CFPB Dealt Major Setback in How Far Back it Can Pursue UDAAP Claims


A recent federal appeals court ruling in favor of mortgage lender PHH Corp. rejected the Consumer Financial Protection Bureau's argument that there is no statute of limitations for Bureau enforcement actions in its administrative tribunal. Lucy Morris and Erik Kosa of Hudson Cook LLP discuss what litigants can expect from the CFPB in the wake of the decision.

Lucy Morris Eric Kosa

By Lucy Morris and Erik Kosa

Lucy Morris is a partner in the Washington, D.C., offices of Hudson Cook, LLP, where she heads the firm's Government Investigations, Examinations, and Enforcement Practice Group. Before joining Hudson Cook, Lucy worked at the Consumer Financial Protection Bureau for four years as a Deputy Enforcement Director for Litigation.

Erik Kosa is a Senior Associate at Hudson Cook and a member of the firm's Government Investigations, Examinations, and Enforcement Practice Group.

On October 11, the D.C. Circuit Court of Appeals dramatically curtailed the Consumer Financial Protection Bureau's (CFPB or Bureau) authority on several fronts in a highly anticipated decision in PHH v. CFPB. While most of the headlines have focused on the court's ruling that the Bureau's current independent, single-member leadership is unconstitutional and the Director should be removable at will by the President going forward, the court also ruled on a statutory issue that has more important ramifications for entities actually regulated by the CFPB today. The court soundly rejected the Bureau's argument that the Consumer Financial Protection Act (CFPA)—part of the Dodd-Frank financial reforms—allows it to bring cases in its administrative tribunal, where it can get the same remedies as in federal court, without being subject to any statute of limitations. While the case involved alleged violations of the Real Estate Settlement Procedures Act (RESPA), this ruling has ramifications well beyond RESPA, including the ever-changing theories behind unfair, deceptive, or abusive acts or practices (UDAAP) claims.


In 2014, the CFPB deviated from longstanding precedent regarding the legality of certain referral arrangements in the mortgage lending industry and brought an enforcement action in its administrative tribunal against PHH, a mortgage lender. The enforcement action resulted in an order of $109 million in disgorgement, with much of the conduct giving rise to that amount occurring outside the applicable three-year statute of limitations in RESPA.

After exhausting its appeals within the Bureau, PHH appealed to the D.C. Circuit, arguing in part that RESPA's three-year statute of limitations barred much of the CFPB's relief. The CFPB made two arguments: (1) no statute of limitation of any kind applies in administrative adjudications under the CFPA and (2) alternatively, by its language, RESPA's statute of limitations applies only in court, not in the administrative forum. The D.C. Circuit rejected both of the Bureau's arguments.


The court held that (1) the CFPA expressly incorporates the applicable statutes of limitation in the consumer protection laws no matter the forum and (2) by its terms, RESPA's three-year statute of limitations clearly applies in this case.

Importantly, as to the CFPA administrative proceedings provision—12 U.S.C.A. §5563(a)—the court reasoned that it:

  •   authorizes the CFPB “to conduct hearings and adjudication proceedings … in order to ensure or enforce compliance with” 19 federal consumer protection laws, in addition to other rules, regulations, and orders. 12 U.S.C. §5563(a). But Congress limited the enforcement power granted in Section 5563. The CFPB may enforce those federal laws “unless such Federal law specifically limits the Bureau from conducting a hearing or adjudication proceeding.” Id. §5563(a)(2) (emphasis added). Obviously, one such “limit” is a statute of limitations. By its terms, then, Section 5563 ties the CFPB's administrative adjudications to the statutes of limitations of the various federal consumer protection laws it is charged with enforcing. The Dodd-Frank Act therefore makes clear that in its enforcement action against PHH, the CFPB was bound by any statute of limitations located in the Real Estate Settlement Procedures Act.

In other words, the CFPA does not create special rules for administrative tribunals that allow the Bureau to evade limitations periods in the consumer protection laws it enforces. If there is a statute of limitations in the consumer protection law at issue, it applies in administrative cases.

Statutes of Limitation Apply.

While the D.C. Circuit only addressed whether RESPA's limitations period applied, the Bureau's theory that UDAAP claims are not subject to the three-year statute of limitations in the CFPA has essentially been closed off. The CFPB argued that the CFPA's structure creates two rules of the road: one statute of limitations in federal court actions, and no statute of limitations in administrative adjudications. Because the CFPA statute of limitations is located in the section governing litigation authority in court, and not in the section outlining how administrative adjudications are to take place, the CFPB believes this means Congress meant to free UDAAP claims from the statute of limitations when brought in administratively.

In PHH, the court called the possibility of the Bureau being unconstrained by any statute of limitations “absurd” and generally rejected the notion that the Bureau is free to bring actions in its administrative tribunal without regard to some period of limitations. Given the similarity in the CFPA's and RESPA's statute of limitations language, the reasoning in PHH can apply just as well to a UDAAP setting involving the CFPA's statute of limitations. In fact, in Integrity Advance, the CFPB's own ALJ found that there is there is “no reason why the analysis for … CFPA … claims should not be the same as the RESPA analysis in PHH.

The question boils down to this: what did Congress mean when it used the word “action” to say the Bureau must bring actions within three years? The Bureau argued RESPA'S use of the word “action” can refer only to proceedings in court, not administrative tribunals. After looking at the structure and language of the statute, the D.C. Circuit disagreed:

  •   The CFPB argues that Congress uses the word “proceedings” rather than “actions” when it wants to refer to administrative actions. That is flatly wrong. Indeed, the Dodd-Frank Act itself, which amended [RESPA] Section 2614 to its current form, directly contradicts the CFPB's assertion about the meaning of the term “action.” The Dodd-Frank Act repeatedly uses the term “action” to encompass court actions and administrative proceedings. See, e.g., id. §5497(d)(1) (“If the Bureau obtains a civil penalty against any person in any judicial or administrative action under Federal consumer financial laws … .”); id. §5537(b)(1) (establishing grant program for States ‘to hire staff to identify, investigate, and prosecute (through civil, administrative, or criminal enforcement actions) cases involving misleading or fraudulent marketing’); id. §5538(b)(6) (‘Whenever a civil action or an administrative action has been instituted by or on behalf of the Bureau … .’); id. §5565(c) (subsection entitled “Civil money penalty in court and administrative actions’).

The court noted that it would expect Congress to explicitly state if it intended such a drastic change to how statutes of limitations work, but that Dodd-Frank says nothing about eliminating any statutes of limitations. Finally, the court stressed the need to avoid absurd results when interpreting a statute:

  •   Why would Congress allow the CFPB to bring administrative actions for an indefinite period, years or even decades after the fact? Why would Congress create such a nonsensical dichotomy between CFPB court actions and CFPB administrative actions? The CFPB has articulated no remotely plausible reason why Congress would have done so.

The D.C. Circuit's hostility to the CFPB's statute of limitations arguments in PHH seems to foreclose the CFPB's new tactic of bringing UDAAP claims that would be time-barred in federal court in its administrative forum to avoid statute of limitations defenses. It is always possible the full D.C. Circuit will review this panel's decision. Such en banc reviews are typically granted when there is an intra-circuit split on the legal issues or the matter is of exceptional importance. But while the panel was split 2-1 on the constitutional issues in PHH, it was unanimous on the statute of limitations issue, which does not bode well for the CFPB here.

What's Next for UDAAP?

In April, a CFPB ALJ held for the first time that no statute of limitations applies to UDAAP claims in the administrative forum. Although the PHH case, which the D.C. Circuit had not yet ruled on, involved only RESPA claims, the ALJ felt the issues presented in the two cases so intertwined that the Director's RESPA-oriented ruling against PHH was binding in a UDAAP context. The ALJ recently issued a Recommended Decision in this case— In the Matter ofIntegrity Advance—on September 27, 2016, levying significant fines on the Respondents. On September 30, the Respondents filed a notice of appeal, challenging, among other things, the ALJ's earlier statute of limitations ruling. You can expect the parties to litigate the statute of limitations issue once they reach the court of appeals. The CFPB will be hard-pressed to distinguish its UDAAP statute of limitations arguments from the analysis in PHH.

Now that it appears the CFPB cannot avoid statutes of limitation by bringing claims in its administrative tribunal, what can litigants expect next?

First, in the near term, expect a change in the tempo of CFPB enforcement actions. Given the new statute of limitations landscape, it's likely that the Bureau's Enforcement Office will survey its current caseload and press the re-set button, either by accelerating certain investigations or closing older ones to avoid statute of limitations problems .

Second, expect more statute of limitations disputes to turn on when the “discovery” of the violation was. The time to sue under the CFPA begins to run when the CFPB knows or with the exercise of due diligence should know facts that will form the basis for an action. It is especially difficult to determine when a federal agency knows or should have known it has a viable UDAAP claim. Agencies have numerous employees, offices, and layers of leadership, which makes it difficult to pinpoint when knowledge should be attributed to the government.

Finally, expect the CFPB to double-plead claims as UDAAP violations more often. Some consumer protection laws have statutes of limitation shorter than three years. We can expect the CFPB to attempt to transform claims by pleading a UDAAP violation for the same conduct that gives rise to a violation of another consumer protection statute when that statute has a limitations period shorter than the three years allowed by the CFPA. For example, the Bureau might plead Truth in Lending Act disclosure violations also as deception claims. If it cannot have an unlimited time in which to file suit, perhaps by “piggybacking” UDAAP claims onto other statutory violations, the CFPB may at least ensure it always gets its three years.

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