PHH vs. CFPB
By Gloria Taylor
The regulatory behemoth created by Dodd-Frank, the Consumer Financial Protection Bureau (CFPB), could be in hot water as the D.C. Circuit Court of Appeals is set to rule on PHH Corp v. CFPB by the end of the year. In step with its history of regulatory overreach, the CFPB slapped a $6 million fine on PHH, a New Jersey based mortgage firm, for referring customers to buy mortgage insurance from companies that acquired their reinsurance from PHH, supposedly breaking the law under the Real Estate Settlement Procedures Act (RESPA). This is not the first time the CFPB has aggressively gone after mortgage lenders.
PHH appealed the fine on two grounds. First, that the CFPB’s reading of RESPA conflicts with the historical readings by the Department of Housing and Urban Development (HUD). Second, and most important, that the CFPB is an unconstitutional federal agency due to its unprecedented level of independence. The CFPB operates as an independent agency with a director unaccountable to the President or Congress. PHH argued the CFPB’s actions are null since never before in history has “so much power been in accumulated in the hands of one individual shielded from democratic accountability.”
Heritage Foundation scholar Diane Katz explains the CFPB was in fact “designed to evade checks and balances that apply to most other regulatory agencies,” and the CFPB has done exactly that. Since its inception the bureau has gone full force after the people it was designed to protect–consumers. For instance the rouge nature of the CFPB and the lack of meaningful oversight creates market uncertainty and its misguided assumptions have created regulations that stifle consumer choice and limit access to capital.
Instead of settling the case reasonably, CFPB Director Richard Cordray decided to raise the fine from $6 million to over $109 million last June. Cordray is trying to make an example out of PHH and send a clear message to mortgage lenders and real estate professionals not to cross his agency.
Depending on the scope of this ruling, the CFPB could be ruled unconstitutional. This would be a huge win for real estate professionals, especially those in the mortgage industry who feel scared to speak out against the CFPB for fear of retribution.
Regardless of the verdict, Congress must take concrete steps toward eliminating the bureau to truly protect consumers and investors without impeding on economic growth. Representative Jeb Hensarling’s (R-TX) Financial CHOICE Act takes meaningful steps towards accountability and consumer protection. The act would restructure the CFPB to a bi-partisan five member commission subject to congressional oversight and appropriations.