PHH appeal a test of CFPB authority

The U.S. Federal Court of Appeals has halted a CFPB enforcement action against PHH Mortgage. PHH filed a motion for a “stay of final action” as part of its appeal of the $109 million enforcement ruling that found PHH took kickbacks from mortgage insurers.

The U.S. Federal Court of Appeals for the D.C. circuit has halted a Consumer Financial Protection Bureau enforcement action against PHH Mortgage. PHH filed a motion for a “stay of final action” as part of its appeal of the CFPB’s $109 million enforcement ruling that found PHH took kickbacks from mortgage insurers in violation of the Real Estate Settlement Procedures Act (RESPA). Though the constitutionality of the CFPB has been challenged in court, this case is the first ever appeal of a CFPB administrative action. Additional briefs were filed this week and final briefs are due in December.

In issuing the stay, the court held that PHH had satisfied the stringent standards required in granting a stay, including showing immanent harm and the likelihood of prevailing at trial. The ruling that PHH is challenging was issued by CFPB Director Richard Cordray in June. An administrative law judge had issued a “recommended decision” holding that PHH had violated RESPA and suggesting a $6.5 million penalty. Both parties appealed the recommended decision, but under the framework put in place by the Dodd-Frank Act the CFPB Director hears all appeals and issued final rulings. Cordray felt the Administrative Law Judge’s recommended penalty was insufficient. It is his increased penalty that is being appealed in federal court.

There are two significant prongs to the PHH appeal. The first is the bureau’s interpretation of RESPA. According to PHH, Cordray’s ruling clashes with almost 20 years of RESPA interpretation by HUD, which formerly administered RESPA, and the clear language of the statute. PHH said Section 8(c)(2) of RESPA exempts certain payments and serves as a sufficient defense of the kickback charges. PHH also cited a 1997 letter from HUD which corroborated that reading. Cordray’s interpretation, the company said, amounts to “a radical new interpretation” of RESPA. That statute “cannot be applied retroactively to punish conduct undertaken by Petitioners based on explicit agency advice expressly approving that conduct,” it said.

The other prong of PHH’s appeal turns on the three-year statute of limitations written into RESPA. Cordray’s ruling claims that no limit applies to administrative actions, only criminal ones. The U.S. Chamber focused on that question in an Oct. 5 amicus brief, saying RESPA is just one of 19 statutes enforced by the CFPB. Under the CFPB’s analysis, the brief said, statutes of limitations in those laws also would not apply in the administrative context.  If the CFPB prevails, the agency could potentially challenge an array of practices under other laws or authority based on alleged violations going back several years, even before 2011, the effective date of its enforcement authority.