presumably will rely on the RESPA interpretations it espoused in the PHH Corp. case. The CFPB's petition likely will extend this case another 9 to 12 months, which will give the new Trump administration, advocacy groups, and the settlement services industry plenty of time to weigh in.

Originally published November 21, 2016

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2016. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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.

In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.