The CFPB's en banc appeal in the PHH Corporation, et al v. Consumer Financial Protection Bureau case was decided today. The U.S. Court of Appeals for the District of Columbia Circuit reversed the 3 judge panel decision on the constitutionality of a single director but reinstated the panel’s holdings on statutory questions. Thus, the substantive questions regarding RESPA’s section 8 and the statute of limitations were upheld and reinstated by the full court. The court's rejection of Director Cordray's opinion that backed the Bureau Enforcement Division's novel interpretations of RESPA was a timely exclamation point on Acting Director Mulvaney's recent email articulating how things will be different at the Bureau.

The decision today is great news for the industry with respect to Section 8 questions. The Bureau's novel interpretation of what constituted bona fide compensation was articulately dismissed by the panel opinion, which the full court reinstated today. By reinstating the statute of limitations holding of the panel, today's decision also prevents the Bureau from bringing internal administrative enforcement actions after its authority to do so through the courts has ended.

This decision is a particularly timely emphasis to Acting Director Mulvaney's recently publicized direction with respect to the Bureau engaging in enforcement actions based on novel interpretations of law. His email, posted as part of an investigative journalism article by nonprofit ProPublica, states "On regulation, it seems that the people we regulate should have the right to know what the rules are before being charged with breaking them. This means more formal rulemaking on which financial institutions can rely, and less regulation by enforcement."

In PHH, the Bureau raised novel interpretations of RESPA that reversed a 20 year history of HUD's policy and awareness of reinsurance activity. Director Cordray's opinion rejected the Administrative Law Judge's reliance on 1997 HUD letter specifically addressing reinsurance agreements and instead supported the Bureau Enforcement Division's argument that "it is a violation of section 8(a) when a lender makes referrals to a real estate settlement service provider in exchange for the purchase of 'goods or services - at any price - as consideration for making referrals,' and that such a violation cannot be saved by Section 8(c)(2)." Decision of the Director, Consumer Financial Protection Bureau Administrative Proceeding, File No. 2014-CFPB-0002, Filed June 4, 2015, p 15.

Acting Director Mulvaney's email also lays out his intentions with respect to enforcement and rulemaking: "When it comes to enforcement, we will be focusing on quantifiable and unavoidable harm to the consumer. If we find that it exists, you can count on us to vigorously pursue the appropriate remedies. If it doesn’t, we won’t go looking for excuses to bring lawsuits." By contrast, Director Cordray's opinion in PHH emphasized the Bureau's aggressive enforcement posture "Enforcement notes that a 'thing of value' which constitutes a kickback for a referral under section 8(a) 'is broadly defined, and includes not only the payment of money in the course of a transaction, but also the very opportunity to engage in the transaction - even one that would otherwise be legitimate and is priced at a fair market value' so that it would naturally tend to yield a fair profit." Decision of the Director, p 15. This appears to be precisely what Acting Director Mulvaney is targeting, enforcement actions that require novel interpretations to transform fair market value transactions into violations.

The Bureau Enforcement Division's interpretation and Director Cordray's opinion were reversed by the three judge panel and today that reversal was upheld on appeal to the full court. The full court agreed with PHH and in so doing reinforces Acting Director Mulvaney's concerns for the risk to lenders when the Bureau aggressively pursues novel interpretations. The Bureau lost their case in court at great cost to the defendent PHH and uncalculable disruption to the balance of the industry.

Acting Director Mulvaney's comments were applauded by the mortgage industry that, under Director Cordray, repeatedly complained about novel interpretations in enforcement actions like PHH. However, Acting Director Mulvaney's email does not suggest enforcement will not be vigorous, it simply states that vigorous enforcement will be disciplined and focused on cases where consumer harm is tangible. This should be welcomed by consumer advocates as a focus on areas where consumer harm is frequent and real. It should also serve as a warning to the industry that if the Bureau brings an enforcement action under Mulvaney's leadership, the Bureau will expect to win on well established facts and unambiguous regulation where consumer harm is evident.