The Consumer Financial Protection Bureau is here to stay, despite the coordinated efforts of the mortgage and debt collection financial industry to litigate the federal government's consumer watchdog agency out of existence.  This is the most substantial outcome of the Oct. 11, 2016 ruling by the Circuit Court of Appeals for the District of Columbia. No, the sky has not fallen on consumers.

Reviews of the decision by business centric news agencies present a different interpretation.  According to industry, the decision is a major victory because the Court of Appeals overturned a $109 million fine imposed on New Jersey mortgage originator and servicing company PHH Corporation.  The banking sector has been celebrating the win with typical shortsighted glee.  In reality, the decision is a long-term victory for consumers and will empower the CFPB to rein in financial companies who engage in predatory activity against consumers.


Factually, the case addresses PHH Corporation's appeal of a 2014 fine imposed on the company for systematically violating the Real Estate Settlement Procedures Act (RESPA) repeatedly over a significant period of time.  PHH regularly accepted illegal and undisclosed kickbacks from mortgage insurers. Originally the case went before an administrative judge who agreed that PHH violated the law, but suggested a nonbinding (and paltry) damage award of $6.4 million as a fine.  The CFPB rejected the administrative judge’s recommendation, and instead imposed the $109 million fine.  PHH subsequently appealed the fine to the Circuit Court where the company challenged not only the alleged arbitrary nature of the fine, but the very structure of the CFPB.  PHH Corporation litigated the case on behalf of the entire financial industry, attempting to dismantle the CFPB by obtaining a court ruling that the agency's structure is unconstitutional.  The Court's ruling ended a long way from the hopes of the financial sector, which sought to roll back the most quintessential component the 2010 Dodd Frank Wall Street Reform and Consumer Protection Act.  

The Court of Appeals ruled that the CFPB imposed a fine for conduct that took place prior to the agency’s delivery of its own interpretations of existing regulations, resulting in a due process violation.  The (RESPA) regulation used against PHH pre-dated the CFPB and had been interpreted differently by the Department of Housing and Urban Development (HUD) which exercised limited oversight concerning regulatory enforcement.  The Courts rejected the CFPB’s attempts to read new meaning into regulations that were already interpreted by courts and industry, and suggested it was an attempt by the CFPB to act with legislative powers reserved only for Congress.  It also criticized the agency for attempting to fine PHH for actions that occurred outside of the applicable statute of limitations under RESPA.

As to the constitutional challenge, the Court held that the current structure of the CFPB is unconstitutional, but rather than dismantle the agency, the Court provided a roadmap for how to change the executive structure of the CFPB so the agency can continue operations.  The change will make the CFPB less independent and will require the agency head to report directly to the President.  Currently, the agency's director serves a five-year term and can only be removed for cause. The new change will likely make the CFPB more political and result in a more aggressive agency during administrations focused on consumer protection, while the public should expect to see fewer enforcement actions during administrations that favor deregulation.

It is unlikely that the rulemaking function of the CFPB will change thanks to one major advantage the CFPB has on its side:  time.  New regulations and official interpretations take years to develop, and there are periods of time set aside for open comments when the industry can provide suggestions and objections to the proposed rule and its language.  The length of time from when a regulation is proposed to when it is officially adopted may carry over from one presidential administration to another, limiting the ability of political gamesmanship to undermine the CFPB’s mandate.  Ultimately, with respect to the CFPB’s rulemaking function, the appeals court’s decision may turn out to be little more than a simple judicial clarification of a law, in this case RESPA.

And perhaps the most important factor for consumers to remember is that the appeal’s court ruling has absolutely no impact on consumers who are seeking to bring their own private rights of action for violations of statutes like RESPA and the Fair Debt Collection Protections Act (FDCPA).  While the CFPB itself may take less aggressive action to enforce its own regulations, consumers continue to benefit from the work of the CFPB and can continue to bring the same private rights of action available prior to the PHH Corporation decision.  For consumers, there is a reason to celebrate knowing the CFPB is here to stay.

Denbeaux & Denbeaux Senior Associate Adam Deutsch provides legal representation to help consumers who have been harmed financially, as well prosecuting cases related to predatory lending, false credit reporting, and illegal debt collection practices. Denbeaux & Denbeaux Managing Partner Joshua Denbeaux, Esq. is an expert in RESPA, TILA and FDCPA, helping consumers fight illegal foreclosure and debt collection, predatory lending, and false credit reporting.

The views expressed by authors are their own and not the views of The Hill.