Source: https://www.reedsmith.com/en/perspectives/2015/01/the-rule-of-lenity-should-courts-defer-to-agency-i
Timestamp: 2019-04-22 02:44:27+00:00

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The Rule of Lenity: Should Courts Defer to Agency Interpretations of RESPA § 8?
Home Perspectives The Rule of Lenity: Should Courts Defer to Agency Interpretations of RESPA § 8?
One may well ask what this has to do with section 8 of the Real Estate Settlement Procedures Act (“RESPA”).4 The answer is, potentially a whole lot. Recall that section 8 prohibits, among other things, the payment or receipt of referral fees in connection with federally related mortgage loans, and attaches both civil and criminal penalties to violations of its provisions.
Justice Scalia’s Statement Respecting Denial of Certiorari In a statement respecting the denial of certiorari in Whitman, Justice Scalia, joined by Justice Thomas, raised the following question: “Does a court owe deference to an executive agency’s interpretation of a law that contemplates both criminal and administrative enforcement?” In affirming Whitman’s criminal conviction, the Second Circuit had deferred to the SEC’s interpretation of section 10(b).
With deference to agency interpretations of statutory provisions to which criminal prohibitions are attached, federal administrators can in effect create (and uncreate) new crimes at will, so long as they do not roam beyond ambiguities that the laws contain. Undoubtedly Congress may make it a crime to violate a regulation, see United States v. Grimaud, 220 U.S. 506, 519 (1911) but it is quite a different matter for Congress to give agencies – let alone for us to presume that Congress gave agencies – power to resolve ambiguities in criminal legislation, see Carter v. Welles-Bowen Realty, Inc., F. 3d 722, 733 (CA6 2013) (Sutton, J., concurring).
Deferring to the prosecuting branch’s expansive views of these statutes “would turn [their] normal construction … upside-down, replacing the doctrine of lenity with a doctrine of severity.” Crandon v. United States, 494 U.S. 152, 178 (1990) (Scalia, J., concurring in judgment).
Potential Impact on Agency Interpretations of RESPA § 8 Similar to section 10(b) of the Securities Act, section 8 of RESPA is a law that provides for both criminal and administrative enforcement.7 Also like section 10(b) of the Securities Act, it authorizes an administrative agency – initially, the U.S. Department of Housing and Urban Development (“HUD”), and since 2011, the Bureau of Consumer Financial Protection (“CFPB”) – to interpret it.8 Both HUD and the CFPB have over the years exercised this interpretative authority, through regulations, Statements of Policy, and informal agency guidance.
To say that RESPA section 8 contains ambiguities is merely to state the obvious. These ambiguities are illustrated by the numerous struggles of HUD (and now, the CFPB) and the courts, beginning with the enactment of RESPA and continuing to the present, to try to distinguish between conduct that is prohibited under section 8 and conduct that is permitted. In this regard, one need only recall the numerous and long-running controversies over the legality of computer loan origination system charges, yield spread premiums, settlement service provider mark-ups and overcharges, affiliated business arrangements (including captive reinsurance arrangements), “desk rentals,” work-share arrangements, and marketing services agreements, to name just a few.
Indeed, one of the decisions on which Justice Scalia relies in his Statement, Carter v. Welles-Bowen, was a civil action in which the plaintiffs claimed that the defendant violated RESPA section 8 by engaging in an affiliated business arrangement that did not meet the HUD 10-factor test for legitimacy.9 Ruling for the defendants, the Sixth Circuit invalidated the HUD test, holding that it was entitled neither (i) to Chevron deference, because, among other reasons, as a Statement of Policy and according to its own words, it was not a “binding interpretation” of the law, nor (ii) “to weight in proportion to its persuasiveness” under Skidmore, because it is presented only as “guidelines that [HUD] intends to consider” and not as its definitive interpretation of the Act, and is not “compatible with the imperative to provide fair warning in the criminal context.” The concurring opinion of Judge Sutton, cited by Justice Scalia, would have invalidated the HUD 10-factor test because it impermissibly resolves ambiguities in the law against the defendant in violation of the rule of lenity.
Takeaway Particularly in light of Justice Scalia’s Statement in Whitman, defendants faced with a RESPA section 8 claim based on a HUD (or CFPB) administrative interpretation would seem well-advised to assert, in addition to other defenses they may have, an affirmative defense that such interpretation conflicts with the rule of lenity and is therefore not entitled to deference.
15 U.S.C. §§ 78a through 78pp.
543 U.S. 1, 11-12, n.8 (2004).
504 U.S. 505, 578, n.10 (1992) (plurality opinion), id. at 519 (Scalia, J., concurring in judgment).
(4) The Bureau, the Secretary, or the attorney general or the insurance commissioner of any State may bring an action to enjoin violations of this section.
Statement of Policy 1996-2 regarding sham controlled business arrangements, 61 Fed. Reg. 29258 (June 7, 1996).
Freeman v. Quicken Loans, 132 S.Ct. 2034 (2012).

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