On January 31, 2018, the en banc D.C. Circuit handed down its opinion in the PHH v. CFPB case, which we’ve discussed at length. It held, 7 to 3, that the CFPB’s single-director-removable-only-for-cause structure is constitutional but that the CFPB’s interpretation of RESPA was wrong.

En Banc Court Reinstates Panel’s RESPA Ruling

The en banc Court reinstated the RESPA-related portions of the D.C. Circuit’s October 2016 panel decision. The panel had held that the plain language of RESPA 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. This is consistent with HUD’s prior interpretation. For the first time in 2015, in prosecuting the case against PHH, the CFPB announced a new interpretation of RESPA under which captive mortgage reinsurance arrangements were prohibited. The panel rejected this on the ground that the statute unambiguously allows the kinds of payments that the CFPB’s 2015 interpretation prohibited.

In remanding the case to the CFPB for further proceedings, the panel had admonished the CFPB by alternatively holding that—even assuming that the CFPB’s interpretation was permitted under any reading of RESPA—the CFPB’s attempt to retroactively apply its 2015 interpretation, which departed from HUD’s prior interpretation, violated due process. It held that “the CFPB violated due process by retroactively applying that new interpretation to PHH’s conduct that occurred before the date of the CFPB’s new interpretation.” The en banc Court cited the panel’s due process analysis with approval.

The panel’s RESPA decision remanded the case to the CFPB to determine whether PHH violated RESPA under the longstanding interpretation previously articulated by HUD. The en banc Court’s reinstatement of that aspect of the panel decision led it to order that the case be remanded to the CFPB for further proceedings.

Statute of Limitations Continues to Apply to RESPA Cases Before CFPB

At the administrative stage of the case, the CFPB argued that no statute of limitations applies to any CFPB administrative action. The panel soundly rejected that argument, holding that RESPA’s three-year statute of limitations applies to any RESPA claims that the CFPB brings, whether administratively or otherwise. That aspect of the panel decision, because it pertains to RESPA, is also reinstated by the en banc Court’s ruling.

CFPB’s Structure Deemed Constitutional

The panel of the D.C. Circuit had also held that the CFPB’s structure was unconstitutional because it improperly prevented the President from “tak[ing] Care that the Laws be faithfully executed.” Rejecting this holding, the en banc Court held that “[w]ide margins separate the validity of an independent CFPB from any unconstitutional effort to attenuate presidential control over core executive functions.” In other words, the en banc Court found (wrongly, in our view) that it wasn’t even a close call.

In reaching this conclusion, the en banc Court considered two questions: First, it asked whether the “means” that Congress employed to make the CFPB independent was permissible? That is, were the independence-creating tools used ones that the Supreme Court approved of, such as for-cause removal or budgetary independence? The en banc Court found that the Supreme Court approved each of the “means” Congress used to achieve CFPB “independence” individually. It reasoned then, that those “means” could all be combined in a single agency without running afoul of the U.C. Constitution.

Second, the en banc Court asked whether “the nature of the function that Congress vested in the agency calls for that means of independence?” In answer to the second question, the en banc Court found it was consistent with historical practice to grant financial regulators like the CFPB such independence.

The en banc Court went further, however, and dismissed the panel’s other constitutional concerns under the heading “Broader Theories of Unconstitutionality.” For example, it rejected the panel’s concern that having a powerful unaccountable CFPB Director was a threat to individual liberty. It suggested that such an argument “elevat[ed] regulated entities’ liberty over those of the rest of the public.” “It remains unexplained why we would assess the challenged removal restriction with reference to the liberty of financial services providers, and not more broadly to the liberty of the individuals and families who are their customers,” it said. In doing so, it seems to have forgotten that Dodd-Frank gives the CFPB Director broad powers to go after individuals, “mom and pop” businesses, and large “regulated entities.”

Lucia Issue Regarding ALJ Appointment Not Addressed

Notably, the en banc Court in PHH specifically “decline[d]to reach the separate question whether the ALJ who initially considered this case was appointed consistently with the Appointments Clause.” That was the issue in Lucia, which we have blogged about extensively. In that case, Raymond J. Lucia challenged the manner in which the SEC appointed administrative law judges (“ALJs”), arguing that ALJs are “inferior officers” who must be appointed by the president, a department head, or the courts under the Appointments Clause of the U.S. Constitution.  The Supreme Court recently agreed to hear Lucia.