This month, Consumer Financial Protection Bureau Director Richard Cordray issued a groundbreaking decision in the first ever appeal of an administrative enforcement proceeding. In his decision, Cordray largely affirmed the November 2014 judgment of Administrative Law Judge Cameron Elliot. Judge Elliot had found that PHH Corp., a mortgage lender, violated the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. §§ 2601-2617, by referring consumers to mortgage insurance companies in exchange for kickbacks in the form of mortgage insurance reinsurance premiums paid to PHH subsidiaries. After both parties appealed, Cordray heard oral arguments on March 9 – an event previously reported on here.
As Cordray explained in his decision, Congress enacted RESPA in 1974 after finding that the real estate settlement services market did not function competitively but was instead prone to exploitative and unreasonable practices. Congress expressly designed RESPA to protect consumers “from unnecessarily high settlement charges caused by certain abusive practices.” 12 U.S.C. § 2601(a). Among other provisions, the statute bans kickbacks that tend to unduly increase the cost of mortgage settlement services. Effective July 21, 2011, the CFPB assumed responsibility for administering and enforcing the statute.
According to the CFPB investigation in this case, PHH oversaw a mortgage insurance kickback scheme dating back to 1995. Allegedly, when PHH originated mortgages, it referred consumers to mortgage insurers with which it partnered. In return, these insurers purchased reinsurance from PHH subsidiaries – fees that PHH took as kickbacks. The CFPB maintained that these kickbacks artificially inflated mortgage insurance premiums for consumers.
In his decision, Cordray found that PHH violated RESPA every time it accepted a kickback on or after July 21, 2008. In his accompanying order, the Director mandated that PHH and its affiliates:
- cease and desist from violating Section 8 of RESPA, 12 U.S.C. § 2607(a);
- cease and desist from entering into any captive reinsurance agreement for 15 years;
- cease and desist for 15 years from referring their customers to settlement service providers that have agreed to purchase services from them in exchange for such referrals;
- maintain records from July 21, 2008, and for 15 years forward of “all things of value” that any of them has received or receives from any settlement service providers to which they have referred customers; and
- disgorge $109,188,618 to the CFPB.