Yesterday, the District of Columbia Circuit of the U.S. Court of Appeals delivered its decision in PHH v. CFPB.  The decision said that –

  1. The Consumer Financial Protection Bureau (CFPB) was unconstitutionally structured; and
  2. The CFPB’s enforcement of Section 8 of the Real Estate Settlement Procedures Act (RESPA) governing Marketing Services Agreements (MSA) was incorrect and the penalty imposed on PHH must be reconsidered by the lower court using the traditional standard of analysis.

This is a critical decision on a number of levels, and its full consequences are not yet known.  First, the Court made the Director of the CFPB, and therefore the CFPB as a whole, less independent than other federal agencies.  As a result of this decision, the President of the United States has the power to remove a CFPB Director at will, thereby having more control over agency actions.  The Court also explained that it intended its decision on the constitutionality of the CFPB’s structure to be narrow and to not affect the ongoing operations of the CFPB.

Second, the Court vacated the CFPB’s order against PHH and sent the case back for further proceedings consistent with its opinion.  On the issue of Marketing Services Agreements (Section 8 of RESPA) the captive reinsurance agreement (more generally, a MSA) at the heart of the CFPB’s concern is “permissible so long as the mortgage insurer pays no more than reasonable market value for the reinsurance”.

Close observers anticipate appeals of this decision.