CFPB Structure Ruled Unconstitutional – HUD RESPA Interpretation Upheld
Tuesday, October 18, 2016
The U.S. Court of Appeals for the District of Columbia Circuit ruled unconstitutional the CFPB’s structure that prevents the Director from being removed by the President. The Court remedied the situation by essentially changing the law to make the Director an at will appointee of the President. Dodd-Frank set up the situation where the Director is appointed to a 5-year term by the President and can only be removed for cause. The decision can be appealed to the U.S. Supreme Court or a request made for a review by a panel of all of the judges on the D.C. Circuit Court of Appeals. The result of the decision leaves in place the authority of the CFPB.
The issue in the case involved reinsurance. The CFPB fined PHH $109 million for violating RESPA by referring customers to insurers who then purchased reinsurance from a PHH subsidiary, Atrium Insurance. PHH sued the CFPB, resulting in the Court of Appeal tossing out the fine.
The CFPB had changed a prior determination that only conduct committed within the last three years could be subject to punishment, instead extending the look-back to 2008, according to PHH. The bureau then used its own formula to determine the penalty, boosting the original $6.4 million fine to more than $109 million. The Court decided that the law establishing the CFPB incorporated the underlying statutes of limitations of the laws enforced by the CFPB.
The Court also decided that the CFPB violated due process when it tried to impose a new RESPA rule contrary to HUDs position that captive mortgage reinsurance was permissible as long as the payments did not exceed the market rate. The Court adopted the HUD interpretation.