On March 9, a regulatory milestone occurred. Consumer Financial Protection Bureau Director Richard Cordray presided over oral arguments in the first ever appeal of a CFPB administrative enforcement action. As this blog reported on December 31, 2014, this appeal concerns the first “recommended decision” issued by an Administrative Law Judge in a contested CFPB enforcement action.
The case involves the companies PHH Mortgage Corporation and Atrium Insurance Corporation. These companies allegedly gave and received roughly $6 million in payments through a “captive” mortgage reinsurance arrangement. The ALJ held that these payments were “kickbacks” in violation of Sections 8(a) and 8(b) of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601-2617. In his recommended decision, the ALJ:
- Ordered the companies to disgorge the $6 million;
- Enjoined them from engaging in the “captive” mortgage reinsurance business for fifteen years; and
- Required them to disclose to the CFPB within thirty days “all services provided to any of them by any mortgage reinsurance company since January 1, 2014.”
The CFPB’s Rules of Practice for Adjudication Proceedings provide that any party has the right to file a notice of appeal and file an opening appeal brief after a hearing officer issues a recommended decision in an administrative adjudication. The Director may either adopt the recommended decision or order additional briefing “with respect to any findings of fact or conclusions of law contained in the recommended decision.” Finally, the Director may hold oral argument if the Director determines that it would be helpful. However, other aspects of the adjudication process are murky. For instance, the Rules require that a recommended decision “be supported by reliable, probative, and substantial evidence,” but the appellate standard of review is unclear.
Cordray conducted the hearing in a relatively informal manner, giving each party thirty essentially uninterrupted minutes to present its case. At one point, though, he did indicate that he was “not persuaded” by CFPB counsel’s theory that the companies’ captive reinsurance arrangement was a “continuous violation” under the case law. This finding would make each violation of theirs actionable regardless of whether it occurred within the limitations period. Cordray also stated at another point that he thought “the ALJ handled offsets in a sensible manner.”
Given its precedential significance, the Director’s ultimate decision will be closely monitored.