CFPB structure ruled constitutional

The Court of Appeals of the D.C. Circuit has upheld the constitutionality of the manner in which the Consumer Financial Protection Agency is structured, reversing an earlier decision by a three-judge panel that the Bureau’s structure violated Article II of the Constitution. The court also upheld the lower court’s ruling which found that the compensation system used by the Plaintiff company (PHH) was permissible under Section 8 of RESPA.

“I defer to the court’s opinion, of course,” OBA President and CEO Roger Beverage said. “But – I’m hopeful that decision will be taken to the Supreme Court for its ultimate resolution. I preferred the logic of the three-judge panel’s analysis which held that the Bureau cannot be structured as established in Dodd-Frank.”

Click here to read the opinion and the various concurring and dissenting opinions:

From the ABA’s Analysis, here’s the background of how this case came about. It arose in 2015, when former CFPB Director Richard Cordray overruled an administrative law judge’s recommendation for a $6.5 million fine against mortgage lender PHH on the basis the company had unlawful compensation arrangements which were in violation of the Real Estate Settlement Procedures Act.

Cordray demanded that PHH pay 18 times more – or $109 million – for each time it received a payment deemed improper by the bureau on or after July 21, 2008. PHH objected, arguing the bureau was misinterpreting Section 8 of RESPA in forbidding the kind of captive reinsurance arrangement that PHH used, as well as changing prior RESPA interpretations long since issued by the Department of Housing and Urban Development and applying them retroactively.