CFPB Gets Hit with Limits on Timing, Remedies

When consumers find themselves at odds with big companies or financial companies, they turn to the Consumer Financial Protection Bureau (CFPB) for help. A recent U.S. Court of Appeals decision will hamper efforts to fight for consumers’ rights.

On October 11, 2016, the U.S. Court of Appeals for the D.C. Circuit dealt some major blows to the CFPB in PHH Corp v Consumer Financial Protection Bureau. Last week, this blog explained how the opinion that ruled the CFPB’s structure unconsititutional. But the court also said that the agency did more than the statutes allowed.

Timing and the Statute of Limitations

The Dodd Frank Act, which gives the CFPB authority to enforce several consumer protection statutes, doesn’t have a statute of limitations. The Real Estate Settlement Procedures Act (RESPA), which applied here, allows government agencies to start actions – in court or out – within 3 years. CFPB said that the Dodd Frank Act eliminated that requirement.

But the Circuit Court said the RESPA’s statute of limitations carried through into Dodd-Frank enforcement “actions”. Because the underlying statute’s limitations still apply to CFPB actions, the court limited CFPB’s enforcement of RESPA to 3 years back from the start of the action.

Reinsurance and Tying Agreements

Before the Dodd-Frank Act, the Department of Housing and Urban Development (HUD) was in charge of enforcing the RESPA. Real estate lenders were using a policy called “captive reinsurance.” Lenders like PHH would refer borrowers to mortgage insurers on the condition that those insurers bought reinsurance from subsidiaries. In 1997 and 2004, HUD had issued letters saying that “captive reinsurance” was legal under the RESPA as long as the reinsurance was purchased at fair market value.

CFPB read the RESPA differently, prohibiting captive reinsurance agreements. The agency said these mandatory reinsurance agreements are impermissible “tying agreements”, and not a “bona fide” transaction between the lender and the insurer. But the Circuit Court said tying agreements weren’t illegal under RESPA. 

Retroactive Application of Regulations

When the CFPB determined that tying agreements were not allowed under the RESPA, it was a change from HUD’s previous position. But when the CFPB applied its decision against PHH, it ruled against the lender retroactively – back to 2008. The court found that this violated PHH’s due process rights.

When all was said and done, CFPB’s ability to enforce the RESPA was severely restricted. Rather than barring tying agreements going back to 2008, CFPB will only be allowed to prove that PHH illegally charged more than fair market value for reinsurance products sold to mortgage insurers for the last 3 years. And that means that PHH, and other lenders will continue using captive reinsurance policies against their borrowers and mortgage insurers until Congress takes action.

Dani K. Liblang is a consumer protection attorney at The Liblang Law Firm, PC in Birmingham, Michigan. If you are the victim of consumer protection violations, contact The Liblang Law Firm, PC for a free consultation today.