One case in the Consumer Financial Protection Bureau's (CFPB) portfolio has many in the mortgage industry questioning whether or not the organization's power and authority is used unjustly.
The CFPB, often referred to as the "consumer watchdog," was created in response to the financial crisis in 2010 as part of the Dodd-Frank Act. However, unlike other government agencies, the power of the agency is left on one man's shoulders: CFPB Director Richard Cordray.
Time reported, "This aspect of the agency was controversial when it was established, and it’s only grown more contentious, after a flawed algorithm for determining racist housing practices was outed and not corrected. And now, due to a new court case brought by a lender, the bureau’s power will finally come to a head—in court."
In late 2014, the CFPB fined New Jersey lender PHH Corp., $6.4 million for allegedly harmed consumers through a mortgage insurance kickback scheme that began back in 1995.
Administrative Law Judge Cameron Eliot stated in a Recommended Decision in November 2014 that PHH took kickbacks in the form of reinsurance premiums paid to a PHH subsidiary by mortgage insurers, a violation of the Real Estate Settlement Procedures Act (RESPA). The mortgage loans in question closed on or after July 21, 2008, according to CFPB. PHH is alleged to have begun accepting the kickback payments as early as 1995.
Whereas Eliot's decision stated that PHH's RESPA violations were connected to loans closing on or after July 21, 2008, Cordray went beyond that ruling by saying that PHH was in violation of RESPA for every kickback payment the company accepted after that date.
After the CFPB's initial ruling, PPH took the CFPB to court to dispute the case, where the case was then taken to CFPB Director Cordray, who revised the penalty to $109 million.
According to the Wall Street Journal, "the court case is just one sign that, four years after the agency’s creation, debate rages over its authority to police a vast swath of the sector, from credit cards and mobile-phone payments to college accreditation."
"The argument often turns on the CFPB’s “single-director” structure—an unusual system designed to empower its leader to make sweeping changes swiftly," the Wall Street Journal said.
In response to Cordray's announcement of the penalties, PHH issued the following statement: "We strongly disagree with the decision of the Director. We believe this decision is inconsistent with the facts and is not in accord with well-settled legal principles and interpretations. 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. We intend to file an appeal to the United States Court of Appeals. While there can be no assurances as to the final outcome of any such appeal, we believe our appeal will be successful and, as a result, are not adjusting our previously issued earnings guidance."
The CFPB did not respond to a request for comment at the time of this article publication.