The Consumer Financial Protection Bureau is not ready to give up in its fight against PHH, which started with a $103 million increase to a $6 million fine initially levied against PHH for allegedly illegally referring consumers to mortgage insurers in exchange for kickbacks. It ended with the CFPB’s leadership structure being declared unconstitutional by the U.S. Court of Appeals for the District of Columbia Circuit.
On Friday, the CFPB filed for an en banc review with the D.C. Court of Appeals, meaning that it wants the entire court to hear the case, rather than the three judges who ruled on the case in October.
In that ruling, the court overturned CFPB Director Richard Cordray’s $103 million increase to the original $6 million fine against PHH.
PHH challenged both the fine and Cordray’s ability to unilaterally add to the fine, suggesting that the CFPB was not constitutionally structured due to the centralization of power at the director position.
After much deliberation, the three judges agreed with PHH.
“Because the director alone heads the agency without presidential supervision, and in light of the CFPB’s broad authority over the U.S. economy, the director enjoys significantly more unilateral power than any single member of any other independent agency,” the court wrote in October.
In summary of a lengthy decision, the court wrote that the director of the CFPB is the “single most powerful official in the entire U.S. Government, other than the president,” in terms of unilateral power.
As a result of that, the court overturned the fine against PHH and ruled that CFPB is to now operate as an executive agency, meaning that the president of the United States now has the power to supervise and direct the director of the CFPB, and may remove the director at will at any time. Previously the director could only be removed for cause.
The CFPB took issue with the court’s ruling and is now asking for the full court to review it.
The CFPB’s petition lays out just how important this case is, stating that the court’s original decision “sets up what may be the most important separation-of-powers case in a generation.”
In regards to the fine itself, the CFPB states in its petition:
In addition, the panel’s decision misinterpreted the Real Estate Settlement Procedures Act (RESPA) in a manner that so fundamentally defeats the statutory purpose as to warrant rehearing en banc. The panel held that RESPA permits referrals made in exchange for kickbacks in the form of lucrative mortgage reinsurance business, thus defeating RESPA’s statutory prohibition of kickbacks for referrals of real estate settlement service business. To reach that result, the panel overstepped its role in reviewing an administrative decision, ignored key portions of the statutory text, and interpreted the term “bona fide” in a manner inconsistent with Supreme Court precedent. If the ruling stands, it will become easy for lenders and others who make referrals of real estate settlement service business to disguise kickbacks and evade RESPA’s prohibition.
The case also takes on significant importance considering that the CFPB may be in the crosshairs of the President-elect and the Republican-led Congress.
If the full court chooses not to hear the case en banc, then President Trump could replace Cordray as director of the CFPB at will, and perhaps install a director who is less focused on regulating with a hammer, as Cordray has often been accused of doing.
When contacted by HousingWire, the CFPB said that it had no additional comment beyond what was in the filing.
HousingWire also contacted PHH for comment. This article will be updated should PHH respond.