On January 31, the CFPB issued consent orders against four entities—a mortgage lender, two real estate brokers, and a mortgage servicer—alleged to have participated in an illegal mortgage business referral scheme. According to the first order (2017-CFPB-0006), the mortgage lender violated RESPA when it, among other things, (i) paid for referrals pursuant to various agreements with real estate brokers and other counterparties; (ii) encouraged brokers to require consumers to “prequalify” with the lender; and (iii) split fees with a mortgage servicer to obtain consumer referrals. Based on these and other allegations, the CFPB ordered the lender to pay a $3.5 million civil money penalty. In addition, the Bureau issued consent orders against the two real estate brokers and the mortgage servicer that allegedly participated in the kickback scheme (see 2017-CFPB-0008, 2017-CFPB-0009, and 2017-CFPB-0007). Notably, the Bureau alleges that the servicer also violated FCRA by ordering “trigger leads” from credit bureaus so that it could market the lender to consumers. The real estate brokers and servicer were ordered to pay a combined $495,000 in consumer relief, repayment of ill-gotten gains, and penalties. Read the special alert issued February 1 on InfoBytes.
Special Alert: D.C. Circuit Grants Petition for Rehearing in CFPB v. PHH Corp.; Vacates Judgment Based on Bureau’s Unconstitutionality
On February 16, the U.S. Court of Appeals for the D.C. Circuit granted the CFPB’s petition for rehearing en banc of the October 2015 panel decision in CFPB v. PHH Corporation. Among other things, the panel decision declared the Bureau’s single-Director structure unconstitutional and would have allowed the President to remove the CFPB’s Director at will rather than “for cause” as set forth in the Dodd-Frank Act. As a result of the petition for rehearing being granted, the panel’s judgment is vacated and the full D.C. Circuit will hear PHH’s appeal of the $109 million penalty imposed by the CFPB under the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA). Oral argument is scheduled for May 24, 2017.
As discussed in detail in our prior alert, the October panel decision unanimously concluded that the CFPB misinterpreted RESPA, violated due process by disregarding prior interpretations of the statute and applying its own interpretation retroactively, and failed to abide by RESPA’s three-year statute of limitations. However, only two of the three judges on the panel concluded that the CFPB’s status as an independent agency headed by a single Director violated the separation of powers under Article II of the U.S. Constitution. The third panel member, Judge Henderson, dissented from this portion of the opinion on the grounds that it was not necessary to reach the constitutional issue because the panel was already reversing the CFPB’s penalty on other grounds.
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If you have questions about the decision or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.
Special Alert: CFPB Consent Orders Address Wide Range of Real Estate Referral Practices Under Section 8(a) of RESPA
On January 31, the CFPB announced consent orders against mortgage lender Prospect Mortgage, LCC (“Prospect”), real estate brokers Willamette Legacy, LLC d/b/a Keller Williams Mid-Willamette, and RGC Services, Inc. d/b/a Re/Max Gold Coast Realtors (together, “the Brokers”), and mortgage servicer Planet Home Lending, LCC (“Planet”), based on allegations that a wide range of business arrangements between the parties violated the prohibition on “kickbacks” in Section 8(a) of RESPA.
In a press release accompanying the settlements, CFPB Director Richard Cordray stated that the Bureau “will hold both sides of these improper arrangements accountable for breaking the law, which skews the real estate market to the disadvantage of consumers and honest businesses.” The consent orders address a number of practices that have long been the source of uncertainty within the industry. Unfortunately, despite acknowledging in the orders that referrals are an inherent part of real estate transactions, the Bureau provided little constructive guidance as to how lenders, real estate brokers, title agents, servicers, and other industry participants should structure referral arrangements to comply with RESPA.
RESPA Section 8(a)
Section 8(a) of RESPA provides that “[n]o person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.”
Notably, the CFPB’s consent orders make no reference to Section 8(c)(2), which provides that “[n]othing in this section shall be construed as prohibiting … the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.” In a much discussed decision, a panel of the U.S. Court of Appeals for the D.C. Circuit reversed the CFPB’s $109 million penalty against PHH Corporation in October 2015 based on, among other things, the CFPB’s failure to establish that payments for the service at issue (reinsurance) exceeded the fair market value of the service. The CFPB is currently seeking rehearing of this decision from the full D.C. Circuit, as discussed in our summaries of the Bureau’s petition for en banc reconsideration, responses from PHH and the Solicitor General, a motion to intervene filed by several State Attorneys General, and, most recently, PHH’s reply to both the Solicitor General and the motions to intervene.
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If you have questions about the order or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.
On January 27, PHH filed a scheduled response brief to views briefed last month by the U.S. Department of Justice (DOJ) under President Obama, likely bringing to a close the parties’ briefing of the CFPB’s petition for en banc review by the full D.C. Circuit of the October 2016 three-judge panel decision in PHH Corp. v. CFPB. Also on January 27, PHH separately filed a (less significant) brief, opposing the recent-filed motion to intervene on the CFPB’s behalf submitted by 17 Attorneys General.
As previously covered on InfoBytes, late last year the Court invited briefing by President Obama’s DOJ on behalf of the United States. (Note that the DOJ does not represent the CFPB; the Bureau is legally permitted to litigate on its own behalf.) The DOJ’s brief focused on the constitutional issue (without wading into the RESPA rulings), and argued that the en banc court should either (i) review the panel’s majority holding that the CFPB’s structure was unconstitutional because the majority’s reasoning was erroneous in view of Supreme Court precedent, or (ii) review and simply adopt the dissenting panelist’s view that because the panel was in all events reversing the CFPB’s RESPA rulings and remanding to the CFPB on that basis, the panel majority should not have reached the constitutional issue.
In response to the DOJ, PHH argues that en banc review is unnecessary because the DOJ had only pointed to an error in the panel’s constitutional reasoning, without stating whether DOJ’s preferred mode of analysis would have led to a different result than the one reached by the panel, namely the severing of the “for cause” removal provision applicable to the CFPB Director under Dodd-Frank. PHH also contended that there is no precedent for an en banc court panel to review a panel decision just to determine whether the panel had properly reached a constitutional issue, and that in any event the panel’s decision to reach the issue was entirely proper (and therefore not worthy of review) because, as PHH’s framed the matter, the panel could not have remanded the case to an agency with a potentially unconstitutional structure.
In addition, on January 26, two other non-parties filed two motions to intervene on the CFPB’s side: (i) one by the Democratic Ranking Members of the Senate and House Committees with jurisdiction over the CFPB, Sen. Sherrod Brown of Ohio and Rep. Maxine Waters of California, respectively; and (ii) one by a coalition of interest groups, which included the Center for Responsible Lending, US PIRG, Americans for Financial Reform, the Leadership Conference on Civil and Human Rights, and other movants.
On January 23, the CFPB announced that it had entered consent orders (2017-CFPB-0004 , 2017-CFPB-0005), against two affiliated mortgage servicers, claiming the companies had misled homeowners seeking foreclosure relief. One of the respondent companies is alleged to have, among other things, burdened consumers with excessive and unnecessary paperwork demands in response to foreclosure relief applications thereby violating both RESPA and the Dodd-Frank Act’s prohibition on deceptive acts or practices. The Bureau is therefore requiring the company to pay an estimated $17 million to compensate affected consumers and to pay a civil penalty of $3 million.
As for the second respondent, the CFPB alleged that it failed to consider payment deferment applicants for foreclosure relief options, misled consumers about the impact of deferring payments, charged certain borrowers for credit insurance that should have been cancelled, prematurely cancelled credit insurance for other borrowers, provided inaccurate information to credit reporting agencies, and failed to investigate consumer disputes. Finding violations under RESPA, FCRA, and various “deceptive acts or practices,” the Bureau is requiring the second company to refund approximately $4.4 million to consumers and to pay a civil penalty of $4.4 million.