The U.S. Court of Appeals for the DC Circuit has released its opinion in PHH’s case against the CFPB, and it’s a resounding win for PHH and the industry. In its 110-page opinion, the Court vacated the CFPB’s order against PHH and also issued favorable holdings on the following significant issues:
• The 3-year statute of limitations under RESPA applies to all CFPB enforcement actions to enforce Section 8, whether brought in court or administratively
• Section 8 of RESPA allows captive reinsurance arrangements so long as the amount paid by the mortgage insurer for the reinsurance does not exceed the reasonable market value of the reinsurance.
In addressing the issue of whether Section 8(c) of RESPA is an exception to the general prohibition against referral fees, the Court stated that “Section 8(a) prohibits, in this context, payment by a mortgage insurer to a lender for the lender’s referral of a customer to the mortgage insurer. But Section 8(a) and 8(c) do not prohibit bona fide payments by the mortgage insurer to the lender for other services that the lender (or the lender’s subsidiary or affiliate) actually provides to the mortgage insurer.” The CFPB’s argument that the mortgage insurer’s payment for reinsurance is not “bona fide” if part of a tying arrangement, in the words of the Court, “makes little sense.”
The Court when on to state that “Section 8(c) specifically bars the aggressive interpretation of Section 8(a) advanced by the CFPB in this case. Section 8(c) was defined to provide certainty to businesses in the mortgage lending process. The CFPB’s interpretation flouts that statutory goal and upends the entire system of unpaid referrals that has been part of the market for real estate settlement services.”
The Court also took issue with the CFPB’s retroactive application of its new interpretation of Section 8. The Court stated that “even if the CFPB’s new interpretation were consistent with the statute (which it is not), the CFPB violated due process by retroactively applying that new interpretation to PHH’s conduct that occurred before the date of the CFPB’s new interpretation.”
Please contact Loretta Salzano at (770) 248-2881 or lsalzano@franzen-salzano.com with questions or to discuss the impact of this holding on your business practices.