The much-anticipated rematch between PHH Corporation and the Consumer Financial Protection Bureau has begun. Last week, PHH filed its opening legal brief, in which it seeks invalidation of the entire CFPB. Boldness aside, that outcome is unlikely.
For those who do not follow the activities of the CFPB, the case is a rehearing of an earlier decision by the United States Court of Appeals for the District of Columbia Circuit. In the earlier decision, a three-judge panel ruled that the structure of the CPFB is unconstitutional and that the agency’s interpretation of the Real Estate Settlement Procedures Act was wrong. After that, the entire D.C. Circuit agreed to revisit that holding, in en banc proceedings. When that occurred, the panel’s opinion became vacated and generally lost all force of law. The CFPB had hit PHH with a $109 million administrative penalty for supposed RESPA violations that involved mortgage reinsurance.
Two aspects of PHH’s briefing jumped out at me. First, the company’s request to nix the whole CFPB is jaw-droppingly aggressive. No informed legal observer reasonably expects the D.C. Circuit to destroy the CFPB. PHH argues that the court cannot remand the case to an unconstitutional agency and that, in any event, the constitutional question will inevitably arise in later proceedings. I can’t see the D.C. Circuit being persuaded by either argument. The less obtrusive path for the tribunal to follow is to decide the straight-forward RESPA question and then leave the constitutional dispute to later cases.
Second, PHH spent part of its brief attacking the CFPB’s alarming interpretation of RESPA’s statute of limitations. In the bureau’s view, each monthly payment of a mortgage insurance premium constitutes a separate RESPA violation. PHH asserts that that sort of interpretation is unprecedented, which it was until last month when a Pennsylvania federal court embraced it. This is a critical issue that threatens to greatly expand the scope of possible RESPA liability. The court would do the industry a huge favor by resolving the controversy.