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  • Trump Administration Files Brief in PHH Corp. v. CFPB

    Agency Rule-Making & Guidance

    On March 17, the Trump Administration’s Department of Justice (“DOJ”) filed its amicus brief in the D.C. Circuit’s en banc review of the CFPB’s enforcement action against PHH Corporation for alleged violations of the Real Estate Settlement Procedures Act (“RESPA”). In October 2016, a panel of the D.C. Circuit concluded that the CFPB misinterpreted RESPA and that its single-Director structure violated the constitutional separation of powers. The DOJ brief states that, “[w]hile we do not agree with all of the reasoning in the panel’s opinion,” the DOJ agrees with the panel’s conclusion that “a removal restriction for the Director of the CFPB is an unwarranted limitation on the President’s executive power” and that “the panel correctly concluded … that the proposed remedy for the constitutional violation is to sever the provision limiting the President’s authority to remove the CFPB’s Director, not to declare the entire agency and its operations unconstitutional.”

    Like the brief filed in this case by the Obama Administration DOJ before the change in administration, the current DOJ brief states that “[t]he United States takes no position on the statutory issues in this case, but in the event that the ultimate resolution of those issues results in vacatur of the CFPB’s order [against PHH], it is within this Court’s discretion to avoid ruling on the constitutional question.” However, the brief goes on to state that, because the issue is already before the en banc court and the “question is likely to recut in pending and future cases, it would be appropriate for the Court to provide needed clarity by exercising its discretion to resolve the separation-of-powers issue now.”

    Agency Rule-Making & Guidance Consumer Finance Federal Issues CFPB PHH v. CFPB DOJ Mortgages RESPA Litigation Trump Single-Director Structure

  • In a Split Decision, D.C. Circuit Denies John Doe Company’s Request to Remain Anonymous Pending Appeal Challenging CFPB Subpoena; Judge Kavanaugh Dissents, Reiterates Critique of CFPB

    Courts

    On March 3, 2017, the U.S. Court of Appeals for the District of Columbia Circuit denied the request of an anonymous California-chartered, finance company based in the Philippines to remain anonymous pending the resolution of its challenge to a CFPB administrative subpoena. See John Doe Co. v. CFPB, March 3, [Order] No. 17-5026 (D.C. Cir. Mar. 3, 2017) (per curiam). In a 2-1 decision, the court found that the company had failed to show either that it was likely to succeed on the merits of its challenge to the CFPB’s constitutionality, or that it was likely to suffer irreparable harm from being identified as being under investigation. In denying the company’s motion, the panel majority emphasized, among other things, the fact that “[t]he Company’s sole argument regarding likelihood of success on the merits before this court and the district court has been to point to the now-vacated majority opinion in PHH.”   Judge Kavanaugh—who  back in October, assailed the “massive, unchecked” power of the single director-led CFPB—filed a dissenting opinion, in which he reiterated his call for how to fix the CFPB: namely, giving the president greater power to remove the agency’s director.

    As previously covered on InfoBytes, back in January, the John Doe finance company filed an action seeking to set aside or keep confidential a “civil investigative demand” served on the Company by the CFPB as part of an industry-wide investigation against companies that buy and sell income streams. The Company argued both that the CFPB had strayed outside the scope of its authority, and that in light of the pending challenge to the constitutionality of its structure in a separate case (PHH v CFPB), the Bureau should be barred from pursuing any investigation until the questions about its constitutionality are resolved. Fearing that the CFPB would post documents on its website revealing its identity, the company also sought a temporary restraining order to enjoin the CFPB from, among other things, disclosing the existence of its investigation and taking any action against the company unless and until the CFPB is constitutionally structured. John Doe Co. v. CFPB, D.D.C., No. 17-cv-00049 (D.D.C. Jan. 10, 2017). As covered in a recent BuckleySandler Special Alert, however, the D.C. Circuit on February 16, vacated the October 2015 panel decision in PHH v CFPB and will now rehear the case en banc.

    Courts Consumer Finance CIDs John Doe v CFPB PHH v. CFPB Litigation Single-Director Structure

  • Two Trade Associations File Notices of Intent to Submit Amicus Briefs in PHH v. CFPB

    Courts

    On March 8 and 9, two separate Notices of Intention to Participate as Amicus Curiae were filed in PHH Corp. v. CFPB. The first was filed by ACA International, a trade association for the credit and collections industry. The second was filed on behalf of the following parties: American Bankers Association; American Escrow Association; American Financial Services Association; Consumer Bankers Association; Credit Union National Association; Housing Policy Council of the Financial Services Roundtable; Independent Community Bankers of America; Leading Builders of America; Mortgage Bankers Association; National Association of Federally- Insured Credit Unions; National Association of Home Builders; National Association of REALTORS; and Real Estate Services Providers Council. Nearly all of the associations listed above filed either joint or separate amici briefs at the panel stage and believe that “the en banc Court will be aided by a brief addressing how the Bureau’s Order not only contravenes RESPA’s statutory text, governing regulations, and applicable policy statements, but also how the Order’s violation of fair-notice principles disrupts the critically important home-lending market.”

    Courts CFPB PHH v. CFPB RESPA Mortgages Litigation

  • Trump Administration Given March 17 Filing Date for Amicus Brief in PHH v CFPB; Requests to Intervene by Outside Organizations Denied by D.C. Circuit

    Consumer Finance

    On March 7, the U.S. Court of Appeals for the D.C. Circuit granted the United States’ unopposed motion, filed through the Office of the Solicitor General (“SG”), which requested an extension to file its amicus brief in PHH Corp. v. CFPB. Notably, amicus briefs supporting PHH must be filed by March 10 and those supporting the CFPB must be filed by March 31. The fact that the United States’ motion requested an extension until March 17—before the deadline for briefs supporting the CFPB—signals that the SG may present arguments supporting PHH that differ both from the CFPB and from the positions previously presented by the Obama Administration in briefing submitted on behalf of the United States back in December.

    As previously covered in InfoBytes, late last year the D.C. Circuit invited briefing by the SG’s office on behalf of the United States (note that the SG does not represent the CFPB; the Bureau is legally permitted to litigate on its own behalf.) The then Obama-led SG’s office took the position that the case should be reheard by the en banc court because, among other reasons, (i) the majority’s reasoning misapplied Supreme Court precedent on separation of powers issues and/or (ii) the panel majority should not have reached the constitutional issue. Now under the Trump Administration, the DOJ hinted that it may revise its positions with respect to both the constitutionality of the CFPB’s single-director-removable-only-for-cause structure, and, if it chooses, the merits of PHH’s argument that the Bureau’s RESPA interpretation was incorrect. Indeed, the short motion asserted, among other things, that “the views of the United States on matters involving the President’s removal power are not always entirely congruent with the views of independent agencies.”

    Also on March 7, the D.C. Circuit issued a separate order denying three pending “motions and alternative requests” seeking to intervene, or in the alternative, hold in abeyance requests to intervene submitted by the Democratic Ranking Members of the Senate and House Committees with jurisdiction over the CFPB, 16 State Attorneys General, a coalition of consumer interest groups, and two conservative advocacy groups working with State National Bank of Big Spring.

    Consumer Finance PHH v. CFPB Courts CFPB U.S. Solicitor General Trump DOJ RESPA Mortgages Litigation Single-Director Structure

  • Special Alert: D.C. Circuit Grants Petition For Rehearing in PHH v. CFPB; Vacates Judgment Based on Bureau’s Unconstitutionality

    Courts

    Buckley Sandler Special Alert

    On February 16, the U.S. Court of Appeals for the D.C. Circuit granted the CFPB’s petition for rehearing en banc of the October 2015 panel decision in CFPB v. PHH Corporation. Among other things, the panel decision declared the Bureau’s single-Director structure unconstitutional and would have allowed the President to remove the CFPB’s Director at will rather than “for cause” as set forth in the Dodd-Frank Act. As a result of the petition for rehearing being granted, the panel’s judgment is vacated and the full D.C. Circuit will hear PHH’s appeal of the $109 million penalty imposed by the CFPB under the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA). Oral argument is scheduled for May 24, 2017.

    As discussed in detail in our prior alert, the October panel decision unanimously concluded that the CFPB misinterpreted RESPA, violated due process by disregarding prior interpretations of the statute and applying its own interpretation retroactively, and failed to abide by RESPA’s three-year statute of limitations. However, only two of the three judges on the panel concluded that the CFPB’s status as an independent agency headed by a single Director violated the separation of powers under Article II of the U.S. Constitution. The third panel member, Judge Henderson, dissented from this portion of the opinion on the grounds that it was not necessary to reach the constitutional issue because the panel was already reversing the CFPB’s penalty on other grounds.

     

    Click here to read full special alert

    * * *

    If you have questions about the decision or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.

    Courts Appellate DC Circuit PHH v. CFPB RESPA Mortgages CFPB Special Alerts Single-Director Structure

  • Intervention by Lawmakers in PHH Case Denied by D.C. Circuit

    Courts

    On February 2, a federal appeals court in Washington, D.C., in a brief order, denied a motion by the Democratic Ranking Members of the Senate and House Committees with jurisdiction over the CFPB to intervene in PHH Corp. v. CFPB. The order also denied similar motions submitted by 16 state attorneys general and a coalition of interest groups. As previously covered on InfoBytes, the court is still considering a petition by the Bureau for rehearing an October ruling that said CFPB Director Richard Cordray may be removed by the president without cause.

    Courts Consumer Finance PHH v. CFPB Cordray Mortgages RESPA Litigation

  • Special Alert: CFPB Consent Orders Address Wide Range of Real Estate Referral Practices Under Section 8(a) of RESPA

    Lending

    On January 31, the CFPB announced consent orders against mortgage lender Prospect Mortgage, LCC (“Prospect”), real estate brokers Willamette Legacy, LLC d/b/a Keller Williams Mid-Willamette, and RGC Services, Inc. d/b/a Re/Max Gold Coast Realtors (together, “the Brokers”), and mortgage servicer Planet Home Lending, LCC (“Planet”), based on allegations that a wide range of business arrangements between the parties violated the prohibition on “kickbacks” in Section 8(a) of RESPA.

    In a press release accompanying the settlements, CFPB Director Richard Cordray stated that the Bureau “will hold both sides of these improper arrangements accountable for breaking the law, which skews the real estate market to the disadvantage of consumers and honest businesses.”  The consent orders address a number of practices that have long been the source of uncertainty within the industry.  Unfortunately, despite acknowledging in the orders that referrals are an inherent part of real estate transactions, the Bureau provided little constructive guidance as to how lenders, real estate brokers, title agents, servicers, and other industry participants should structure referral arrangements to comply with RESPA.

    RESPA Section 8(a)

    Section 8(a) of RESPA provides that “[n]o person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.”

    Notably, the CFPB’s consent orders make no reference to Section 8(c)(2), which provides that “[n]othing in this section shall be construed as prohibiting … the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.”  In a much discussed decision, a panel of the U.S. Court of Appeals for the D.C. Circuit reversed the CFPB’s $109 million penalty against PHH Corporation in October 2015 based on, among other things, the CFPB’s failure to establish that payments for the service at issue (reinsurance) exceeded the fair market value of the service.  The CFPB is currently seeking rehearing of this decision from the full D.C. Circuit, as discussed in our summaries of the Bureau’s petition for en banc reconsideration, responses from PHH and the Solicitor General, a motion to intervene filed by several State Attorneys General, and, most recently, PHH’s reply to both the Solicitor General and the motions to intervene.

     

    Click here to read full special alert

    * * *

    If you have questions about the order or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.

    Mortgages Consumer Finance CFPB RESPA Special Alerts PHH v. CFPB Cordray Litigation

  • **UPDATE** PHH v. CFPB

    Courts

    On January 27, PHH filed a scheduled response brief to views briefed last month by the U.S. Department of Justice (DOJ) under President Obama, likely bringing to a close the parties’ briefing of the CFPB’s petition for en banc review by the full D.C. Circuit of the October 2016 three-judge panel decision in PHH Corp. v. CFPB. Also on January 27, PHH separately filed a (less significant) brief, opposing the recent-filed motion to intervene on the CFPB’s behalf submitted by 17 Attorneys General.

    As previously covered on InfoBytes, late last year the Court invited briefing by President Obama’s DOJ on behalf of the United States. (Note that the DOJ does not represent the CFPB; the Bureau is legally permitted to litigate on its own behalf.) The DOJ’s brief focused on the constitutional issue (without wading into the RESPA rulings), and argued that the en banc court should either (i) review the panel’s majority holding that the CFPB’s structure was unconstitutional because the majority’s reasoning was erroneous in view of Supreme Court precedent, or (ii) review and simply adopt the dissenting panelist’s view that because the panel was in all events reversing the CFPB’s RESPA rulings and remanding to the CFPB on that basis, the panel majority should not have reached the constitutional issue.

    In response to the DOJ, PHH argues that en banc review is unnecessary because the DOJ had only pointed to an error in the panel’s constitutional reasoning, without stating whether DOJ’s preferred mode of analysis would have led to a different result than the one reached by the panel, namely the severing of the “for cause” removal provision applicable to the CFPB Director under Dodd-Frank. PHH also contended that there is no precedent for an en banc court panel to review a panel decision just to determine whether the panel had properly reached a constitutional issue, and that in any event the panel’s decision to reach the issue was entirely proper (and therefore not worthy of review) because, as PHH’s framed the matter, the panel could not have remanded the case to an agency with a potentially unconstitutional structure.

    In addition, on January 26, two other non-parties filed two motions to intervene on the CFPB’s side:  (i) one by the Democratic Ranking Members of the Senate and House Committees with jurisdiction over the CFPB, Sen. Sherrod Brown of Ohio and Rep. Maxine Waters of California, respectively; and (ii) one by a coalition of interest groups, which included the Center for Responsible Lending, US PIRG, Americans for Financial Reform, the Leadership Conference on Civil and Human Rights, and other movants.

    Courts Consumer Finance CFPB RESPA DOJ PHH v. CFPB Cordray Mortgages Litigation U.S. Supreme Court Single-Director Structure

  • State Attorneys General Seek to Intervene in PHH v. CFPB Case

    State Issues

    On January 23, the Attorneys General of 16 states and the District of Columbia (the State Attorneys General) filed a motion requesting the permission of the D.C. Circuit to intervene in the CFPB’s petition for en banc reconsideration in PHH Corp. v. CFPB.  In the motion, the State Attorneys General argue that they have a vital interest in the matter because the October 2016 panel decision subjecting the CFPB Director to “at will” removal by the President “threatens to undermine the ability of the State Attorneys General [to work with the CFPB] to bring effective civil enforcement and coordinated regulatory actions free from political influence and interference.”

    Noting the possibility that President Trump may seek to remove CFPB Director Cordray before the petition for rehearing is resolved or refuse to pursue an appeal to the Supreme Court if the panel decision stands, the State Attorneys General raise the concern that “[t]he incoming administration … may not continue an effective defense of the statutory for-cause protection of the CFPB director.”  Therefore, because “[a] significant probability exists that the pending petition for rehearing will be withdrawn, or the case otherwise rendered moot,” the State Attorneys General argue that the D.C. Circuit should allow them to intervene to protect their interests.

    In addition to the District of Columbia, the motion was filed on behalf of the Attorneys General for the following states: Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Mississippi, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, and Washington.  The filing of the motion was announced by Connecticut Attorney General George Jepsen, whose office prepared the initial draft.

    State Issues Consumer Finance CFPB State Attorney General Trump President-Elect PHH v. CFPB Cordray Litigation Mortgages RESPA

  • John Doe Lawsuit Says CFPB Action Unlawful After PHH

    Courts

    On January 10, a California-chartered finance company with its principal place of business in Manila, Philippines filed an action to enjoin the CFPB from, among other things, disclosing the existence of an investigation of the plaintiff and taking any action against the plaintiff unless and until the CFPB is constitutionally structured. John Doe Co. v. CFPB, D.D.C., No. 17-cv-00049 (D.D.C. Jan. 10, 2017). The action was prompted, in part, by the recent PHH v. CFPB decision in which the court held that the CFPB’s single director leadership structure is unconstitutional and, thus, that the agency must operate as an executive agency supervised by the President. Here, the John Doe plaintiff argues that because the CFPB has requested review of the PHH decision, the court’s remedy in regarding the CFPB’s structure has not taken effect and thus agency is operating in violation of the Constitution. Therefore, plaintiff asserts, the CFPB can take no further action against it—including publication of the CFPB’s investigation of plaintiff or initiation of enforcement action against plaintiff.

    We note, that on the same day the plaintiff filed its complaint, the court issued an order reflecting its decision that the plaintiff be able to proceed in its action against the CFPB under a pseudonym. In so doing, the court noted that where a company has filed an action to protect against the government’s disclosure of its identity, it would be “counterintuitive that a court should require that same company to disclose its identity in the parallel court proceedings.” Judge Rudolph Contreras of the U.S. District Court for the District of Columbia has given the CFPB until Jan. 25 to respond to the company’s complaint and motion to proceed under a pseudonym.

    Courts Consumer Finance CFPB PHH v. CFPB John Doe v CFPB Litigation Single-Director Structure

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