D.C. court questions CFPB structure, enforcement actions

April 14, 2016

Oral arguments were held this week at the U.S. Court of Appeals for the District of Columbia in a case against the Consumer Financial Protection Bureau (CFPB) which could create new precedent that could impact the financial services industry. The Credit Union National Association (CUNA) is closely watching the case, and expects a decision by the end of the year.

PHH Corp. challenged a $109 million enforcement action from the CFPB, after the bureau alleged PHH took mortgage kick backs in violation of the Real Estate Settlement Procedures Act (RESPA). An administrative law judge originally issued a $6 million fine for the violation, but after PHH pushed back against this, Director Richard Cordray increased the fine by 18 times, to $109 million.

During oral arguments, the court seemed concerned with Cordray’s actions concerning the PHH fine, and questioned the constitutionality of the single-director structure. Judge Brett Kavanaugh asked a number of pointed questions about the CFPB’s structure, and called it a “very unusual structure” that has “few precedents.” Counsel for PHH also presented several arguments against the single-director construct of the CFPB.

CUNA supports legislation that would replace the single-director structure with a five-person board.

As reported by Bloomberg when the suit was first filed, this case could create new precedent based on the CFPB’s reading of RESPA, as well as the larger questions of how the agency interpreted the statute of limitations as not applying to administrative procedures.

A CFPB victory could allow for the bureau to challenge practices under other laws or authority based on alleged violations going back several years.

For example, this could mean, 10 years from now, financial institutions could be held liable for current conduct if the CFPB’s interpretation was to apply to other statutes. There are also several other implications for RESPA depending on how the court rules.

CUNA’s Removing Barriers blog has a deeper look into the case and what it could mean for the CFPB going forward.