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Legal Experts Weigh In on CFPB Action Against PHH

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Several legal experts have weighed in on the Consumer Financial Protection Bureau’s decision to order PHH Corp.  to pay $100 million more than was recommended by an administrative law judge.

Back in January 2014, the Consumer Financial Protection Bureau disclosed that an investigation into PHH found that the lender and four subsidiaries collected collected kickbacks from
Atrium Insurance Corp. and Atrium Reinsurance Corp. through reinsurance arrangements.

The payments, which amounted to hundreds of millions of dollars,
violated the Real Estate Settlement Procedures Act, according to the CFPB.

So the regulator filed an administrative action against PHH seeking a civil fine, restitution for victims and a permanent injunction to prevent future violations.

Administrative Law Judge Cameron Elliot
issued a decision in November 2014 recommending that PHH disgorge $6,442,399.

Both PHH and
the CFPB’s enforcement counsel appealed the recommendation to CFPB Director Richard Cordray — the first such appeal of a CFPB administrative enforcement action.

But instead of following the judge’s recommendation, the CFPB announced on June 4 that Cordray had, in part, reversed the decision and issued an order requiring the Mount Laurel, New Jersey-based company to pay $109 million.

“He issued a 38-page decision and final order that requires PHH to disgorge $109 million and imposes strict injunctive relief,” a case summary from Foley & Lardner LLP said. “In so holding, the director rejected several long standing principles that RESPA case law and HUD policy statements and advice had previously established.”

The Foley & Lardner writeup was one of several collected by Anne Canfield of
Canfield & Associates Inc. — a firm that consults financial services companies about government relations — and distributed to the media.

While the judge
limited PHH’s violations to kickbacks that were connected with loans that closed on or after July 21, 2008, Cordray instead held that PHH violated RESPA every time it accepted a kickback payment during the period.

The $109 million will not be paid to consumers since none were harmed. In addition, the money was not described as a civil penalty, enabling the regulator to evade the limitations placed on such payments under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Foley & Lardner noted that although a three-year statute of limitation applies for CFPB enforcement in civil court actions, Cordray agreed with the judge that no statute of limitations applies when the regulator challenges a RESPA violation in an administrative proceeding.

The decision seemed to contradict a 1997 letter from then-Federal Housing Commissioner Nicholas Retsinas stating that captive reinsurance arrangements are permissible under RESPA as long as the Section 8(c)(2) exception for payments in return for goods or facilities actually furnished or for services actually performed is satisfied.

“The director flatly rejected HUD’s 1997 letter regarding reinsurance, long relied upon by the industry (and credited even by ALJ Elliot),” Foley & Lardner wrote.

Robert Hugh Ellis of Dykema wrote that
the detailed nature of the decision and the giant increase in the disgorgement penalty send a clear message that the CFPB is viewing enforcement very seriously.

“Entities subject to bureau enforcement jurisdiction are well advised to take careful note,” Ellis said.

For its part, PHH issued a statement indicating strong disagreement with Cordray’s decision.

“We believe this decision is inconsistent with the facts and is not in accord with well-settled legal principles and interpretations,” a June 4 statement from PHH said. “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.”

PHH plans to appeal the decision — which would require it to place the $109 million into an escrow account.

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