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U.S. Supreme Court RESPA decision stands as a warning to the CFPB

Posted in Mortgages

The Supreme Court’s unanimous decision released today in Freeman v. Quicken Loans  marks a defeat for the CFPB in the interpretation of RESPA, but also serves to underscore that administrative agencies are not free to expand federal consumer protection statutes beyond the boundaries established by Congress. Just like the district court’s decision in the Premier Bank case, Freeman makes it clear that the industry can — and should — oppose the CFPB’s efforts to add prohibitions to federal laws that Congress did not provide for in those laws. 

The issue in Freeman was whether section 8(b) of RESPA should be interpreted to require the division of a fee between two entities, or whether the language would permit liability on a single party acting alone to charge an unearned fee. The Fifth Circuit, relying on a plain-language analysis, held that the sharing of a fee was required. 

The Supreme Court agreed, but the real significance of its decision lies in its strongly-worded statements rejecting the interpretation of §8(b) by HUD (and adopted by the CFPB), and rejecting the CFPB’s amicus brief urging reversal of the Fifth Circuit’s ruling. In addressing the HUD/CFPB interpretation of the statute, the Court characterized it as “manifestly inconsistent with the statute” and a “palpable overreach.” As a result, the Court refused to give any deference to the HUD/CFPB interpretation of §8(b), holding that it went beyond the meaning that the words of the statute could bear. The Court also rejected the arguments made in the amicus brief submitted by the CFPB, observing that the brief’s attempt to draw meaning from minor wording choices in other sections of the statute failed because the language “does not have the significance attributed to it” by the CFPB. Notably, all Justices on the Court joined this opinion. 

The decision in Freeman is, therefore, of much greater importance than simply eliminating an overreading of §8(b) of RESPA. It stands strongly for the proposition that the CFPB’s interpretation of statutes will be judged against the plain language of those statutes, and that the Court will not give deference to an interpretation not supported by that plain language. Moreover, the Court’s rejection of the arguments advanced by the Bureau in its amicus brief will hopefully encourage lower courts to look on other CFPB amicus briefs with a similarly critical eye. With the Bureau having announced the intent to file amicus briefs on a regular basis, Freeman sets the stage for those briefs to be given less weight than the CFPB may want. 

As I read the Freeman opinion, I could not help thinking about its implications with respect to the disparate impact issue under ECOA and the Fair Housing Act. That issue involves a similar lack of plain-language support for the government’s position and a similar presence of administrative interpretations that go beyond the statutory language. With the CFPB continuing to insist that disparate impact liability exists, Freeman seems to suggest that when this issue lands before the Supreme Court, the government’s interpretations are likely to be given similar treatment as the HUD interpretation of RESPA.