HUD and CFPB "Spanked" By Supreme Court

[Washington, D.C.; June 4th, 2012]

The U.S. Supreme Court, in a recent unanimous (9-0) decision of Freeman v. Quicken Loans, has struck a major blow to overreaching federal regulatory discretion by agencies.

Writing for High Court, Justice Antonin Scalia expressed the Court's view that the Department of Housing and Urban Development's as well as the new Consumer Financial Protection Bureau's aggressive assertion of their regulatory authority was "manifestly inconsistent with ["the 1974 federal law known as Respa, for the Real Estate Settlement Procedures Act"]".

Respa forbids providers of real-estate services—title insurance, appraisals and the like—from taking kickbacks or splitting the fees they receive. In 2001 HUD quietly expanded the law's reach by declaring it wasn't limited to "situations where at least two persons split or share an unearned fee."

The Supreme Court disagreed, explaining in Justice Antonin Scalia's opinion that the little-known 1974 Respa law's text "clearly describes two distinct exchanges", not an exchange of fees of a company with itself.

In the main case, Freeman v. Quicken Loans, three aggrieved married couples (plaintiffs) sued, alleging that Quicken Loans had illegally split fees with itself.

The Solicitor General sided with them, arguing that HUD indeed had the right to interpret the statute, had done so properly, and the Court should give deference to its decision. Also chiming in was the senior litigator from the new consumer protection bureau, who was a signatory to the government's amicus brief on the side of the plaintiffs. (The consumer bureau now enforces Respa, thanks to the federal Dodd-Frank Law).

The nine justices of the U.S. Supreme Court, however, disagreed strongly with this argument, stressing the point that the U.S. Congress makes the laws and the federal bureaucracy implements the laws. Nothing more.

[WSJ, Monday, 6-4-2012]