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On October 11, 2016, the United States Court of Appeals for the D.C. Circuit issued its highly anticipated opinion in PHH Corp., et al. v. CFPB, holding that the Consumer Financial Protection Bureau’s (CFPB) structure is unconstitutional.

The underlying case arose following a CFPB administrative enforcement action against PHH Corp. (PHH), in which the CFPB fined PHH $109 million for alleged violations of Section 8 of the Real Estate Procedures Act (RESPA).  Specifically, the CFPB’s administrative enforcement action found that PHH violated Section 8 of RESPA by engaging in so-called captive reinsurance arrangements.

In response, PHH appealed the CFPB’s action based on the following arguments: (1) that the CFPB’s single Director structure violates Article II of the Constitution; (2) the CFPB misinterpreted Section 8 of RESPA when it determined that captive reinsurance arrangements are not permitted; (3) the CFPB violated PHH’s Due Process rights by applying the CFPB’s interpretation of RESPA retroactively against PHH; and (4) the CFPB improperly ignored the three-year statute of limitations provision set forth in RESPA in determining PHH’s alleged offending conduct.

Constitutional Challenge

The D.C. Circuit agreed with PHH’s constitutional argument and held that the CFPB’s single Director structure violated Article II of the Constitution.  Specifically, the Court found that the CFPB’s structure was problematic because (1) it is an independent agency created by Congress through Dodd-Frank, (2) is headed by a single Director (rather than a multi-head agency or commission), and (3) the Director can only be removed for cause (rather than at will or at the discretion of the President).  As a result of this structure, the CFPB Director has unchecked and virtually unfettered power, which conflicts with Article II’s pronouncement that “[t]he executive Power shall be vested in the President of the United States of America.”  As the D.C. Circuit stated, the CFPB structure results in “the Director of the CFPB [being] the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power.”

As a result of declaring the CFPB’s structure unconstitutional, the D.C. Circuit was faced with determining the proper remedy for such a violation.  The Court rejected PHH’s request to strike down the CFPB in its entirety and prevent it from operating until Congress passes legislation to cure the constitutional violation.  Rather, the D.C. Circuit fashioned a narrow remedy that struck down the “for cause” removal provision and gave the President the authority to remove the Director at the President’s discretion.  The Court reasoned that this remedy was consistent with other single-head agencies and would ensure that the President was able to direct and supervise the Director, thus preserving the President’s authority under Article II.  As such, the CFPB was largely spared by the ruling.

RESPA Interpretation

After holding that the CFPB’s structure was unconstitutional, the Court moved on to address PHH’s RESPA arguments.  The Court sided with PHH on each of its arguments.  As an initial matter, the Court held that the plain text of Section 8 of RESPA does not ban all captive reinsurance arrangements.  Rather, the Court held that the issue was whether the arrangements were made for above fair market value.  If so, then they may violate RESPA.  In addition, the Court held that there was a long history of permitting transactions similar to the one the CFPB targeted PHH for and, as such, the CFPB’s about-face in that regard and its enforcement of PHH’s conduct, retroactively, based on the CFPB’s new interpretation, violated PHH’s Due Process rights.  Finally, and perhaps most significantly of all, the D.C. Circuit held that CFPB administrative enforcement actions are subject to applicable statute of limitations.  The CFPB argued, as it has repeatedly in the past, that its administrative enforcement actions are not subject to statute of limitations, meaning that it could theoretically bring an administrative action based on conduct occurring at any time in the past, because the Dodd-Frank Act does not expressly state that such actions are subject to any statute of limitations.  The Court outright rejected the CFPB’s arguments and held that CFPB enforcement actions, whether brought as administrative actions or in court, are subject to applicable statutes of limitations that are found in the underlying consumer protection laws that it is enforcing (in this particular case, RESPA).  As such, because RESPA provides for a three-year statute of limitations for actions brought by the government, the Court held that the CFPB’s action against PHH was limited to conduct occurring within that three-year window.

The Court ultimately vacated the $109 million order against PHH and remanded the case for further proceedings.  Specifically, on remand, the CFPB must determine whether the captive reinsurance arrangements were for an amount above their fair market value and, if so, whether that conduct occurred within the applicable three-year limitations period.  Only conduct fitting within those criteria could be grounds for any CFPB enforcement action against PHH.

Take Aways

The primary take away from this decision is that the CFPB is here to stay—at least for now.  It is unclear at this point if either party will appeal the Court’s decision, but at least for now the CFPB has survived its most serious challenge to date to its structure and operations.  This opinion is also significant in that it expressly holds that the CFPB is bound by applicable statutes of limitations.  That holding is a fairly significant blow to the CFPB’s perceived authority and in many cases can greatly reduce a company’s exposure that is facing a CFPB enforcement action.


Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

Zane Gilmer is a member of the firm’s litigation practice group.  His practice focuses on business litigation and compliance and he is a member of the firm’s CFPB taskforce.  Zane works out of the firm’s Denver office and he can be reached at or 303.376.8416.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.