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In re PHH Saga: En Banc DC Court of Appeals Restores Favorable RESPA Decision But Holds the CFPB Structure is Constitutional

On January 31, 2018, the full Court of Appeals for the DC Circuit issued its awaited decision in PHH Corporation, et al v. CFPB. The majority of the court’s ruling focused primarily on the issue of constitutionality of the CFPB structure, finding it to be constitutional. Nevertheless, as explained below, important to the mortgage industry was the majority decision to reinstate the prior three-judge panel’s interpretation of RESPA and its application to PHH and Atrium; an interpretation that was consistent with the longstanding prior HUD’s position. This note focuses on the RESPA aspect of the opinion.

In granting en banc review, the DC Circuit vacated in the entirety the prior three-judge appellate panel’s opinion in the case. Therefore, restoring the three-judge panel opinion as it related to the interpretation of RESPA and its application to this case is important. The three-judge panel opinion was unanimous in holding that RESPA section 8(c)(2) provided a safe harbor, from RESPA’s section 8(a) kickback prohibition, for payment to any person of a reasonable market value “salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.” Specifically, the court held that under RESPA section 8(c)(2) a “bona fide payment means a payment of reasonable market value.” In doing so, it rejected the CFPB’s novel interpretation that a payment under section 8(c)(2) is considered “bona fide” only if it is not part of a tying arrangement.

The three-judge panel also found that its interpretation was consistent with the longstanding interpretation of RESPA section 8 by HUD, the agency who previously administered RESPA. It therefore held that, even if the CFPB’s new interpretation was permissible, the CFPB’s new interpretation of section 8 of RESPA constituted an unlawful retroactive reversal of the federal government’s prior position in violation of the Due Process Clause.

Finally, the three-judge panel found that RESPA’s three-year statute of limitation on government action applies to both administrative proceedings and civil actions enforcing RESPA. This rejected the CFPB’s position that its enforcement action was not limited by RESPA’s three-year statute of limitation, allowing it to review and assess civil money penalties for RESPA violations that occur more than three years from the date of violation.

The opinion of the three-judge panel, now reinstated, is an important interpretation of RESPA as it accorded with longstanding practices and impacts a broad range of business arrangements in the mortgage industry. It also provide a strong basis to limit the extent of enforcement review and action.

If you have any questions regarding this court opinion, please reach out to our  Contact Attorney.

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