In a case that saw lending company PHH fined $6.4 million dollars by the Consumer Financial Protection Bureau (CFPB) for allegedly taking kickbacks for referrals, the penalty was eventually increased to $109 million, then appealed by PHH, and finally thrown out by the United States Court of Appeals for the District of Columbia Circuit, which also found aspects of the CFPB unconstitutional.
Here’s what you need to know.
A 16-Fold CFPB Penalty Increase
PHH’s original penalty of $6.4 million, which was handed down by Administrative Law Judge Cameron Elliot, limited PHH’s violations to kickbacks that were connected with loans that closed on or after July 21, 2008. CFPB Director Richard Cordray then expanded the penalty far beyond Elliot’s ruling, including violations of the Real Estate Settlement Procedures Act (RESPA) for all accepted kickback payments that occurred on or before July 21, 2008. That expansion increased the penalty an additional $103 million – a 16-fold increase – to a total of $109 million.
Court of Appeals Decision
PHH appealed the decision, alleging that Cordray did not have the authority to increase the fine and questioning the CFPB’s constitutionality. Shockingly, the United States Court of Appeals for the District of Columbia Circuit agreed with PHH.
“The Director of the CFPB is the single most powerful official in the entire United States Government,” the court stated. “Because the Director alone heads the agency without Presidential supervision, and in light of the CFPB’s broad authority over the U.S. economy, the Director enjoys significantly more unilateral power than any single member of any other independent agency.”
Impact on Lenders Nationwide
While other governmental departments (Department of Justice, Department of the Treasury, etc.) are operated within the Executive Branch and under the supervision and direction of the President, the CFPB is not. Now that has changed, and the CFPB will operate like other federal agencies. The takeaway? The court’s decision is good for PHH, but also good for the lending world at large.
Brightline Title: Insurance, Escrow & Settlement Services
Brightline Title is committed to providing mortgage lenders with title insurance, title services, and closing support that meet CFPB compliance and satisfy all state-specific laws. We offer title services, legal referrals, on-site and mobile closing support, and much more. For more information, please visit our homepage or contact us today.
