Academic journal article ABA Banking Journal

Looking beyond the CFPB's Constitutionality Question

Academic journal article ABA Banking Journal

Looking beyond the CFPB's Constitutionality Question

Article excerpt

WHEN CONSIDERING THE ongoing case of PHH Corp. v. Consumer Financial Protection Bureau, the adage that "one should not lose sight of the forest for the trees'' comes to mind. The hysteria in the headlines recently has focused on the often-discussed issue of the constitutionality of the CFPB's structure. But looking beyond the headlines, this case has wider implications on when and how the CFPB exercises its enforcement powers.

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The banking industry is hoping the D.C. Circuit will declare the CFPB's structure unconstitutional. This result, while appealing, is unlikely and ignores other important issues that may have lasting effects on the industry.

In June 2015, CFPB Director Richard Cordray overruled an administrative law judge's recommendation for a $6.5 million fine against mortgage lender PHH for allegedly requiring unlawful kickbacks from mortgage insurers in violation of RESPA Section 8. Cordray demanded that PHH pay 18 times more--or $109 million--for each time it accepted a kickback on or after July 21, 2008.

Although RESPA sets a three-year statute of limitations, Cordray determined that it did not apply to the agency's administrative proceedings, but only in federal district court actions. In oral argument, Judge A. Raymond Randolph appeared concerned with this determination.

Fie explained that even if the statute was silent, the court has historically borrowed a statute of limitations from another state or federal statute. Flowever, if the D.C. Circuit upholds the CFPB's view, it could open the door for the agency to bring even more penalties against companies for past conduct.

In a notable shift away from guidance issued by the Department of Housing and Urban Development, Cordray found that RESPA Section 8(c)(2) does not exempt payments that are tied in any way to a referral. …

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