A district judge has refused to reconsider an earlier ruling that the Consumer Financial Protection Bureau’s Reg. O—Mortgage Assistance Relief Services (12 CFR Part 1015) cannot be applied to attorneys who are performing services that are part of the licensed practice of law. The court expressed concern that a contrary ruling relied upon by the CFPB could open a “can of worms” if federal courts were called upon to decide what constitutes the unlawful practice of law in each state (CFPB v. The Mortgage Law Group, LLC).
Even if the challenge had not been
waived due to a failure to seek reconsideration until the eve of trial, a new
judge in the case could find no basis for rescinding the earlier ruling that the regulation’s exemptions for attorneys are
too narrow because they would permit the CFPB to regulate the practice of law, which the Dodd-Frank Act
placed beyond the bureau’s authority. Regulatory provisions that conditioned
exemptions on the attorney’s compliance with state laws
were too restrictive, in the court’s view.
Subsequently, the judge said the rule provisions that are
permissible retain their effectiveness, without deciding whether the attorneys
and their affiliated companies actually had violated either the rule or the
Dodd-Frank Act ban on unfair, deceptive, and
abusive acts or practices. Now, the court was
unwilling to eliminate the primary defense in a case set to go to trial in a
week.
CFPB rulemaking authority. The CFPB sought reconsideration, citing a later decision by a
different court agreeing with its reading of the statute, that the bureau
inherited the Federal Trade Commission’s authority to regulate attorneys
engaged in the practice of law based on a 2009 Omnibus Act which authorized the
FTC to regulate mortgage lending practices. Refusing to rely on the contrary
opinion, the court pointed to direct conflict with the 2010 Consumer Financial
Protection Act’s general prohibition against regulating attorneys engaged in
the practice of law and the failure of the Omnibus Act to address the
regulation of attorneys. As a result, the court could not find “clear error” in
the earlier rejection of the CFPB’s rulemaking authority in this area.For more information about CFPB oversight of conduct involving mortgage issues, subscribe to the Banking and Finance Law Daily.
