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In a 110-page decision, the Court of Appeals for the District of Columbia (the court) largely agreed with PHH and overruled the decisions of the Consumer Financial Protection Bureau (CFPB).  The court ruled that the structure of the CFPB was unconstitutional, that so-called “captive reinsurance” was permissible, that section 8(c) does in fact contain safe harbors and exemptions, that PHH’s due process was violated, and that there is a statute of limitations for administrative actions under RESPA.  The court did impose limits and the case was remanded for further action consistent with the decision.  CFPB can appeal the decision and that is expected.

The court ruled that the single director who can only be removed for cause is unconstitutional.  The court did not rule the entire CFPB was unconstitutional as some had hoped, but it did discuss the structure extensively.  Instead the court said that the director serves at the pleasure of the president and is subject to the president’s direction the same as cabinet and other executive branch officials.  This is important because it means that if one has concerns that the CFPB is acting improperly, one can importune to the president to become involved in the issue and the president cannot claim that he or she does not have the authority.

The court ruled that captive reinsurance is permissible under RESPA.  However, the court said that charges must not exceed reasonable market value.  This is the primary reason the case is being remanded for further adjudication.  If PHH did in fact charge unreasonable rates, they could still face some penalty.

The court ruled that the CFPB violated PHH’s due process by applying its interpretation of RESPA retroactively and incorrectly.  PHH had been operating under a HUD interpretation that CFPB departed from.  Perhaps most importantly, the court ruled that section 8(c) does in fact provide exemptions and safe harbors.  This is critical not just to the case at hand but in many other instances where 8(c) has been used to structure arrangements. CFPB has attempted a major departure from decades of accepted practices and the court rejected it and ratified longstanding interpretation.

The court ruled that CFPB is subject to the 3-year statute of limitations under RESPA. CFPB claimed that no statute of limitations applied to its administrative actions.  This is important because CFPB could theoretically go back decades and now it is much more limited.

As I said, this case could be appealed and many think that likely.  At present however, it is a major victory for PHH, industry, and those of us, such as RESPRO® and its members, who have worked diligently to ensure that RESPA is both respected and accurately interpreted.

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