CFPB Court Ruling: Key Implications for Title, Real Estate and Mortgage Professionals

By now, you may have heard of the recent court decision regarding the Consumer Financial Protection Bureau (CFPB) and PHH Corporation, a mortgage lender. In a surprising turn of events, the District of Columbia Circuit Court ruled in favor of PHH against the CFPB. Here are three key takeaways you need to know upfront:

1. RESPA (Real Estate Settlement Procedures Act) prohibits fee sharing, charging unearned fees, and business referrals in exchange for money or other items of value. The Department of Housing and Urban Development (HUD) enforced RESPA until 2011, when the CFPB assumed responsibility. Following the 2008 mortgage crisis, the CFPB adopted a much more aggressive, pro-consumer approach to enforcement.
2. Since 1995, PHH referred borrowers to a mortgage insurer that purchased mortgage reinsurance from a PHH affiliate. HUD allowed this practice as long as the reinsurance was purchased and sold at a reasonable fair market value.
3. In 2015, the CFPB changed HUD’s long-standing interpretation of PHH’s reinsurance practice, claiming that PHH’s arrangement violated RESPA Section 8 — even when the mortgage insurer paid no more than market value for the reinsurance.

The dispute escalated when the CFPB retroactively applied its new interpretation to past conduct, holding PHH responsible for actions that occurred before the new interpretation was issued in 2015. Through Director Richard Cordray’s unilateral decision, the CFPB ordered PHH to pay $109 million in disgorgement for conduct dating back to 2008. PHH appealed Director Cordray’s ruling, and the Court made three impactful findings:

1. Retroactively applying a new decision to past conduct violates due process, as people must have fair warning of prohibited behavior before being held accountable.
2. The Section 8 issue was remanded to the CFPB for reconsideration to determine whether mortgage insurers paid more than fair market value — which would constitute disguised payments for referrals in violation of RESPA Section 8.
3. The Court found that the CFPB’s structure is unconstitutional because it is an independent agency headed by a single director.

What Does This Mean for Title, Real Estate, and Mortgage Professionals?

• RESPA’s three-year statute of limitations applies to CFPB enforcement actions.
• The CFPB cannot retroactively reverse HUD precedent or apply new interpretations without fair warning to regulated industries.
• Related-party reinsurance arrangements do not violate RESPA unless the consumer pays more than fair market value.

These are all positive outcomes that help create a stable and predictable regulatory environment for the real estate and mortgage industries. However, it’s important not to overinterpret the decision. While it was a clear win for PHH, the Court did not declare the CFPB as an agency unconstitutional — only its current structure.

Moreover, the Court declined to strike down the Dodd-Frank Act or sever the CFPB from it. The decision explicitly recognized the Bureau’s continued authority to “operate and perform its many critical responsibilities.” The CFPB remains active and continues to have broad enforcement powers over federal consumer protection laws, including RESPA — meaning industry professionals must remain diligent in compliance efforts.

Because this decision originated from the U.S. Court of Appeals for the D.C. Circuit, the CFPB may appeal to the Supreme Court. The constitutional question remains unresolved, and further developments are expected as the CFPB revisits the Section 8 issues. Stay tuned — this promises to be an important case to follow as we move into 2017.