Richard Horn
Legal PLLC

DC Circuit PHH Decision

October 17, 2016

Clients and Friends,

The U.S. Court of Appeals for the D.C. Circuit issued its decision in PHH v. CFPB on October 11, 2016. The court, in a strongly worded opinion, held that the CFPB was wrong in its interpretation of RESPA, due process, and the applicable statute of limitations, calling the CFPB’s various arguments “absurd,” “nonsensical,” “strained,” “deeply unsettling,” and “alarming.” The court also called the CFPB’s lack of due process a violation of “Rule of Law 101.” Significantly, the court also held that the CFPB’s structure was unconstitutional, because it was an independent agency with a single director who could only be removed by the President for cause. The court allowed the CFPB to continue to operate as an “executive agency,” but held that going forward the President is able to remove the Director at will.

The court described the CFPB’s structure as a threat to individual liberties and likened the CFPB to a “wolf.” After the court’s strong words for the CFPB’s interpretations, the wolf should be limping away with its tail between its legs. But the CFPB will likely request an en banc review by the court, and the case most likely will ultimately be appealed to the Supreme Court by one of the parties. This is just the beginning, and whether this opinion will stand remains to be seen. It may not be time to start revising your marketing services agreements just yet.

It is worth noting one significant effect of this decision for current subjects of CFPB administrative enforcement actions or civil investigative demands. For those institutions, the court’s rejection of the CFPB’s argument that its administrative enforcement actions are not subject to any statute of limitations should warrant attention, as it could be raised to limit the actionable violations in such proceedings.

Another question is whether the CFPB will be more careful about the limits of its authority after this opinion. Remember that recently, in April 2016, the CFPB had one of its civil investigative demands issued to a college accreditation company rejected by the U.S. District Court for the District of Columbia, because it was outside the CFPB’s statutory authority. In that decision, the court stated that, “[a]lthough it is understandable that new agencies like the CFPB will struggle to establish the exact parameters of their authority, they must be especially prudent before choosing to plow head long into fields not clearly ceded to them by Congress.” Will the CFPB take this advice?

I have summarized the court’s opinion in a document for you, and provided some of my thoughts on the current and future effects of the decision. You can download the document here.

Please let me know if you have any questions, or if I can provide any assistance in understanding the repercussions of this opinion.

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