In the first-ever appeal from the decision of an administrative law judge, Consumer Financial Protection Bureau Director Richard Cordray imposed a $109 million award against PHH Mortgage — far more than the $6.4 million awarded by the ALJ.
Although not a decision involving marketing, every lender should take the time to carefully review the PHH reinsurance case.
Beyond demonstrating the risk of an internal CFPB administrative appeal, Cordray made two specific and ominous rulings.
When the CFPB initiates administrative enforcement proceedings (as opposed to court proceedings) the agency is free to apply the statute of limitations backward from July 21, 2011 — the date the CFPB was created — rather than the date the agency takes the enforcement action.
What this meant for the PHH case was that instead of the liability stemming back 3 years from the initiation of a complaint against PHH, Cordray ruled that the statute of limitations would stretch all the way back to July, 2008.
Making matters worse, Cordray ruled that actions prior to July 21, 2008 would be subject to remedial civil action as long as payments to PHH were received after July 21, 2008. As such, PHH could be held responsible for its actions before July, 2008 — beyond the three-year statute of limitations allowed by the Real Estate Settlement Procedures Act.
In ruling that PHH violated RESPA, Cordray also decided that a violation could be found even when fair market value was paid for services actually provided.
Regardless of whether fair market value was paid, RESPA is violated if the arrangement between the parties hinged in part on the agreement or understanding that referrals would be provided.
In other words, any arrangement that in part involves an agreement to provide referrals violates RESPA, even if the relationship is otherwise completely legitimate.
Conversely, even when referrals are involved in the provision of services, no violation occurs if the referral itself was not in part a reason for the compensation and/or relationship.
Determining whether a RESPA violation has occurred is ultimately a subjective conclusion about whether the fee-for-services arrangement was in any part predicated on an agreement to provide referrals.
The CFPB's decisions in PHH should cause lenders to carefully reevaluate desk rental, co-marketing and marketing services agreement relationships to ensure that there is no evidence to suggest that referral business was in part the reason for the creation or maintenance of the relationship.