Misbehaving Consumer Agency Gets Sent to Time Out

An appeals court has just thrown a bit of a spanner into the works at the Consumer Financial Protection Bureau, ruling that the entire control structure of the bureau is itself unconstitutional, and also that the agency erred in slapping a hefty fine on mortgage lender PHH. That first conclusion is getting big headlines and will hearten critics of the agency. But the more narrowly written part of the decision will ultimately matter more.

The bureau accused PHH of having given out a sort of kickback (involving an arcane mortgage reinsurance arrangement), and whacked them with a hefty fine. Their interpretation of the relevant regulations, said a three-judge panel of the D.C. Circuit on Tuesday, was retroactively applied to behavior engaged in before the rules were changed. The judges agreed with the mortgage lender on both of the main thrusts of its argument: that the bureau had misinterpreted the relevant law and also that, correct or not, the bureau had no right to apply its interpretation to actions taken before it changed the rules.