Special Alert: D.C. Circuit Grants Petition for Rehearing in CFPB v. PHH Corp.; Vacates Judgment Based on Bureau’s Unconstitutionality

On February 16, the U.S. Court of Appeals for the D.C. Circuit granted the CFPB’s petition for rehearing en banc of the October 2015 panel decision in CFPB v. PHH Corporation.  Among other things, the panel decision declared the Bureau’s single-Director structure unconstitutional and would have allowed the President to remove the CFPB’s Director at will rather than “for cause” as set forth in the Dodd-Frank Act.  As a result of the petition for rehearing being granted, the panel’s judgment is vacated and the full D.C. Circuit will hear PHH’s appeal of the $109 million penalty imposed by the CFPB under the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA).  Oral argument is scheduled for May 24, 2017.

As discussed in detail in our prior alert, the October panel decision unanimously concluded that the CFPB misinterpreted RESPA, violated due process by disregarding prior interpretations of the statute and applying its own interpretation retroactively, and failed to abide by RESPA’s three-year statute of limitations.  However, only two of the three judges on the panel concluded that the CFPB’s status as an independent agency headed by a single Director violated the separation of powers under Article II of the U.S. Constitution.  The third panel member, Judge Henderson, dissented from this portion of the opinion on the grounds that it was not necessary to reach the constitutional issue because the panel was already reversing the CFPB’s penalty on other grounds.

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If you have questions about the decision or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.

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Special Alert: President Signs Executive Order Calling For Review of Financial Regulations

On February 3, President Trump signed an executive order (the Executive Order) directing the Treasury Secretary and the heads of the member agencies of the Financial Stability Oversight Council (FSOC) to review financial laws and regulations—including the Dodd-Frank Act and regulations implementing that law—thereby setting into motion a process by which the 2010 financial law could be significantly scaled back.
Under the Executive Order, the Secretary of the Treasury – who has yet to be confirmed – has 120 days to review and report to the President which existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements promote the “core principles” listed below and those that do not.  The core principles include:

  • restoring public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework
  • fostering economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry
  • enabling American companies to be competitive with foreign firms in domestic and foreign markets
  • advancing American interests in international financial regulatory negotiations and meetings
  • preventing taxpayer-funded bailouts, and
  • empowering Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth

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If you have questions about the order or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.

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Special Alert: CFPB Consent Orders Address Wide Range of Real Estate Referral Practices Under Section 8(a) of RESPA

On January 31, the CFPB announced consent orders against mortgage lender Prospect Mortgage, LCC (“Prospect”), real estate brokers Willamette Legacy, LLC d/b/a Keller Williams Mid-Willamette, and RGC Services, Inc. d/b/a Re/Max Gold Coast Realtors (together, “the Brokers”), and mortgage servicer Planet Home Lending, LCC (“Planet”), based on allegations that a wide range of business arrangements between the parties violated the prohibition on “kickbacks” in Section 8(a) of RESPA.
In a press release accompanying the settlements, CFPB Director Richard Cordray stated that the Bureau “will hold both sides of these improper arrangements accountable for breaking the law, which skews the real estate market to the disadvantage of consumers and honest businesses.”  The consent orders address a number of practices that have long been the source of uncertainty within the industry.  Unfortunately, despite acknowledging in the orders that referrals are an inherent part of real estate transactions, the Bureau provided little constructive guidance as to how lenders, real estate brokers, title agents, servicers, and other industry participants should structure referral arrangements to comply with RESPA.

RESPA Section 8(a)

Section 8(a) of RESPA provides that “[n]o person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.”

Notably, the CFPB’s consent orders make no reference to Section 8(c)(2), which provides that “[n]othing in this section shall be construed as prohibiting … the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.”  In a much discussed decision, a panel of the U.S. Court of Appeals for the D.C. Circuit reversed the CFPB’s $109 million penalty against PHH Corporation in October 2015 based on, among other things, the CFPB’s failure to establish that payments for the service at issue (reinsurance) exceeded the fair market value of the service.  The CFPB is currently seeking rehearing of this decision from the full D.C. Circuit, as discussed in our summaries of the Bureau’s petition for en banc reconsideration, responses from PHH and the Solicitor General, a motion to intervene filed by several State Attorneys General, and, most recently, PHH’s reply to both the Solicitor General and the motions to intervene.

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If you have questions about the order or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.

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Special Alert: Trump Administration Initiates “Regulatory Freeze”

On January 20, Reince Priebus, Chief of Staff to President Trump, issued a memorandum to the heads of executive departments and agencies initiating a regulatory review to be headed by the Director of the Office of Management and Budget (“OMB”).  Congressman Mick Mulvaney (R-SC) has been nominated to fill that position.

On behalf of the President, the memorandum asks the following of the agency and department heads:

  • No new regulations: “[S]end no regulation to the Office of the Federal Register (the ‘OFR’) until a department or agency head appointed or designated by the President after noon on January 20, 2017, reviews and approves the regulation.”
  • Withdraw final but unpublished regulations: “With respect to regulations that have been sent to the OFR but not published in the Federal Register, immediately withdraw them from the OFR for review and approval.”
  • Delay the effective date of published but not yet effective regulations: “With respect to regulations that have been published in the OFR but have not taken effect, as permitted by applicable law, temporarily postpone their effective date for 60 days from the date of this memorandum” and consider notice and comment to further delay the effective date or to address “questions of fact, law, or policy.”  Following the delay, regulations that “raise no substantial questions of law or policy” would be allowed to take effect.  For those regulations that do raise such questions, the agency or department “should notify the OMB Director and take further appropriate action in consultation with the OMB Director.”

Rulemakings subject to statutory or judicial deadlines are exempt, and the OMB Director has the authority to grant further exemptions for “emergency situations or other urgent circumstances relating to health, safety, financial, or national security matters, or otherwise.”

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If you have questions about the “freeze” or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.

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Special Alert: Revised NYDFS Cybersecurity Rule

On December 28, 2016, the New York Department of Financial Services (DFS) issued a revised version (Revised Proposed Rule) of its cybersecurity rule for financial institutions issued on September 13, 2016 (Proposed Rule). The revision came after DFS received more than 150 comments in response to the Proposed Rule, as well as a hearing before New York State lawmakers. The Revised Proposed Rule retains the spirit of the original Proposed Rule, but offers covered entities somewhat more flexibility in implementing the requirements.

Background
The Proposed Rule marked the next step in a period of increased focus on cybersecurity by the agency. Between May 2014 and April 2015, DFS issued three reports relating to cybersecurity in the financial and insurance industries. In November 2015, DFS issued a letter to federal financial services regulatory agencies, which alerted the federal regulators to DFS’s proposed regulatory framework and invited comment from the regulators.

In the September release, DFS explained that the Proposed Rule is a response to the “ever-growing threat posed to information and financial systems by nation-states, terrorist organizations, and independent criminal actors.” As originally written, the Proposed Rule covered financial institutions operating under a charter or license issued by DFS, and set cybersecurity program, policy, training, and reporting requirements that are more stringent than the current federal requirements. The Proposed Rule gave a January 1, 2017 effective date, with a 180-day transitional period. Taking into consideration these concerns, on December 19, 2016, the New York State Assembly’s Standing Committee on Banks held a public hearing regarding cybersecurity and the Proposed Rule. Among the chief concerns expressed at the hearing and in the comment letters was the cost of compliance, especially for smaller banks, and that the Proposed Rule’s “one-size-fits-all” requirements do not consider the varying operational structures, business models, and risk profiles of financial institutions. There was also concern that the Proposed Rule was too different from the current federal requirements.

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We will continue to monitor the DFS rulemaking process. If you have questions about the Revised Rule or other cybersecurity issues, visit our Privacy, Cyber Risk & Data Security practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.

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