By rchrisman@robchrisman.com

"This is a case about executive power and individual liberty. The U.S. Government's executive power to enforce federal law against private citizens...is essential to societal order and progress, but simultaneously a grave threat to individual liberty. The Framers understood that threat to individual liberty...no independent agency exercising substantial executive authority has ever been headed by a single person. Until now." Yes, everyone is talking about the CFPB/PHH ruling - which, like Brexit, will drag on for years. Lots more below.

Before we plunge into the grist & clamor surrounding the CFPB/PHH ruling, perhaps lost in the news was the fact that the CFPB fined Navy Federal Credit Union. "The credit union, whose 6.3 million members include many veterans and military service members, unfairly restricted account access for members with delinquent loans and made false threats about debt collection...Navy Federal threatened to garnish the wages of members with slumped loans or take action against them, the CFPB said - actions it seldom took or did not have authority to take. The credit union also gave members with delinquent loans misleading information on the consequences to their credit, inflating the credit union's influence on their credit ratings."

It took more than six months from the time of oral arguments for the D.C. Circuit Court of Appeals to hand down its decision in PHH Corp. v. Consumer Financial Protection Bureau, but the court's ruling is important for CEOs, regulators, all the way through to anyone who is employed in residential lending. In its 110-page ruling the court deemed the bureau to be unconstitutionally structured, and moved to remedy the situation rather than halt its operations. In addition, the court sided with PHH Corp. on other aspects of its appeal. While the decision does not shut down the CFPB it does give the president more power to remove the bureau's director and to direct and supervise in the director's place.

The Court threw out a $109 million penalty against PHH Corp in 2014, saying the structure of the Consumer Financial Protection Bureau gives its sole director too much power. The CFPB is expected to request the entire appeals court conduct an "en banc" review of the case, with the losing side will likely appeal to the Supreme Court. In other words, it'll be years...

PHH had objected to the CFPB's allegations it violated the Real Estate Settlement Procedures Act by referring customers to mortgage insurers who in turn bought reinsurance from one of its units. The judges ruled the lender was within the law and also that the CFPB was wrong to say its administrative action did not need to respect a three-year statute of limitations on the alleged violations.

U.S. Circuit Judge Brett Kavanaugh wrote the current CFPB structure "poses a far greater risk of arbitrary decision making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency."

Republican Jeb Hensarling, who chairs the House Financial Services Committee, called CFPB "the most powerful and least accountable Washington bureaucracy in American history."

Elizabeth Warren, expected to play a dominant role in a Clinton Administration, said, "the ruling makes a small, technical tweak to Dodd-Frank and does not question the legality of any other past, present, or future actions of the CFPB." She called Republican reorganization efforts "attempts fostered by big banks to cripple an agency."

The decision is likely to lead more companies to challenge the CFPB's enforcement actions in the future, said Ballard Spahr attorney Alan Kaplinsky. PHH said in a statement that it hoped "the court's opinion will provide greater certainty to the entire mortgage industry." Over in the CFPB's camp, there was silence in the Newsroombut Moira Vahey, a CFPB spokeswoman, said the agency is considering its options for further review of the ruling while remaining focused on its mission. "The Bureau respectfully disagrees with the Court's decision. The Bureau believes that Congress's decision to make the director removable only for cause is consistent with Supreme Court precedent."

So we have a court's opinion vacating a $109 million penalty imposed on PHH Corporation under the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA), concluding that the CFPB misinterpreted the statute and violated due process by reversing the interpretation of the prior regulator and applying its own interpretation retroactively. The panel rejected the CFPB's contention that no statute of limitations applied to its administrative actions and concluded that RESPA's three-year statute of limitations applied to any actions brought under RESPA. And a majority of the panel held that the CFPB's status as an independent agency headed by a single Director violates the separation of powers under Article II of the U.S. Constitution. Rather than shutting down the CFPB, however, and voiding all of its regulations and prior actions, the majority chose to remedy the defect by making the CFPB's Director subject to removal at will by the President. In effect, this makes the CFPB an executive agency (like the Department of the Treasury).

The panel remanded the case to the CFPB to determine whether the relevant mortgage insurers paid in excess of the fair market value of the services provided within the three-year statute of limitations in violation of RESPA. The CFPB is expected to petition for en banc reconsideration by the full D.C. Circuit or to seek direct review by the United States Supreme Court. Therefore, final resolution of this matter may be delayed by a year or more.

BuckleySandler LLP'sAndrew L. Sandler, Chairman & Executive Partner, suggested, "The PHH decision is very meaningful. First, the Bureau will be constrained in seeking restitution for periods prior to statutes of limitation, where a statute of limitation applies. Second, the Bureau will be constrained in seeking restitution for past periods where it interprets a rule, regulation or interpretation of another agency insofar as the subject company's actions were consistent with the prior rule, regulation, or agency interpretation. On the constitutionality question, the court sought to impose an elegant solution by ruling it unconstitutional and applying a fix that would not implicate prior Bureau actions. Notwithstanding, I expect lawyers for companies, subject to CFPB actions, to seek opportunities to undermine agency actions based on the court's ruling that it is unconstitutional as established."

Dave Stevens, President and CEO of the MBA, scribed, "The opinion is thoughtful and extensive and addresses all of the key issues raised by the case and in MBA's amicus brief. The opinion holds that the CFPB incorrectly interpreted the Real Estate Settlement Procedures Act (RESPA), violated due process by its retroactive interpretation, and that a three-year statute of limitations applies to enforcement actions brought by the CFPB under RESPA. The decision goes to the heart of a core argument that MBA has been making for several years now- that lenders need certain, consistent and clear interpretations of the rules in order to best serve their borrowers and contribute to a smoothly functioning housing finance market."