Housing Policy: An Unconstitutional Structure Part I

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What You Need to Know About the PHH v. CFPB Decision


In November 2014, New Jersey-based mortgage lender PHH Corporation was fined $6.4 million for illegally taking kickbacks in the guise of reinsurance premiums paid by mortgage insurers to one of the company’s subsidiaries. Six months later, the Director of the Consumer Financial Protection Bureau (CFPB or the bureau) Richard Cordray decided to multiply that penalty seventeen times over, leaving the company with a fine that totaled almost $109 million.  PHH immediately appealed the increase which brought the case before the District of Columbia Court of Appeals.

In its arguments, the bureau claimed that the $109 million being asked of PHH was never that company’s rightful money to begin with, and therefore not so much a penalty as a request for reimbursement. PHH stated that the CFPB director was acting outside a system of checks and balances, and that his position should be subjected to a certain amount of oversight.  Specifically, PHH claimed that the power and tenure of the bureau’s director violated the Supreme Court’s 2010 decision in Free Enterprise Fund v. Public Company Accounting Oversight Board.


A three-judge panel on the D.C. Circuit Court of Appeals sided with PHH, ruling that the CFPB was unconstitutionally structured – it could not be both an independent agency and also chaired by a single, unaccountable individual. In the decision, the judges cited the potential “threat to individual liberty posed by a single-director independent agency,” arguing that “the concentration of massive, unchecked power in a single director marks a departure from settled historical practice and makes the CFPB unique among traditional independent agencies.”

However, the ruling did not mandate that Director Cordray step down and make way for a board of directors or group of commissioners. Instead, the court’s ruling provides the president of the United States with the power to oversee the CFPB director and remove him/her from that position at will. Previously, the president could only remove the bureau’s director “for inefficiency, neglect of duty, or malfeasance in office.” The CFPB will continue to operate per usual, but should now be viewed in a manner similar to other executive agencies such as the Department of Transportation or the Department of Justice.

Additionally, the court held that “plain language of RESPA [the Real Estate Settlement Procedures Act] permits captive mortgage re-insurance arrangements like the one at issue in the PHH case, if the mortgage re-insurers are paid no more than the reasonable value of the services they provide.” Until now, the bureau had interpreted the language of RESPA quite differently, saying that captive mortgage arrangements were prohibited entirely.


The CFPB has two options in challenging this ruling: it could file a petition with the U.S. Court of Appeals in Washington, D.C. for an ‘en banc’ review of the original decision, this time involving the entire court; or the CFPB could go directly to the Supreme Court and ask for a hearing.& A CFPB spokesperson stated that this decision is inconsistent with Supreme Court precedent, so it appears to be only a matter of time before the bureau files an appeal.

As the CFPB continues to fight this battle in the federal court system, the short-term implications of the decision will largely be determined by the winner of this November’s presidential election. A Clinton administration would support the current structure of the CFPB by accepting this newly acquired oversight bestowed upon it by the courts, while pushing back on further reforms that would establish a committee to replace the director. On the other hand, a Trump presidency would likely promote the passage of Financial Services Committee Chairman Jeb Hensarling’s Financial CHOICE Act which, as previously stated, would replace the director with a five-member commission and subject it to the congressional appropriations process.


The ruling is a victory for critics of the CFPB who have long protested the unilateral powers of the director position. Congressional Republicans welcomed the decision, including Hensarling, and many within the GOP believe this is simply the first step in reforming the bureau, with Senate Banking Committee Chairman Richard Shelby affirming his belief that the CFPB should also be subjected to the congressional appropriations process to ensure further oversight.

Congressional Democrats brushed off the decision, citing the conservative nature of the three-judge panel that announced the ruling and arguing that the decision will be overturned no matter what judicial route the CFPB decides to pursue. In a statement, Senator Elizabeth Warren (D-MA), who originally proposed and helped establish the CFPB, claimed that “even if it stands, the ruling makes a small, technical tweak to Dodd-Frank and does not question the legality of any other past, present or future actions of the CFPB.”

For a broader look at reactions across the finance industry, please see the companion blog piece on this subject: An Unconstitutional Structure: Industry Reactions to the PHH v. CFPB Decision.

​© 2016 CoreLogic, Inc. All rights reserved.



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