First, the three-judge panel had held RESPA Section 8 permits reasonable payments for goods and services – the standard under RESPA Section 8(c) that industry had always understood as the central benchmark for RESPA Section 8 compliance but which the Director had upended. As to the captive reinsurance arrangements at issue in the case, then, those were approved “so long as the amount paid by the mortgage insurer for the reinsurance does not exceed the reasonable market value of the reinsurance.” Importantly, the panel held that RESPA Section 8(c) creates a “safe harbor,” a ruling which expressly overruled the Director’s conclusion that Section 8(c) clarified, rather than limited, Section 8(a)’s prohibition on kickbacks.
Second, the panel had held that even if the CFPB’s interpretation of Section 8 in the PHH decision was permissible, the CFPB could not retroactively apply that interpretation to PHH’s past conduct without violating the due process clause because prior HUD guidance about the legality of captive reinsurance arrangements had been different. This acceptance of the principle that regulated companies can safely rely on administrative guidance is very important, at least when such guidance is clear enough to justify reliance.
Third, the panel had held that RESPA’s three-year limitations period applies to administrative enforcement actions just as it does to actions in court. The CFPB’s contrary position was that no limitations period applied to its administrative enforcement actions (though it ultimately argued for the application of the default, five-year federal rule). The panel did not decide whether each “above-reasonable-market value” payment for reinsurance “triggers a new three-year statute of limitation for that payment,” leaving that question for remand.
As for the more closely watched feature of the appeal, the separation-of-powers question, the 68-page majority opinion by Judge Cornelia T.L. Pillard adopted the position that, unlike Cabinet members, the heads of independent agencies could be removable only “for cause,” and so the structure of the CFPB did not violate the Constitution when it limited the grounds for removal of the Director by the President. The opinion predictably relied heavily on Supreme Court cases which it read as having permitted that form of tenure protection for agencies like the CFPB already. The opinion specifically rejected the concerns that had been expressed in the panel opinion that concentration of power in the CFPB was a threat to liberty, and pointed liberally to the unique features of various financial regulators as providing precedent for the CFPB’s tenure and appropriations quirks. Six judges filed or joined concurrences, agreeing there was no constitutional impediment to the CFPB’s structure and tenure rules, but several of the concurrences expressed different reasons for the conclusion. Two of the judges highlighted the adjudicatory nature of the Director’s role as justifying certain insulation from termination. A third believed that the particular restrictions on termination were immaterial limitations on the President because the statute should be interpreted to allow the President fairly broad authority to remove the Director, including the ability to do so over a policy disagreement.
There were essentially three dissents, all from the original panel members (whose opinion was being overturned) and each stating that the ruling should have been that the CFPB is unconstitutionally structured. Of interest, Judge Karen LeCraft Henderson disagreed with the other two dissenting judges as to the proper remedy for the defect; she would have ruled that if the tenure provision violated the Constitution, then all of Title X of the Consumer Financial Protection Act (which created the CFPB) would be void. The other two dissenting judges hewed to their previously expressed view that the proper remedy instead would be to sever the tenure provision so that the Director would serve at the pleasure of the President.
