United States: PHH v. CFPB: Beyond The Headlines, A Big Win For Industry

Last Updated: February 2 2018
Article by Joseph R. Palmore, Donald C. Lampe and Bryan J. Leitch

There was something for everyone in yesterday's long-awaited decision from the en banc D.C. Circuit in PHH Corp. v. CFPB. In the part of the decision that has garnered widespread attention, the D.C. Circuit held that the structure of the Consumer Financial Protection Bureau (CFPB) is constitutional.  At the same time, however, the court reinstated an earlier panel decision that soundly rejected every statutory argument advanced by the CFPB in the underlying adjudication while also holding that the agency had violated constitutional fair-notice principles.

Separation of Powers.  In a 7-3 vote, the en banc court held that the CFPB Director's for-cause tenure protections did not unconstitutionally restrict the President's removal power, even in light of the CFPB's single-director structure.  Rejecting the PHH panel's finding of a constitutional violation, the en banc court held that for-cause tenure protections were a "wholly ordinary" means of insulating independent agencies from political influence (which also left the President with ample oversight authority), and that such removal protections were especially appropriate for the CFPB Director because the CFPB is a financial regulator—which traditionally calls for political independence—rather than an officer exercising "core" executive functions, like the Secretary of State, for example.  The en banc court also rejected the idea that the CFPB's structure is constitutionally suspect simply because it is headed by a single official rather than a multi-member body, like the FTC, SEC, and other independent agencies.  In the court's view, that distinction was contrary to constitutional precedent and historical practice in part because the Supreme Court had already upheld the constitutionality of tenure protections for at least one other single-director independent agency (i.e., the independent counsel statute in Morrison v. Olson).  And the court also found the single-member/multi-member distinction untenable on the theory that the internal dynamics of an agency do not impact the President's ultimate duty to ensure that the laws are faithfully executed.  If anything, the en banc court stated, an agency headed by a single person might be even more accountable to the President since it is easier to assign blame and replace one person than it is when many different officials are involved.

RESPA & Fair Notice.  A different part of the decision, however, will likely prove to be of greater day-to-day significance to the mortgage industry—and it was a big blow to the CFPB.  First, the en banc court agreed that the CFPB's $109 million disgorgement penalty imposed on PHH rested on a misreading of Section 8(c) of the Real Estate Settlement Procedures Act of 1974 (RESPA).  In particular, the en banc court reinstated the panel's conclusion that Section 8(c) of RESPA was a real safe harbor that allows captive reinsurance arrangements in exchange for "bona fide payments"—i.e., payments reflecting the reasonable market value of the reinsurance.  The now-reinstated panel decision also held that the CFPB was bound by RESPA's three-year statute of limitations rather than the general five-year limitations period under 28 U.S.C. § 2462.

In addition, the en banc court reinstated the panel's conclusion that imposing a $109 million disgorgement penalty against PHH was inconsistent with fair notice principles because the government had never before found similar conduct to violate RESPA.  Indeed, all members of the en banc court appeared to agree "that the Bureau ran afoul of the due process clause by failing to give PHH adequate notice in advance of imposing penalties for past conduct."  Id. (slip op. at 5) (Tatel, J., concurring); see id. (slip op. at 60) (maj. op.) (same); id. (slip op. at 43 n.13) (Kavanaugh, J., dissenting) (same); id. (slip op. at 1 n.1) (Griffith, J., concurring in the judgment) (concurring in everything but the majority's reasons for finding a separation-of-powers violation). 

Although they are easily overlooked amidst the understandable focus on the court's separation-of-powers holding, the impact of the statutory and fair-notice rulings is significant.  Former CFPB Director Cordray's imposition of a $109 million penalty on PHH rested on a dramatically new reading of RESPA that was contrary to decades of regulatory guidance and thus deeply unsettling to players in the massive mortgage market.  The PHH panel decision concluded that Director Cordray had misread RESPA and also violated due process fair-notice principles by penalizing PHH for past conduct that was affirmatively permitted under previous regulatory guidance.  By reinstating that portion of the panel decision, the en banc D.C. Circuit has provided certainty for the mortgage industry on the meaning of RESPA.   And by readopting the panel's fair-notice holding, the D.C. Circuit has served notice on all agencies—not just the CFPB—that they cannot penalize conduct without providing clear notice that it is prohibited.

What's next for PHH and the CFPB?

The PHH case is not necessarily over.  In addition to reinstating the panel's statutory and due process rulings, the en banc court remanded the case to the CFPB for further proceedings.  On remand, the CFPB could still attempt to impose some kind of penalty on PHH, but it would have to do so within the limits imposed by the D.C. Circuit's reading of RESPA and the court's articulation of fair-notice principles.  But it is unknown whether the CFPB, now led by Trump-appointed Acting Director Mick Mulvaney, will proceed with the case.

Aside from agency proceedings, there is also the question of whether the parties will seek Supreme Court review of the issues on which they lost.  PHH, for example, could file a certiorari petition to challenge the en banc court's separation-of-powers ruling upholding the constitutionality of the CFPB's structure.  But given that PHH succeeded in vacating the $109 million disgorgement penalty, it may instead choose to forgo further review in the Supreme Court and instead focus on remand proceedings (if the CFPB pursues them).  The CFPB, for its part, could in theory seek review of the RESPA and fair-notice holdings on which it lost.  But those matters (while significant for regulated entities) have not divided federal courts of appeals and do not otherwise seem worthy of Supreme Court review.  And, in any event, it seems unlikely that the post-Cordray CFPB would have any interest in asking the Supreme Court to address those issues.

The Department of Justice filed an amicus brief with the en banc court arguing that the CFPB's structure is unconstitutional.  (The Department did not address the RESPA or fair-notice issues.)  The en banc court rejected that position, but the Department will likely look for ways to continue pressing it in order to ultimately secure Supreme Court review.  It is not clear whether PHH will provide such an opportunity, however.  If PHH does not seek review itself, DOJ's path to the Supreme Court in this case would be complicated by the fact that it was only an amicus, meaning that it would likely have to move to intervene and obtain party status.  In addition, the Supreme Court might be reluctant to consider this issue in a case where the party most affected by it (PHH) was not seeking review.

Because arguments about the constitutionality of the CFPB are being advanced in many other cases, such as CFPB v. Future Income Payments, LLC, 252 F. Supp. 3d 961 (C.D. Cal. 2017), order stayed pending appeal by CFPB v. Future Income Payments, LLC, No. 17-55721 (9th Cir. June 1, 2017), stronger candidates for Supreme Court review may emerge.  Whether in PHH or one of those cases, it seems likely that the high court will ultimately have the last word on this important separation-of-powers question.  No matter how that issue comes out, however, the D.C. Circuit's RESPA and fair-notice holdings will very likely stand—thus providing continued certainty to the mortgage industry. 

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions