The Consumer Financial Protection Bureau ended its long dispute with PHH by dropping its case against the mortgage lender, bringing a close to the regulatory saga.
The move was expected after CFPB administrators and PHH lawyers signed off on a joint memorandum to CFPB Acting Director Mick Mulvaney early last week suggesting that the case be dropped. Mulvaney thus ended a tense legal duel that challenged the power and structure of the bureau.
The ordeal began in 2014 when the CFPB brought an enforcement action accusing PHH of taking illegal kickbacks from mortgage reinsurers. An administrative law judge ordered PHH to pay $6 million in fines. In 2015, however, then-CFPB-Director Richard Cordray overruled that decision and ordered PHH to pay more than $109 million, the amount that Cordray claimed PHH took in from tainted loans.
PHH then sought a stay of the fines, claiming Cordray’s move was “arbitrary, capricious, and an abuse of discretion within the meaning of the Administrative Procedure Act.” A stay was granted, and PHH struck back by filing suit seeking that the fine be dropped and claiming that the single-director leadership of the CFPB was unconstitutional.
That case worked its way through the system until January of this year when an en banc panel of the U.S. Court of Appeals for the D.C. Circuit ruled that the CFPB’s structure was constitutional. The same court, however, held that the bureau’s additional fine was the result of an impermissible interpretation of the Real Estate Settlement Procedures Act. The court said Cordray had violated PHH’s due process rights in redefining RESPA without giving the company notice.
That left both parties with the opportunity to appeal. PHH could have pushed its claim that the bureau’s structure was unconstitutional and the bureau could have sought to expand the limits of its power to regulate the mortgage banking industry.
In the interim, the change in leadership at the CFPB under the Trump Administration rendered both issues moot. The CFPB under Mulvaney appears far less aggressive in enforcement actions like the one PHH disputed. Congress is considering various bills that would alter the leadership structure of the bureau, eliminating the elements PHH alleged were unconstitutional. Mulvaney said the case is closed.
“PHH did not violate RESPA if it charged no more than the reasonable market value for the reinsurance it required the mortgage insurers to purchase, even if the reinsurance was a quid pro quo for referrals,” Mulvaney wrote in his dismissal document submitted to the court.