On June 4, 2015, CFPB Director Richard Cordray decided the first appeal of a CFPB administrative enforcement action. The Director concluded that a mortgage lender, PHH Corp., referred consumers to mortgage insurers in exchange for kickbacks, violating the Real Estate Servicing Protection Act's (RESPA's) anti-kickback provisions.
The Director's decision upholds in part and reverses in part the Administrative Law Judge's (ALJ's) November 2014 Recommended Decision, which held that PHH violated RESPA through kickbacks consisting of mortgage reinsurance premiums that the mortgage insurers paid to a subsidiary of PHH, Atrium Insurance Corp. (which became Atrium Reinsurance Corp. in 2009). In exchange for PHH referring mortgage borrowers to them, the mortgage insurers would contract with and pay premiums to PHH's mortgage reinsurance subsidiary. In issuing his decision and final order, Director Cordray denied the appeal filed by the mortgage lender and other respondents. He granted in part, and denied in part, an appeal filed by the CFPB's enforcement counsel.
Director Corday issued a final order that prohibits PHH from violating the law and requires PHH to satisfy a $109 million disgorgement. In addition to the injunctive relief provided by the ALJ, Director Cordray added an additional injunction prohibiting PHH from referring borrowers to any provider of a settlement service if that provider has agreed to purchase a service from PHH, and if payment for that service is triggered by the referrals.
- De Novo Review: Director Cordray reviewed the ALJ's decision de novo, allowing the Director to decide on issues of fact, rather than be limited to finding errors in the ALJ's interpretation of the law or abuses of discretion.
- Every "Kickback" Is a Violation: Director Cordray held that a RESPA violation occurred every time there was a "kickback" to PHH—thus, PHH committed a separate violation of RESPA every time it accepted a reinsurance payment from a mortgage insurer. The Director's decision sends an important message to companies in the mortgage industry and beyond regarding the calculation of remedies under the RESPA anti-kickback provision.
- Retroactivity: RESPA's three-year statute of limitations does not apply to CFPB administrative enforcement proceedings. However, the CFPB is bound by the application of the statute of limitations to HUD. Accordingly, the CFPB's administrative authority under RESPA extends back only as far as HUD's ability to challenge violations before the CFPB took over the statute—July 21, 2008. Further, for conduct prior to its creation, the CFPB is limited to remedies available to the previous regulator, but is allowed to impose remedies that may be inferred from the regulator's injunctive authority.
- No Affirmative Defense under Section 8(c)(2): Director Cordray held that while Section 8(c)(2) clarifies that provisions for "services actually performed" do not constitute a kickback, they do not provide a liability shield for quid pro quo arrangements where referral is conditioned upon the "opportunity to sell reinsurance," which the Director deemed was itself a "thing of value" given in exchange for referrals. This is similar to the Lighthouse Title Consent Order, where the CFPB considered a contract for marketing services to be a "thing of value" given in exchange for referrals, even where payment was made for legitimate marketing services performed.
- Related Persons: "Related persons"—subject to CFPB enforcement authority—may be related to a covered person, or to another related person.
The Director upheld the ALJ's decision regarding injunctive relief, consisting of (1) an order to cease and desist from violating the RESPA anti-kickback provision; (2) an order enjoining PHH from engaging in the business of captive insurance for 15 years; and (3) an order to disclose all services provided to them by any mortgage insurer since 2004.