In a response brief to the U.S. Court of Appeals for the District of Columbia, the Consumer Financial Protection Bureau (“CFPB”) said that its recalculation of a fine against PHH Corporation that increased the penalty from $6.4 million to $109.2 million was justified to ensure that PHH did not “keep the fruits of its kickback scheme” and “encourage others to take advantage of areas of statutory uncertainty.”
The DC Circuit stayed the $109.2 million civil penalty against PHH Corporation while the mortgage lender appealed the CFPB decision announced in June 2015 by CFPB Director Richard Cordray.
The $109.2 million penalty was substantially more than the $6.4 million fine an Administrative Law Judge (“ALJ”) assessed against PHH in November 2014 for allegedly demanding that mortgage insurers purchase reinsurance from a PHH subsidiary. Cordray agreed with the ALJ’s findings — that PHH had engaged in a mortgage insurance kickback scheme under the Real Estate Settlement Proceedings Act (“RESPA”) — but disputed the ALJ’s disciplinary action, which assessed the $6.4 million penalty based on all mortgages that closed on or after July 21, 2008.
Instead, Cordray said that PHH should have been penalized for each payment it received as a purported kickback after July 21, 2008, which raised the penalty to $109.2 million. PHH was also ordered to make certain disclosures to the Bureau and abandon the captive reinsurance market for 15 years. Cordray then instituted an August 5, 2015, deadline for the company to pay the penalty.
PHH petitioned the D.C. Circuit to stay the August 5 payment deadline while the company appealed. PHH argued that complying with the CFPB’s order would irreparably harm its business because certain provisions of the Bureau’s order were “impermissibly vague.” In addition, PHH said the order would deprive the company of due process. PHH also contends that the CFPB is unconstitutional because its structure — with Cordray as the sole authority for final decisions — violates the separation of powers doctrine.
Final briefs in the case are due in mid-December with argument scheduled for next spring. A ruling is expected by the fall of 2016 in this closely-watched case that is the first test of the CFPB’s enforcement powers.
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