United States: CFPB Seeks Rehearing Of D.C. Circuit Panel Ruling In PHH: What Now?

The Consumer Financial Protection Bureau (Bureau) Friday filed a petition in the closely-watched PHH case, seeking to undo a ruling by a panel of judges for the D.C. Circuit Court that was highly critical of the Bureau's interpretation of the Real Estate Settlement Procedures Act (RESPA). The Bureau also seeks to challenge a ruling in the case that the Bureau's unusual structure is unconstitutional.

Key Issues

At issue is a June 2015 order by the director of the Bureau (Director) on an appeal of the Bureau's RESPA enforcement action against mortgage lender PHH Corp. (PHH). The Director ruled that PHH's "captive reinsurance" arrangements violated Section 8(a)'s prohibition on kickbacks because the mortgage insurers' payments were compensation for referrals and that such a violation could not be saved by RESPA Section 8(c)(2), which has long been understood to be a statutory exemption expressly authorizing payments for goods or services provided. The Director ordered PHH to disgorge $109 million, and PHH appealed to the D.C. Circuit Court of Appeals.

In October 2016, a three-judge panel ruled and vacated the Director's decision in a resounding victory for PHH. The panel rejected the Director's view of Section 8(c). The court held that Section 8(c) creates a "safe harbor" against overly broad interpretations of Section 8(a) and confirmed that payment for a good, service, or facility provided is permissible, so long as the payment reflects reasonable market value. A majority of the panel also held that the Bureau's status as an independent agency headed by a single director violates Article II of the Constitution, striking the "removal for cause" provision in Title X of the Dodd-Frank Act so that the president could remove the Director at will and the Bureau could continue to operate constitutionally going forward.

Legal critics hailed the panel's interpretation of RESPA Section 8(c)(2) as a statutory exemption. The settlement services industry breathed a sigh of relief at the prospect of returning to an environment of basic regulatory certainty for reasonable business arrangements.

The D.C. Circuit ordered the clerk to withhold issuance of the mandate (i.e., the device by which an appellate court closes an appeal and transfers jurisdiction for the case elsewhere) pending disposition of any timely petition for rehearing or for rehearing en banc.

The Bureau's Petition for En Banc Review

On November 18, 2016, the Bureau filed a petition for rehearing en banc, asking the entire D.C. Circuit Court of Appeals to review the RESPA and constitutional issues (as well as potentially the Bureau's authority to retroactively apply new RESPA interpretations). At this point, en banc review is the only procedure, other than the United States Supreme Court opting to accept review of the case, by which the Bureau could obtain relief from a final decision by the panel.

In petitioning for en banc review, the Bureau emphasizes its theory that PHH "tied" referrals of mortgage insurance business to required payments in the form of reinsurance premiums, which the Bureau argues flouts the core purpose of RESPA. The Bureau argues that Section 8(c)(2) is not a safe harbor but rather merely "clarifies" that the prohibition on kickbacks set for in Section 8(a) "does not interdict 'bona fide' compensation for goods 'actually provided' or for services 'actually performed.'" In essence, the Bureau continues to maintain that any compensation arrangement involving settlement service business referrals violates RESPA, regardless of the underlying actual services performed by the parties to the arrangement or whether the services were priced at fair market value. The Bureau contends that the panel's interpretation would undermine Section 8(a) enforcement "by making evasion easy."

The Bureau's Arguments Are Problematic

The Bureau's arguments face serious obstacles. The D.C. Circuit Court panel followed the plain language of the statute in finding that Section 8(c)(2) is a safe harbor. In fact, the court described this holding as "not a close call." The court's interpretation is consistent with the dual purposes of RESPA to prevent kickbacks while still fostering provider arrangements which can achieve efficiencies that benefit consumers. It is also consistent with the historic enforcement of RESPA Section 8 by the U.S. Department of Housing and Urban Development and the courts. This has been the regulatory environment for decades.

Moreover, the Bureau's desired Section 8(c) interpretation is not only at odds with the statute, but it would convert Section 8 into a hopelessly subjective inquiry into whether a payment was made or an arrangement entered into with the intent of obtaining referrals. This exact approach has been considered and rejected by numerous courts. Moreover, it could turn each of the permissible Section 8(c) categories into automatic Section 8(a) violations depending on the state of mind of the provider, regardless of whether the payment was reasonably related to the value of what was provided.

What Happens Next?

The Bureau's petition for rehearing functions as an automatic stay of the DC Circuit's mandate. PHH will not have to respond to the Bureau's en banc petition unless the court so orders. The court will not hear argument on the question of whether rehearing en banc should be granted.

For the Bureau's petition to be granted, an active judge of the court or a member of the original panel must request a vote and a majority of the court's active judges who are not recused must then vote to rehear the appeal. En banc review is "rarely granted," generally only occurring to ensure consistency of the court's decisions or when a case involves a question of "exceptional importance."

If the petition is granted, the court will decide whether to order new briefing, schedule oral argument, or both.

If the Bureau's petition is either denied or granted and the DC Circuit's initial Order is upheld, the Bureau will be expected to ask the Supreme Court to hear the case. However, while the constitutional issue may be worthy of review, it is questionable whether the RESPA construction of Section 8 would qualify because (other than some Eleventh Circuit case law that was ultimately superseded), all the decisions of the Courts of Appeal construe Section 8 as the D.C. Circuit did. In any event, if the Bureau seeks certiorari, the Bureau will likely move the D.C. Circuit for a stay of the mandate pending resolution of the Supreme Court petition. Such a motion must set forth facts showing good cause for the stay, and in this case would likely be granted.

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.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
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.

Disclaimer

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.

General

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