Appeals Court Discusses Constitutionality of CFPB in PHH Kickback Case

Filed in Home Building, Housing Finance, Legal by on April 14, 2016 0 Comments

Hammer&GavelThe U.S. Court of Appeals for the District Columbia Circuit heard oral arguments on April 12 in PHH v the Consumer Financial Protection Bureau (CFPB), a case regarding CFPB’s interpretation of provisions in the Real Estate Settlement Procedures Act (RESPA) that impact marketing service agreements.

In the home building industry, marketing service agreements usually involve an arrangement in which a builder performs certain promotional services on behalf of a lender. In turn, the builder expects the lender to provide builder-provided referrals with a full line of competitive products and a commitment to providing excellent customer services. The lender then pays the builder an agreed-upon recurring fee for marketing and advertising services.

Last fall, CFPB Director Richard Cordray issued a $109 million fine against PHH, alleging that the mortgage company violated the section of RESPA that prohibits kickbacks and referral fees. The D.C. Circuit Court issued a stay against the fine pending its review.

NAHB filed a friend-of-the-court brief in support of PHH and joined the Mortgage Bankers Association and other groups in filing a separate amicus in this case. During the oral arguments the D.C. Court expressed some skepticism regarding CFPB’s interpretation of RESPA as it pertains to defining a kickback.

Moreover, judges discussed the constitutionality of CFPB itself – whether Congress had the authority to create the agency as it did, with a single director that can only be removed for cause and its source of funding outside the congressional appropriations process.

A decision from the D.C. Circuit is expected later this year, and NAHB will continue to monitor events closely.

For more information, contact Amy Chai at 800-368-5242 x8232.

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