The Consumer Financial Protection Bureau is pushing back against a lawsuit from PHH Corp. that claims the agency erred in overturning an administrative law judge's recommendation to limit the amount of penalties it could face.
An administrative judge ruled this summer that PHH had to disgorge $6.4 million for its involvement in an alleged reinsurance kickback scheme. But CFPB Director Richard Cordray overruled the recommendation, claiming it was too lenient for violations of the Real Estate Settlement Procedures Act.
After PHH filed suit in the U.S. Court of Appeals for the District of Columbia Circuit, the CFPB fired back in a filing last week in which it said a disgorgement that low would not effectively penalize the lender. It is seeking to force the company to disgorge $109 million, the total amount of money the agency claims lenders received from the kickback scheme.
"Although the order requires PHH to disgorge $109 million, that amount is a small fraction of the kickbacks PHH received…, and is merely a disgorgement of funds PHH should never have received in the first place," according to the CFPB brief.
PHH could not be reached for immediate comment. However, the mortgage lender previously said it disagrees with the CFPB director's ruling.
"We strongly disagree with the decision of the director," PHH said in a statement back in June. "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 PHH case is controversial because it calls into question the legality of marketing services agreements between lenders and other vendors.
In an amicus brief filed with the D.C. circuit court on Oct. 5, the National Association of Realtors said it was concerned with the CFPB's position, arguing it could disrupt MSAs between lenders and real estate brokers.
"In light of RESPA penalties, the director's decision in this case represents an unfair and unprecedented departure from substantial, uniform precedent and agency guidance. On behalf of its members, NAR respectfully requests that the decision be reversed and vacated," NAR wrote.