ABA Banking Journal - July/August 2016 - (Page 21)
> LEGAL BRIEfS
Looking Beyond the CFPB's
BY dAWN CAUSEY, THoMAS PINdER ANd ANdREW doERSAM
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.
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.
He explained that even if the
statute was silent, the court has
historically borrowed a statute of
limitations from another state or
federal statute. However, 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. PHH argued
that its captive mortgage reinsurance
agreements were exempt under
Section 8(c)(2) because they were
"bona fide" payments for services
actually performed. What is troubling
about Cordray's decision is that he
pulled the plug on HUD's interpretation
of RESPA, which has been trusted by
an entire industry for two decades.
PHH argued that the CFPB's
new interpretation of Section 8(c)
(2) deprived it of due process by
retroactively imposing a new statutory
interpretation in an administrative
proceeding. Traditionally, the
government communicates its statutory
interpretations by issuing a proposed
rule, seeking comment and then
issuing a final rule. Instead, Cordray
applied his new interpretation of
RESPA to punish PHH for conduct
that was approved by HUD.
Not only did Cordray punish PHH
without fair notice through his new
interpretation of RESPA Section
8, he then increased PHH's fine
eighteen-fold. Such an exponential
expansion by the CFPB should
have be applied only after the
industry was given fair notice of the
new interpretation. To retroactively
apply a penalty for previously legal
behavior goes well beyond statutory
and regulatory norms. As Judge
Brett Kavanaugh explained in
oral argument, a policeman could
not tell an individual that it was
okay to cross a street and then
immediately give the person a ticket
upon reaching the other side.
Although the constitutional issue of
the CFPB's structure will get the most
notice in the headlines, the industry
cannot afford to overlook these other
issues at stake in this case.
dAWN CAUSEY is general counsel at ABA,
where THoMAS PINdER is SVP for litigation
and ANdREW doERSAM is a paralegal.
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Table of Contents for the Digital Edition of ABA Banking Journal - July/August 2016
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ABA Banking Journal - July/August 2016
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