Federal Hearing Set in Case Challenging CFPB's Power, Structure

A federal appeals court will hear the case of mortgage lender PHH Corp. v. CFPB on April 12. The case challenges the CFPB’s authority under the Real Estate Settlement Procedure Act (RESPA) and its fine and administrative enforcement action against one of the nation’s largest residential mortgage lenders.

PHH Corp. also is testing the CFPB’s power and single-director structure. 

The challenges to the CFPB's enforcement powers and overall structure will be closely watched by the collection industry. The federal regulator has consistently cracked down on collections and while some industry players believe legitimate companies have little to fear, others say the industry as a whole often has been unfairly targeted.

The crux of the PHH Corp. case began two years ago when the CFPB claimed that New Jersey-based PHH Corp. violated RESPA by participating in a mortgage insurance kickback scheme for more than a decade through its mortgage origination and reinsurance subsidiaries. PHH Corp. was accused of jacking up consumers’ closing costs by demanding that mortgage insurers buy reinsurance from PHH Corp.’s in-house reinsurance company. 

The mortgage lender contested the CFPB’s charges that it violated the anti-kickback provisions of RESPA, but an administrative law judge ruled in favor of the CFPB in November 2014. The judge granted injunctive relief and ordered the mortgage lender to pay more than $6 million in damages. The CFPB first initiated an administrative proceeding against PHH Corp. in January 2014.

Cordray sought for PHH Corp. to pay more money and, last June, increased the amount to $109 million based on his decision that it was liable for violating RESPA every time it accepted a kickback payment on or after July 21, 2008.The fine was originally due to the CFPB within 30 days, but PHH Corp. secured a stay against the fine while it appealed Cordray’s final decision on the enforcement action. PHH’s residential mortgage origination subsidiaries, PHH Mortgage Corp. and PHH Home Loans LLC and PHH’s wholly-owned subsidiaries, Atrium Insurance Corp. and Atrium Reinsurance Corp., also were included in the CFPB’s action. 

PHH Corp. had argued that complying with the CFPB order would violate its due process rights and harm the business irreparably. 

"The balance of hardships and the public interest heavily favor a stay," PHH told the court in its motion for stay. "There is no public interest in enforcing an order that violates the fundamental right to fair notice or injunctive provisions that are plainly unlawful.”

The District of Columbia U.S. Circuit Court of Appeals, which will hear the case beginning April 12, granted the stay.