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PHH Corporation v. Consumer Financial Protection Bureau, 881
F.3d 75 (2018)434 U.S.App.D.C. 98, Fed. Sec. L. Rep. P 100,012
© 2019 Thomson Reuters. No claim to original U.S. Government
Works. 1
KeyCite Yellow Flag - Negative Treatment Disagreed With by
Consumer Financial Protection Bureau v. RD Legal
Funding, LLC, S.D.N.Y., June 21, 2018
881 F.3d 75United States Court of Appeals,
District of Columbia Circuit.
PHH CORPORATION, et al., Petitionersv.
CONSUMER FINANCIALPROTECTION BUREAU, Respondent
No. 15-1177|
Argued May 24, 2017|
Decided January 31, 2018
SynopsisBackground: Mortgage lender and its captive reinsurer
filedpetition challenging Consumer Financial Protection
Bureau's(CFPB) determination that their tying arrangement
violatedReal Estate Settlement Procedures Act (RESPA). The
Court
of Appeals, 839 F.3d 1, vacated and remanded. Petition
forrehearing en banc was granted.
[Holding:] The Court of Appeals, Pillard, Circuit Judge,
heldthat statute providing that CFPB's director could be removedby
President only for cause was constitutional.
Petition granted in part and denied in part, and case remandedto
agency.
Tatel, Circuit Judge, with whom Circuit Judges Millett
andPillard joined, concurred and filed opinion.
Wilkins, Circuit Judge, with whom Rogers, Circuit Judge,joined,
concurred and filed opinion.
Griffith, Circuit Judge, concurred in judgment and
filedopinion.
Karen Lecraft Henderson, Circuit Judge, dissented and
filedopinion.
Kavanaugh, Circuit Judge, with whom Senior Circuit JudgeRandolph
joined, dissented and filed opinion.
Randolph, Senior Circuit Judge, dissented and filed opinion.
Procedural Posture(s): Review of Administrative Decision.
West Headnotes (1)
[1] Public EmploymentAuthority to impose adverse action;
manner and mode of imposition
United StatesLegislative Authority, Powers, and
Functions
United StatesTake Care Clause
United StatesIn general; power to remove
Provision of Dodd-Frank Wall Street Reform andConsumer
Protection Act providing ConsumerFinancial Protection Bureau's
(CFPB) directorwith five-year term in office, subject to removalby
President only for “inefficiency, neglect ofduty, or malfeasance in
office,” was consistentwith President's constitutional authority
underArticle II to “take Care that the Laws befaithfully executed,”
and valid exercise ofCongress's Article I legislative power,
eventhough CFPB had independent funding source,was led by single
director, and had broadregulatory authority over consumer finance;
for-cause protection left President ample tools toensure faithful
execution of laws, and functionsof CFPB and its director were not
core executive
functions. U.S. Const. art. 2, § 3; 12 U.S.C.A.§ 5491(c)(3).
11 Cases that cite this headnote
On Petition for Rehearing En Banc.
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PHH Corporation v. Consumer Financial Protection Bureau, 881
F.3d 75 (2018)434 U.S.App.D.C. 98, Fed. Sec. L. Rep. P 100,012
© 2019 Thomson Reuters. No claim to original U.S. Government
Works. 2
Attorneys and Law Firms
Theodore B. Olson, Washington, argued the cause forpetitioners.
With him on the briefs were Helgi C. Walker,Lucas C. Townsend,
Mitchel H. Kider, David M. Souders,Thomas M. Hefferon, and William
M. Jay, Washington.
Andrew J. Pincus, Stephen C.N. Lilley, Matthew A. Waring,Kate
Comerford Todd, and Steven P. Lehotsky, Washington,were on the
brief for amicus curiae The Chamber ofCommerce of the United States
of America in support ofpetitioners.
David K. Willingham, Michael D. Roth, Los Angeles, JeffreyM.
Hammer, and Kelly L. Perigoe were on the brief for amicicuriae RD
Legal Funding, LLC, et al. in support of petitioners.
Joseph R. Palmore and Bryan J. Leitch, Washington, were onthe
brief for amici curiae American Bankers Association, etal. in
support of petitioners and vacatur.
David T. Case, Washington, and Phillip L. Schulman wereon the
brief for amicus curiae The National Association ofRealtors® in
support of petitioners and reversal of the June4, 2015 order of the
Director of the Consumer FinancialProtection Bureau.
Jay N. Varon and Jennifer M. Keas, Washington, were on thebrief
for amici curiae American Land Title Association, et al.in support
of petitioners.
Joshua D. Hawley, Attorney General, Office of the
AttorneyGeneral for the State of Missouri, and D. John Sauer,
StateSolicitor, were on the brief for amici curiae the States
ofMissouri, et al. in support of petitioners.
Kirk D. Jensen, Joseph M. Kolar, and Alexander S.Leonhardt,
Washington, were on the brief for amicus curiaeThe Consumer
Mortgage Coalition in support of petitioner.
Marc J. Gottridge, New York, Allison M. Wuertz, IlyaShapiro, and
Thaya Brook Knight were on the brief for amicuscuriae The Cato
Institute in support of petitioners.
Brian Melendez, Minneapolis, was on the brief for amicuscuriae
ACA International in support of petitioners.
C. Boyden Gray, Adam R.F. Gustafson, James R. Conde,Gregory
Jacob, Sam Kazman, and Hans Bader, Washington,were on the brief for
amici curiae State National Bank of BigSpring, et al. in support of
petitioners.
Hashim M. Mooppan, Attorney, U.S. Department of Justice,argued
the cause as amicus curiae United States of America.On the brief
were Douglas N. Letter, Mark B. Stern, DanielTenny, and Tara S.
Morrissey, Attorneys. Ian H. Gershengorn,Attorney, Washington,
entered an appearance.
Lawrence DeMille-Wagman, Senior Litigation Counsel,Consumer
Financial Protection Bureau, argued the cause forrespondent. With
him on the brief was John R. Coleman,Deputy General Counsel.
George Jepsen, Attorney General, Office of the AttorneyGeneral
for the State of Connecticut, and John Langmaid,Assistant Attorney
General, were on the brief for The Statesof Connecticut, et al. in
support of respondent.
Thomas C. Goldstein, Eric Citron, Tejinder Singh, andDeepak
Gupta, Washington, were on the brief for amicicuriae Americans For
Financial Reform, et al. in support ofrespondent.
Elizabeth B. Wydra, Washington,Brianne J. Gorod, andSimon
Lazarus were on the brief for amici curiae Current andFormer
Members of Congress in support of respondent.
Scott L. Nelson and Allison M. Zieve, Washington, were onthe
brief for amici curiae Public Citizen, Inc., et al. in supportof
respondent.
Julie Nepveu, Washington, was on the brief for amici curiaeAARP
and AARP Foundation in support of respondent.
Deepak Gupta, Washington, was on the brief for amici
curiaeFinancial Regulation Scholars in support of respondent.
Katharine M. Mapes, Jessica R. Bell, and Jeffrey M.
Bayne,Washington, were on the brief for amici curiae Separation
ofPowers Scholars in support of Consumer Financial
ProtectionBureau.
Before: Garland * , Chief Judge, Henderson, Rogers, Tatel,
Brown ** , Griffith, Kavanaugh, Srinivasan, Millett,
Pillard,Wilkins, and Katsas*, Circuit Judges and Randolph,
SeniorCircuit Judge.
Opinion
Concurring opinion filed by Circuit Judge Tatel, with
whomCircuit Judges Millett and Pillard join.
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-
PHH Corporation v. Consumer Financial Protection Bureau, 881
F.3d 75 (2018)434 U.S.App.D.C. 98, Fed. Sec. L. Rep. P 100,012
© 2019 Thomson Reuters. No claim to original U.S. Government
Works. 3
Concurring opinion filed by Circuit Judge Wilkins, withwhom
Circuit Judge Rogers joins.
Opinion concurring in the judgment filed by Circuit
JudgeGriffith.
Dissenting opinion filed by Circuit Judge Henderson.
Dissenting opinion filed by Circuit Judge Kavanaugh, withwhom
Senior Circuit Judge Randolph joins.
Dissenting opinion filed by Senior Circuit Judge Randolph.
Pillard, Circuit Judge:
*76 *77 We granted en banc review to consider whetherthe federal
statute providing the Director of the ConsumerFinancial Protection
Bureau (CFPB) with a five-year termin office, subject to removal by
the President only for
“inefficiency, neglect of duty, or malfeasance in office,”
12U.S.C. § 5491(c)(3), is consistent with Article II of
theConstitution, which vests executive power “in a Presidentof the
United States of America” charged to “take Care thatthe Laws be
faithfully executed,” U.S. Const. art. II, § 1,cl. 1; id. § 3.
Congress established the independent CFPBto curb fraud and promote
transparency in consumer loans,home mortgages, personal credit
cards, and retail banking.
See 12 U.S.C. § 5481(12). The Supreme Court eighty yearsago
sustained the constitutionality of the independent FederalTrade
Commission, a consumer-protection financial regulator
with powers analogous to those of the CFPB. Humphrey'sExecutor
v. United States, 295 U.S. 602, 55 S.Ct. 869, 79L.Ed. 1611 (1935).
In doing so, the Court approved the verymeans of independence
Congress used here: protection ofagency leadership from at-will
removal by the President.The Court has since reaffirmed and built
on that precedent,and Congress has embraced and relied on it in
designingindependent agencies. We follow that precedent here to
holdthat the parallel provision of the Dodd-Frank Wall StreetReform
and Consumer Protection Act shielding the Directorof the CFPB from
removal without cause is consistent withArticle II.
Introduction
The 2008 financial crisis destabilized the economy and
leftmillions of Americans economically devastated. Congressstudied
the causes of the recession to craft solutions; it
determined that the financial services industry had
pushedconsumers into unsustainable forms of debt and that
federalregulators had failed to prevent mounting risks to
theeconomy, in part because those regulators were overlyresponsive
to the industry they purported to police. Congresssaw a need for an
agency to help restore public confidence inmarkets: a regulator
attentive to individuals and families. Soit established the
Consumer Financial Protection Bureau.
Congress's solution was not so much to write new
consumerprotection laws, but to collect under one roof existing
statutesand *78 regulations and to give them a chance to
work.Congress determined that, to prevent problems that
hadhandicapped past regulators, the new agency needed a degreeof
independence. Congress gave the CFPB a single Directorprotected
against removal by the President without cause.That design choice
is challenged here as an unconstitutionalimpediment to the
President's power.
To analyze the constitutionality of the CFPB's independence,we
ask two questions:
First, is the means of independence permissible? TheSupreme
Court has long recognized that, as deployed toshield certain
agencies, a degree of independence is fullyconsonant with the
Constitution. The means of independencethat Congress chose here is
wholly ordinary: The Directormay be fired only for “inefficiency,
neglect of duty, or
malfeasance in office,” 12 U.S.C. § 5491(c)(3)—the verysame
language the Supreme Court approved for the Federal
Trade Commission (FTC) back in 1935. Humphrey's
Executor, 295 U.S. at 619, 629-32, 55 S.Ct. 869; see 15U.S.C. §
41. The CFPB's for-cause removal requirementthus leaves the
President no less removal authority than
the provision sustained in Humphrey's Executor; neitherPHH nor
dissenters disagree. The mild constraint on removalof the CFPB
Director contrasts with the cumbersome orencroaching removal
restrictions that the Supreme Courthas invalidated as depriving the
President of his Article IIauthority or otherwise upsetting the
separation of powers.
In Free Enterprise Fund v. Public Company AccountingOversight
Board, 561 U.S. 477, 130 S.Ct. 3138, 177 L.Ed.2d706 (2010), the
Court left in place ordinary for-causeprotection at the Securities
and Exchange Commission (SEC)—the same protection that shields the
FTC, the CFPB,and other independent agencies—even as it invalidated
anunusually restrictive second layer of for-cause protection
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-
PHH Corporation v. Consumer Financial Protection Bureau, 881
F.3d 75 (2018)434 U.S.App.D.C. 98, Fed. Sec. L. Rep. P 100,012
© 2019 Thomson Reuters. No claim to original U.S. Government
Works. 4
of the SEC's Public Company Accounting Oversight Board(PCAOB) as
an interference with Article II. In its onlyother decisions
invalidating removal restrictions, the SupremeCourt disapproved of
means of independence not at issuehere, specifically, Congress's
assigning removal power toitself by requiring the advice and
consent of the Senate in
Myers v. United States, 272 U.S. 52, 47 S.Ct. 21, 71 L.Ed.
160 (1926), and a joint resolution of Congress in Bowsherv.
Synar, 478 U.S. 714, 106 S.Ct. 3181, 92 L.Ed.2d 583(1986). The
Supreme Court has never struck down a statuteconferring the
standard for-cause protection at issue here.
Second, does “the nature of the function that Congressvested in”
the agency call for that means of independence?
Wiener v. United States, 357 U.S. 349, 353, 78 S.Ct.
1275, 2 L.Ed.2d 1377 (1958); see also Morrison v. Olson,487 U.S.
654, 687, 691 n.30, 108 S.Ct. 2597, 101 L.Ed.2d569 (1988). The CFPB
is a financial regulator that appliesa set of preexisting statutes
to financial services marketed“primarily for personal, family, or
household purposes.”
12 U.S.C. § 5481(5)(A); see also id. §§ 5481(4),
(6), (15). Congress has historically given a modicumof
independence to financial regulators like the FederalReserve, the
FTC, and the Office of the Comptroller of theCurrency. That
independence shields the nation's economyfrom manipulation or
self-dealing by political incumbents andenables such agencies to
pursue the general public interestin the nation's longer-term
economic stability and success,even where doing so might require
action that is politically
unpopular in the short term. In Humphrey's Executor, theSupreme
Court unanimously sustained the requirement ofcause to remove
members of the FTC, a consumer protectionagency with a broad
mandate to prevent *79 unfair methodsof competition in commerce.
The FTC, “charged with theenforcement of no policy except the
policy of the law,”
Humphrey's Executor, 295 U.S. at 624, 55 S.Ct. 869, couldbe
independent consistent with the President's duty to takecare that
the law be faithfully executed. The CFPB's focuson the transparency
and fairness of financial products gearedtoward individuals and
families falls squarely within the typesof functions granted
independence in precedent and history.Neither PHH nor our
dissenting colleagues have suggestedotherwise.
The ultimate purpose of our constitutional inquiry is
todetermine whether the means of independence, as deployed at
the agency in question, impedes the President's ability
underArticle II of the Constitution to “take Care that the Lawsbe
faithfully executed.” U.S. Const. art. II, § 3. It is
beyondquestion that “there are some ‘purely executive’ officials
whomust be removable by the President at will if he is to be
able to accomplish his constitutional role.” Morrison, 487U.S.
at 690, 108 S.Ct. 2597. Nobody would suggest thatCongress could
make the Secretary of Defense or Secretaryof State, for example,
removable only for cause. At the sametime, the Court has
consistently affirmed the constitutionalityof statutes “conferring
good-cause tenure on the principal
officers of certain independent agencies.” Free EnterpriseFund,
561 U.S. at 493, 130 S.Ct. 3138.
The Supreme Court has distinguished those removalrestrictions
that are compatible with the President'sconstitutionally assigned
role from those that run afoul ofArticle II in the line of
removal-power cases running from
Myers, 272 U.S. 52, 47 S.Ct. 21, 71 L.Ed. 160, through
Humphrey's Executor, 295 U.S. 602, 55 S.Ct. 869, 79
L.Ed. 1611, Wiener, 357 U.S. 349, 78 S.Ct. 1275, 2
L.Ed.2d 1377, Bowsher, 478 U.S. 714, 106 S.Ct. 3181,
92 L.Ed.2d 583, Morrison, 487 U.S. 654, 108 S.Ct.
2597, 101 L.Ed.2d 569, and Free Enterprise Fund, 561U.S. 477,
130 S.Ct. 3138, 177 L.Ed.2d 706. The Court hasrepeatedly held that
“a ‘good cause’ removal standard” doesnot impermissibly burden the
President's Article II powers,where “a degree of independence from
the Executive ...is necessary to the proper functioning of the
agency or
official.” Morrison, 487 U.S. at 691 n.30, 686-96, 108
S.Ct. 2597; see Wiener, 357 U.S. at 356, 78 S.Ct. 1275;
Humphrey's Executor, 295 U.S. at 631, 55 S.Ct. 869.Armed with
the power to terminate such an “independent”official for cause, the
President retains “ample authority toassure” that the official “is
competently performing his or her
statutory responsibilities.” Morrison, 487 U.S. at 692, 108S.Ct.
2597.
Petitioners in this case, PHH Corporation, PHHMortgage
Corporation, PHH Home Loans, LLC, AtriumInsurance Corporation, and
Atrium Reinsurance Corporation(collectively, PHH), would have us
cabin the Court's
acceptance of removal restrictions by casting Humphrey'sExecutor
as a narrow exception to a general prohibition on
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PHH Corporation v. Consumer Financial Protection Bureau, 881
F.3d 75 (2018)434 U.S.App.D.C. 98, Fed. Sec. L. Rep. P 100,012
© 2019 Thomson Reuters. No claim to original U.S. Government
Works. 5
any removal restriction—an exception it views as permittingthe
multi-member FTC but not the sole-headed CFPB.The distinction is
constitutionally required, PHH contends,because “multi-member
commissions contain their owninternal checks to avoid arbitrary
decisionmaking.” Pet'rs' Br.23.
PHH's challenge is not narrow. It claims that
independentagencies with a single leader are constitutionally
defectivewhile purporting to spare multi-member ones. But
theconstitutional distinction PHH proposes between the
CFPB'sleadership structure and that of multi-member
independentagencies is untenable. That distinction finds no footing
inprecedent, historical *80 practice, constitutional principle,or
the logic of presidential removal power. The relevanceof “internal
checks” as a substitute for at-will removal bythe President is no
part of the removal-power doctrine,which focuses on executive
control and accountability tothe public, not the competing virtues
of various internalagency design choices. Congress and the
President havehistorically countenanced sole-headed financial
regulatorybodies. And the Supreme Court has upheld
Congress'sassignment of even unmistakably executive
responsibilities—criminal investigation and prosecution—to a sole
officer
protected from removal at the President's will. Morrison,487
U.S. at 686-96, 108 S.Ct. 2597.
Wide margins separate the validity of an independent CFPBfrom
any unconstitutional effort to attenuate presidentialcontrol over
core executive functions. The threat PHH'schallenge poses to the
established validity of otherindependent agencies, meanwhile, is
very real. PHH seeksno mere course correction; its theory,
uncabined by anyprincipled distinction between this case and
SupremeCourt precedent sustaining independent agencies, leadsmuch
further afield. Ultimately, PHH makes no secretof its wholesale
attack on independent agencies—whethercollectively or individually
led—that, if accepted, wouldbroadly transform modern
government.
Because we see no constitutional defect in Congress's choiceto
bestow on the CFPB Director protection against removalexcept for
“inefficiency, neglect of duty, or malfeasance inoffice,” we
sustain it.
Background
The 2008 financial crisis cost millions of Americans theirjobs,
savings, and homes. The federal commission thatCongress and the
President chartered to investigate therecession found that, by
2011, “[a]bout four million familieshave lost their homes to
foreclosure and another four anda half million have slipped into
the foreclosure process orare seriously behind on their mortgage
payments.” FinancialCrisis Inquiry Commission, The Financial Crisis
InquiryReport, at xv (2011). All told, “[n]early $11 trillion
inhousehold wealth has vanished, with retirement accountsand life
savings swept away.” Id. In Congress's view, the2008 crash
represented a failure of consumer protection.The housing bubble
“was precipitated by the proliferation ofpoorly underwritten
mortgages with abusive terms,” issued“with little or no regard for
a borrower's understanding ofthe terms of, or their ability to
repay, the loans.” S. Rep.No. 111-176, at 11-12 (2010). Federal
bank regulators hadgiven short shrift to consumer protection as
they focused(unsuccessfully) on the “safety and soundness” of
thefinancial system and, post-crisis, on the survival of the
biggestfinancial firms. Id. at 10. Congress concluded that this
“failureby the prudential regulators to give sufficient
considerationto consumer protection ... helped bring the financial
systemdown.” Id. at 166.
Congress responded to the crisis by including in the Dodd-Frank
Wall Street Reform and Consumer Protection Act, Pub.L. 111-203, 124
Stat. 1376 (July 21, 2010), a new regulator:the Consumer Financial
Protection Bureau. Congress gavethe new agency a focused mandate to
improve transparencyand competitiveness in the market for consumer
financialproducts, consolidating authorities to protect
householdfinance that had been previously scattered among
separateagencies in order to end the “fragmentation of the
currentsystem” and “thereby ensur[e] accountability.” S. Rep.
No.111-176, at 11.
The CFPB administers eighteen preexisting,
familiarconsumer-protection laws previously overseen by the
FederalReserve *81 and six other federal agencies, virtually all
ofwhich were also independent. These laws seek to curb fraudand
deceit and to promote transparency and best practicesin consumer
loans, home mortgages, personal credit cards,
and retail banking. See 12 U.S.C. § 5481(12). The CFPBis charged
“to implement and, where applicable, enforceFederal consumer
financial law consistently for the purposeof ensuring that all
consumers have access to markets forconsumer financial products and
services” that “are fair,transparent, and competitive.” Id. §
5511(a). Additionally,
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PHH Corporation v. Consumer Financial Protection Bureau, 881
F.3d 75 (2018)434 U.S.App.D.C. 98, Fed. Sec. L. Rep. P 100,012
© 2019 Thomson Reuters. No claim to original U.S. Government
Works. 6
the CFPB has authority to prohibit any “unfair, deceptive,or
abusive act or practice under Federal law in connectionwith any
transaction with a consumer for a consumer financialproduct or
service, or the offering of a consumer financialproduct or
service.” Id. § 5531(a).
To lead this new agency, Congress provided for a singleDirector
to be appointed by the President and confirmedby the Senate. Id. §§
5491(b)(1)-(2). Congress designed anagency with a single Director,
rather than a multi-memberbody, to imbue the agency with the
requisite initiative anddecisiveness to do the job of monitoring
and restrainingabusive or excessively risky practices in the
fast-changingworld of consumer finance. See, e.g., S. Rep. No.
111-176, at11. A single Director would also help the new agency
becomeoperational promptly, as it might have taken many years
toconfirm a full quorum of a multi-member body. See 155 Cong.Rec.
30,826-27 (Dec. 9, 2009) (statement of Rep. Waxman)(noting that a
single director “can take early leadership inestablishing the
agency and getting it off the ground”).
The Director serves a five-year term, with the potential of
a holdover period pending confirmation of a successor. 1
12 U.S.C. §§ 5491(c)(1)-(2). The President may removethe
Director “for inefficiency, neglect of duty, or malfeasance
in office,” i.e., for cause. Id. § 5491(c)(3). By providing
theDirector with a fixed term and for-cause protection,
Congresssought to promote stability and confidence in the
country'sfinancial system.
Congress also determined “that the assurance of adequatefunding,
independent of the Congressional appropriationsprocess, is
absolutely essential to the independent operationsof any financial
regulator.” S. Rep. No. 111-176, at163. Congress has provided
similar independence to otherfinancial regulators, like the Federal
Reserve, the FederalDeposit Insurance Corporation, the Office of
the Comptrollerof the Currency, the National Credit Union
Administration,and the Federal Housing Finance Agency, which all
havecomplete, uncapped budgetary autonomy. See infra Part
I.C.2.Congress authorized the CFPB to draw from a statutorilycapped
pool of funds in the Federal Reserve System ratherthan to charge
industry fees or seek annual appropriationsfrom Congress as do some
other regulators. The FederalReserve is required to transfer “the
amount determined by theDirector [of the CFPB] to be reasonably
necessary to carryout the authorities of the Bureau,” up to twelve
percent of
the Federal Reserve's total operating expenses. 12 U.S.C.
§§ 5497(a)(1)-(2). If the Bureau requires funds beyond
thatcapped allotment, it must seek them through congressional
appropriation. Id. § 5497(e).
*82 The Real Estate Settlement Procedures Act of 1974(RESPA) is
one of the eighteen preexisting statutes the CFPBnow administers.
See 12 U.S.C. §§ 2601-2617. RESPA aimsat, among other things, “the
elimination of kickbacks orreferral fees that tend to increase
unnecessarily the costsof certain [real estate] settlement
services.” Id. § 2601(b)(2). To that end, RESPA's Section 8(a)
prohibits giving oraccepting “any fee, kickback, or thing of value
pursuant toany agreement or understanding” to refer business
involving a“real estate settlement service.” Id. § 2607(a). The
term “thingof value” is “broadly defined” and includes “the
opportunityto participate in a money-making program.” 12 C.F.R.
§1024.14(d). Another provision of RESPA, Section 8(c)(2),states
that “[n]othing in this section shall be construed asprohibiting
... the payment to any person of a bona fide salaryor compensation
or other payment for goods or facilitiesactually furnished or for
services actually performed.” 12U.S.C. § 2607(c).
In this case, the CFPB Director interpreted those provisionsof
RESPA as applied to PHH's mortgage insurance andreinsurance
transactions. Mortgage insurance protects lendersin the event a
borrower defaults on a mortgage loan. Mortgagelenders often require
riskier borrowers to purchase suchinsurance as a condition of
approving a loan. See Director'sDecision at 3. In turn, insurers
may obtain reinsurance,transferring to the reinsurer some of their
risk of loss inexchange for a portion of the borrower's monthly
insurancepremiums. Borrowers do not ordinarily shop for
mortgageinsurance, let alone reinsurance; rather, they are referred
toinsurers of the lender's choosing, to whom they then paymonthly
premiums. See id. During the period at issue, theonly mortgage
reinsurers in the market were “captive”—that is, they existed to
reinsure loans originated by themortgage lenders that owned them.
See id. at 13. In a captivereinsurance arrangement, a mortgage
lender refers borrowersto a mortgage insurer, which then pays a
kickback to thelender by using the lender's captive reinsurer.
On January 29, 2014, the CFPB filed a Notice of Chargesagainst
PHH, a large mortgage lender, and its captivereinsurer, Atrium. The
CFPB alleged that “[t]he premiumsceded by [mortgage insurers] to
PHH through Atrium: (a)were not for services actually furnished or
performed, or (b)grossly exceeded the value of any such services,”
and that
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PHH Corporation v. Consumer Financial Protection Bureau, 881
F.3d 75 (2018)434 U.S.App.D.C. 98, Fed. Sec. L. Rep. P 100,012
© 2019 Thomson Reuters. No claim to original U.S. Government
Works. 7
the premiums were instead “made in consideration of
PHH'scontinued referral of mortgage insurance business.” Notice
ofCharges at 17-18.
The CFPB borrowed an administrative law judge (ALJ) fromthe
Securities and Exchange Commission (SEC) to adjudicatethe charges.
The ALJ issued a Recommended Decisionconcluding that PHH and Atrium
violated RESPA becausethey had not demonstrated that the
reinsurance premiumsAtrium collected from insurers were reasonably
related tothe value of its reinsurance services. The ALJ
recommendedthat the Director order disgorgement of about $6.4
million.Director's Decision at 9.
On review of the ALJ's recommendation, the CFPB Directorread
RESPA to support a broader finding of misconduct and asubstantially
larger remedy. The Director held that a paymentis “bona fide” and
thus permitted under Section 8(c)(2) only ifit is “solely for the
service actually being provided on its ownmerits,” and not “tied in
any way to a referral of business.”Director's Decision at 17. Thus,
even if the reinsurancepremiums had been reasonably related to the
value of thereinsurance *83 services that Atrium provided, PHH
andAtrium could still be liable under the Director's reading
ofRESPA insofar as their tying arrangement funneled
valuablebusiness to Atrium that it would not have garnered
throughopen competition. The Director also held that