Virtually ever since its inception on July 21, 2011, the Consumer Financial Protection Bureau (CFPB) has inspired wariness and skepticism in the financial institutions and financial services providers subject to this new agency’s rather ill-defined “jurisdiction” and enforcement authority. As the CFPB embarked on an unmistakably aggressive campaign to exert authority over various sectors of the consumer finance world, industry professionals’ concerns rapidly escalated. Those grew into impassioned pleas that someone, hopefully would bring about elimination of the CFPB entirely, or to greatly curtail the scope of its powers. A recent oral argument in the United States Court of Appeals for the District of Columbia Circuit may offer those most disturbed by the CFPB’s practices, their greatest basis to date, for hope that the agency will be reined in going forward. The dispute that led up to the appellate court oral argument may serve as an “Exhibit A” for anyone wishing to claim that the CFPB exceeds its mandate in various ways, and can be, at times, recklessly punitive towards the companies it oversees. On January 29, 2014, the CFPB issued a notice of charges alleging that PHH Corp. was involved in a kickback scheme. The CFPB alleged that PHH referred mortgage insurance business to mortgage insurers in exchange for mortgage reinsurance contracts which those insurers entered into with PHH’s wholly-owned subsidiary, Atrium Insurance Corporation.
A trial on these charges took place, adjudicated not in court, but rather by a CFPB—yes, CFPB—administrative law judge. That judge found that when a mortgage insurer entered into a reinsurance contract with Atrium, it typically would then receive substantial mortgage insurance business from PHH. Moreover, on the occasions when those reinsurance contracts were terminated, referrals from PHH to the mortgage insurer would decrease substantially. The CFPB administrative law judge found that this relationship constituted a prohibited kickback under Section 8(a) of the Real Estate Settlement Procedures Act (RESPA). The result: a $6.4 million disgorgement penalty and injunctive relief against PHH. Continue Reading