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CFPB asks for rehearing en banc in PHH case

Posted in CFPB Enforcement, Mortgages

As we expected, the CFPB filed a petition with the D.C. Circuit this past Friday asking it to grant a rehearing en banc of its decision in CFPB v. PHH CorporationUnder D.C. Circuit rules, PHH may not file a response to the petition unless a response is ordered by the court.

In PHH, the D.C. Circuit ruled that that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional.  It also rejected the CFPB’s interpretation of RESPA, which departed from HUD’s prior interpretation, to prohibit captive mortgage re-insurance arrangements such as the one at issue in PHH.  The court also held that even if the CFPB’s interpretation was correct, the CFPB’s attempt to retroactively apply its new interpretation violated due process.

In the petition, the CFPB describes the D. C. Circuit’s constitutionality ruling as “set[ting] up what may be the most important separation-of-powers case in a generation.”  According to the CFPB, the case presents “an issue of exceptional importance because it unduly limits Congress’s flexibility to respond to ‘the various crises of human affairs,’ [citing the U.S. Supreme Court’s 1819 McCulloch v. Maryland decision], by creating independent administrative agencies headed by a single director.  And it may affect not only the Bureau but also other agencies headed by a single director removable only for cause (Social Security Administration; Federal Housing Finance Agency; Office of Special Counsel).” (citations omitted)  The CFPB argues in its petition that the ruling conflicts with U.S. Supreme Court precedent and should therefore be reconsidered by the court sitting en banc.

The CFPB also argues that D.C. Circuit’s RESPA ruling should be reviewed by the court sitting en banc because it was based on errors of statutory construction and “fundamentally defeats the statutory purpose.”  Observing that the court’s retroactivity holding “is perhaps not worthy of en banc review on its own,” the CFPB nevertheless asks for an opportunity to address the holding if there is an en banc review of the court’s RESPA interpretation because it “may have been based on the panel’s misinterpretation of section 8 of RESPA.”

Although the D.C. Circuit also rejected the CFPB’s argument that statutes of limitations do not apply to its administrative enforcement actions, the CFPB has not asked for reconsideration en banc of this ruling.  By not seeking review of that ruling, the CFPB has presumably agreed that going forward, it will be subject to the same statute of limitations in administrative proceedings as would apply to it in a lawsuit filed in court.

D.C. Circuit rules provide that a majority of the circuit judges who are in regular active service and who are not disqualified may order that an appeal be reheard by the court en banc.  There are currently 11 active judges, 7 of whom were appointed by either President Obama or President Clinton.  (The Democratic appointees include Chief Judge Merrick B. Garland who was appointed to the U.S. Supreme Court by President Obama.  We understand Judge Garland has recused himself from deciding cases while his nomination is pending.  While it is assumed his nomination will not proceed due to the election results, the timing of his return to full active status is uncertain.)  The circuit rules do not establish a deadline for a decision on a petition for a rehearing en banc.