Court Ruling Declares that the “too powerful” CFPB is Unconstitutionally Structured

In ringing in the new year, I thought it appropriate to look back at last year’s memorable moments. In short, 2016 was off the hizzle for shizzle (as Snoop Dogg would say)! Speaking of Snoop Dogg, him and Martha started a cooking show together. We hired a new prez while South Korea fired theirs. Prince died. Brangelina broke our hearts. Our future Prez sent out a three-word tweet saying: “I love Hispanics.” Leo won an Oscar for wrestling a grizzly. All the while, Sean Penn interviewed El Chapo to the sound of a rooster crowing in the background.

But, did we have any shocking legislative or legal change that occurred in our industry in 2016? Yep. In October, the CFPB got smacked upside the head by the D.C. Circuit of Appeals Court.

As you all already know, RESPA prohibits kickbacks or referrals in exchange for money. HUD used to enforce RESPA violations until the CFPB told them to step aside. PHH, a mortgage lender, referred consumers to a mortgage insurer that, in turn, would buy PHH’s mortgage insurance. HUD said it was cool with this because the mortgage insurance was being sold at market rates. CFPB, then said: “Hold That Thought!” and ended up fining PHH over 100 million dollars for referrals made under HUD’s consent. PHH got mad and sued.

The Court dealt a major blow to the CFPB by holding that: (1) the CFPB’s retroactive application of fines against PHH violated due process; and, (2) the CFPB’s structure is unconstitutional because it is a completely independent agent that is headed by one dude who is the “single most powerful official in the entire U.S. Government, other than the President.” Cue: Checks and Balances. The Court told the CFPB they needed to hit the reset button and allow the Director to be fired by the Prez (cue: Donald Trump) “at will.”

Why is this a big deal for us? Because it is difficult for title agents and Lenders to operate in an environment where at any given moment one person can say, “Hey, you did something I don’t like, please make a check payable to Uncle Sam.” That said, don’t hold your breath, CFPB’s director wants to keep his job and so they have asked the Supreme Court to review the Court’s decision.