The Consumer Financial Protection Bureau (CFPB) is defending itself against a $109 million penalty the Bureau handed down to PHH Corp. for allegedly accepting kickbacks from mortgage insurers.
In June, CFPB Director Richard Cordray, in agreement with a November 2014 recommended decision by Administrative Law Judge Cameron Eliot, decided that the New Jersey-based mortgage services provider had violated the Real Estate Settlement Procedures Act (RESPA) by accepting kickbacks for illegally referring consumers to mortgage insurers as far back as 1995. Cordray ordered PHH to disgorge $109 million, the amount the CFPB claims PHH received in kickbacks. With that decision, Cordray overturned an administrative judge's original disgorgement order of $6.4 million, saying that penalty was too lenient.
The Bureau first announced the administrative proceeding against PHH in January 2014 seeking a civil fine, a permanent injunction to prevent future violations, and victim restitution. The $109 million penalty handed down by Cordray is the amount of reinsurance premiums PHH received on or after July 21, 2008, according to the CFPB.
Almost immediately, PHH's lawyers filed a petition with the District of Columbia U.S. Circuit Court of Appeals to “modify or set aside civil investigative demand,” claiming an abuse of power on the part of the CFPB. In the petition, PHH also questioned the constitutionality of an agency such as the CFPB which is funded by the Federal Reserve but not subject to the Congressional appropriations process and run by a single director rather than a board.
Recently, the CFPB defended itself and the $109 million disgorgement in a filing with the D.C. U.S. Circuit Court of Appeals, claiming the penalty was a “small fraction” of the kickbacks and that the $109 million was merely money that the company should have never received to begin with, and therefore in essence not a penalty.
A CFPB spokesman told DS News that the Bureau did not comment on pending litigation. A spokesman for PHH Corp. did not immediately respond to a request for comment, but the company did issue a statement in June saying, “We strongly disagree with the decision of the Director. 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 company did not provide reinsurance on loans originated after 2009.”
A trio of judges from the District of Columbia U.S. Circuit Court of Appeals later stayed the August 5 deadline by which PHH was supposed to pay the $109 million to the CFPB.