By Andrew A. Turner, J.D.
In the first appeal of a Consumer Financial Protection Bureau administrative enforcement proceeding, CFPB Director Richard Cordray increased the amount of disgorgement from $6 million to $109 million that PHH Corporation was ordered to pay to the CFPB for illegally referring consumers to mortgage insurers in exchange for kickbacks. Cordray's decision found that PHH, a mortgage lender, violated the Real Estate Settlement Procedures Act every time it received a reinsurance premium from a mortgage insurer to which it had referred a borrower, regardless of when the loan closed. Thus, PHH was ordered to disgorge all premiums that it accepted on or after July 21, 2008, not just those associated with loans that closed on or after July 21, 2008.
PHH comments. The decision drew a strong response from PHH: "We strongly disagree with the decision of the Director. We believe this decision is inconsistent with the facts and is not in accord with well-settled legal principles and interpretations. We continue to believe we complied with RESPA and other laws applicable to our mortgage reinsurance activities. The Company did not provide reinsurance on loans originated after 2009. We intend to file an appeal to the United States Court of Appeals. While there can be no assurances as to the final outcome of any such appeal, we believe our appeal will be successful and, as a result, are not adjusting our previously issued earnings guidance."
Standard of review. Under the CFPB’s rules, when a party appeals an ALI's recommended decision, the CFPB Director’s review as to both facts and law is de novo, giving Cordray discretion to alter the Administrative Law Judge’s ruling.
Statute of limitations and retroactivity. Cordray found that no statute of limitations applies when the Bureau challenges a RESPA violation in an administrative proceeding. The RESPA statute of limitations applies to the CFPB only if it brings an enforcement action in court, and because this proceeding was administrative, RESPA's time limit did not apply.
The CFPB took over enforcement authority for RESPA from the Department of Housing and Urban Development (HUD) under the Dodd-Frank Act on July 21, 2011. As of the last day that HUD could enforce RESPA, it was limited to challenging violations that occurred no earlier than July 21, 2008. If the CFPB were to challenge violations that occurred prior to that date, this would be a retroactive application, Cordray said. Thus, the CFPB lacked authority to pursue violations that occurred before July 21, 2008.
Civil money penalty. Since RESPA did not authorize HUD to seek a civil money penalty, Cordray concluded that it would be an inappropriate retroactive application of the CFPB's authority for it to seek civil money penalties for violations that occurred before the bureau was created. As a result, the CFPB may seek civil money penalties only for violations that occurred on or after July 21, 2011.
Although PHH's size, lack of good faith, and the gravity of the violations would have weighed against mitigation of penalties, Cordray decided not to impose a civil money penalty. The CFPB Director noted that no civil money penalties could have been imposed under RESPA's framework for the vast majority of PHH's conduct over the period encompassed by its captive reinsurance agreements and that he had the discretion to conclude that the award of disgorgement was sufficient.
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