Feb. 3: CFPB firestorm – changes to enforcement powers, notes from a range of experts & attorneys on the court ruling

The Consumer Finance Protection Bureau’s mission is to protect the consumer. The bureau has its proponents and adversaries, and each cheered and jeered news this week. Let’s jump in and read what “those in the know” are saying about developments, not only in court but in changes to using enforcement actions to promote its regulatory message.

The Trump administration has apparently stripped the CFPB of enforcement powers in lending discrimination cases, sharply restricting the responsibilities of the Office of Fair Lending and Equal Opportunity. “That unit now will move inside the office of the director, where staffers will be focused on ‘advocacy, coordination and education.’

A compliance person wrote to me saying, “I am upset about the change in management and apparent direction of the CFPB. The Bureau’s whims force an entire industry to change. For example, personnel within Zillow and the CFPB know that Zillow was headed toward a very expensive fine from the CFPB over certain business practices, and I now believe that Zillow will receive a slap on the wrist. What can the industry learn?”

A broker in a western state wrote, “We had a crash for a reason: Greed was allowed to run the show. Many older standard rules (RESPA has been around for a LONG time) were never enforced. Why not? Not following them, or enforcing them, was not beneficial for the industry or the consumer. The CFPB has driven me crazy with forms that made no sense and ridiculous convoluted rules, that are not grounded in how the home loan process works and that delay the process for no good reason. We have bureaucrats that have no clue.


“But the CFPD did enforce the rules. That is the way it should be. The big guys must play fair, or they should pay. Now I am seeing things that disturb me. Some companies and LOs seem to be heading back to poor business practices. I must have a license. Most professionals must have some type of license. Why some companies are allowed to play Realtor and lender without a license is beyond me.

“As I’m sure many in the industry have noted, many companies have been playing fast and loose with the rules over the past 4-5 years, hoping their growth would ‘out accelerate’ the potential fines. The one that has consistently bothered me is the Costco venture, not to diminish the Zillow episodes. They recognized the cost of licensing and terminated the process, to find a cheaper avenue regardless of the regulations.

“I’m sure there are others going down these roads, we all see them daily. But like politics, the regulatory enforcement has been swinging further to the extremes (left and right) and the middle is left void, sadly.”

CFPB and the court

As a reminder, an appeals court ruled on several aspects of the PHH v. CFPB’s case. The 250 pages is worth a skim, as it includes several things, not the least of which is the opinion on the statute of limitations (page 16). The full U.S. Court of Appeals for the District of Colombia Circuit upheld the constitutionality of the structure of the Consumer Financial Protection Bureau (Consumer Bureau).

Congresswoman Maxine Waters (D-CA), Ranking Member of the Committee on Financial Services, sent out, “The full U.S. Court of Appeals for the District of Colombia Circuit confirmed what we have always known: The Consumer Bureau is constitutional and is here to stay. This is an important ruling for America’s consumers and should send a clear warning to predatory actors that despite the unlawful actions of the Trump Administration toward the Consumer Bureau, the courts can clearly and correctly interpret congressional intent. I am pleased that the Court followed established precedent and preserved the structure of the agency that Congress envisioned.

“When Congress drafted and passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, we intentionally created a strong, independent Consumer Bureau to better protect consumers after millions were ripped off by predatory lenders in the lead up to the 2008 financial crisis. The independence of the Consumer Bureau is essential to ensure that the agency can operate as a tough regulator that stands up for consumers.”

“In 2017, Ranking Member Waters and 40 Democratic Members filed an amicus brief with the D.C. Circuit Court of Appeals in support of the Consumer Bureau’s independent structure and its constitutionality.”

House Financial Services Committee Chairman Jeb Hensarling, R-Tex., called for an appeal to the Supreme Court, though it was unclear whether PHH or the Justice Department would challenge the ruling. “I am deeply disappointed with the court’s decision and hope the Supreme Court will review the ruling in short order,” Hensarling said in a press release. “I take great solace in the fact that Mick Mulvaney can use his unchecked, unilateral powers to continue the agency’s transformation into one that will, as he said, ‘exercise [its] statutory authority to enforce the laws of this nation…. execute the statutory mandate of the bureau to protect consumers’ and go no further.'”

“While the court ruled the CFPB’s governing structure was not unconstitutional, it does not mean the current structure is appropriate for the bureau’s long-term credibility,” said Richard Hunt, president and CEO of the Consumer Bankers Association. “Congress should create a bipartisan commission at the CFPB, in place of a sole director, to uphold the bureau’s mission of consumer protection.”

“While this is good news for consumers, the CFPB cannot be fully independent until it has a lawfully appointed leader in place,” said Sen. Sherrod Brown, D-Ohio, the ranking member of the Senate Banking Committee. “This administration should quickly nominate a director with bipartisan support and a track record of holding Wall Street accountable.”

From Katten & Temple attorney Brian Levy sent me a note with his thoughts on the PHH decision. “The impact of the DC Circuit’s decision in PHH on how RESPA will be interpreted for at least the next 5 years is huge. Not only can the industry breathe a little deeper on many common 8 (c)(2) (services rendered) based relationships such as MSA’s, office leases and co-marketing, but it also reinforced the power of a single director at the CFPB: the latter point being a rather bittersweet victory for Senator Warren and the other Dodd Frank drafters who now have a Trump appointee in that role who has vowed to stop ‘pushing the envelope.’

“While not unanimous, judges agreed to affirm the RESPA part of the original 3 judge decision which stated that former CFPB Director Cordray’s interpretation of the 8 (c)(2) exception to RESPA was unreasonable. Reversing over 30 years of consistent HUD interpretations, Cordray had essentially claimed that 8 (c)(2) did not permit payments to referral sources because such payments were not ‘bona fide.’ Had Cordray’s interpretation been upheld, many common relationships among settlement service providers, including the entire practice of mortgage brokering could have been jeopardized. The en banc panel made it clear that Cordray’s novel and expansive interpretation of RESPA was a bridge too far.

Brian’s note continued. “That said, it is important to remember that RESPA enforcement is not going to cease.  Even if CFPB backs down from some of its more aggressive positions, 8 (c) (2) does not allow you to pay for referrals by ostensibly paying for something else. Frankly, the baseline of what you need to do to demonstrate compliance has increased and you still need to be able to credibly articulate a compliant narrative about your 8 (c)(2) relationships. In addition to the CFPB, State regulators, Attorney Generals, plaintiff class action lawyers, whistleblowers and your competitors will all still be watching what companies do and can bring RESPA claims. It’s insightful to note that (i) although they were in the minority this time, 3 of the DC Circuit judges thought Cordray’s interpretation of 8 (c)(2) was reasonable and (ii) future elections will have consequences for CFPB and the makeup of the judiciary too.”

What about marketing service agreements? NAR weighed in with, “The National Association of Realtors is pleased with the court’s reinstatement of its previous decision affirming that payments to settlement service providers are permitted by RESPA, so long as those payments are for goods and services actually furnished or performed and are made at fair market value…We’re hopeful this much-needed clarity will address any and all uncertainty moving forward for real estate professionals who have entered into marketing service agreements with settlement and other service providers.”

“This is a positive for PHH Corp., as the reinstatement of the appeals court decision should dramatically reduce – if not completely eliminate – the company’s enforcement liability for mortgage reinsurance deals,” wrote Jaret Seiberg, an analyst at Cowen Washington Research Group. “This also provides the Trump CFPB with political cover to settle or drop existing RESPA investigations on the grounds that the agency did not properly spell out ahead of time whether the activity in question would violate the law.”

“The ruling was a slam dunk for the CFPB. The court recognized that Congress was well within its constitutional authority when it decided to place a single Director removable only for cause at the helm of the CFPB. As the court explained, that design is completely consistent with Supreme Court precedent going back decades.” So said Brianne Gorod, Chief Counsel of Constitutional Accountability Center.

“Opponents of the CFPB’s consumer protection mission have used every angle under the sun to try interfere with its work, and one more piece of their story was proved wrong today. Charging that the single director structure — which helps make the bureau an effective consumer regulator, if that director is committed to the public interest — was unconstitutional evolved into a mainstay of attacks from Wall Street, predatory lenders, and their friends in Congress and the administration. It is good news to have this false claim shut down by the DC Circuit.” Lisa Donner, Executive Director of Americans for Financial Reform

Buckley Sander observed, “In a 7-3 decision, the court concluded that the CFPB’s single-director structure is constitutional, even though the president can only remove the director for cause. The court also reinstated the portion of the October 2016 panel opinion concluding that the CFPB misinterpreted the Real Estate Settlement Procedures Act (RESPA) and its statute of limitations. As a result, the $109 million penalty imposed on PHH is vacated and the case will go back to the CFPB, where new leadership must decide whether to pursue the action. PHH has 90 days to seek review by the Supreme Court. Ten judges issued seven separate opinions in this case, totaling 250 pages.

And law firm Morrison & Foerster weighed in with its thoughts. “A different part of the decision, however, will likely prove to be of greater day-to-day significance to the mortgage industry—and it was a big blow to the CFPB. First, the en banc court agreed that the CFPB’s $109 million disgorgement penalty imposed on PHH rested on a misreading of Section 8(c) of the Real Estate Settlement Procedures Act of 1974 (RESPA). The en banc court reinstated the panel’s conclusion that Section 8(c) of RESPA was a real safe harbor that allows captive reinsurance arrangements in exchange for ‘bona fide payments’ – i.e., payments reflecting the reasonable market value of the reinsurance.  The now-reinstated panel decision also held that the CFPB was bound by RESPA’s three-year statute of limitations rather than the general five-year limitations period under 28 U.S.C. § 2462.

“In addition, the en banc court reinstated the panel’s conclusion that imposing a $109 million disgorgement penalty against PHH was inconsistent with fair notice principles because the government had never before found similar conduct to violate RESPA.  Indeed, all members of the en banc court appeared to agree ‘that the Bureau ran afoul of the due process clause by failing to give PHH adequate notice in advance of imposing penalties for past conduct.’”

(Thank you to Mike C. for this one.)


Hi Harry,

This is Phil next door. I have a confession to make, I’ve been riddled with guilt these past few months and have been trying to get the courage to tell you to your face, but I am at least now telling you in text as I can’t live with myself a moment longer without you knowing.

The truth is I have been sharing your wife, day and night when you’re not around, in fact, probably more than you. I haven’t been able to get it at home recently, but that’s no excuse, I know. The temptation was just too much. I can no longer live with the guilt and I hope you will accept my sincerest apologies and forgive me. It won’t happen again. Please suggest a fee for usage and I’ll pay you.

Regards, Phil


Harry, feeling betrayed and furious, immediately dropped his iPhone, ran next door and, without saying a word, slashed all Phil’s tires, ripped out his mail box, threw his BBQ and lawn furniture in the pool, and splattered paint all over his garage door.

He then returned home where he poured himself a stiff drink, sat down on the sofa, picked up his phone and saw he had a second message from his neighbor sent a few seconds after the first.


Hi Harry,

This is Phil next door again. Sorry about the typo on my last text. I expect you figured it out anyway, and that you noticed that darned Auto-Correct changed ‘WiFi’ to ‘Wife.’

Isn’t technology great?

Regards, Phil

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