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$109M CFPB Penalty Against Mortgage Lender PHH Stayed by DC Circuit – Glass & Goldberg | Financing, Property & Bankruptcy Law
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$109M CFPB Penalty Against Mortgage Lender PHH Stayed by DC Circuit

$109M CFPB Penalty Against Mortgage Lender PHH Stayed by DC CircuitA three-judge appeals panel from the U.S. Court of Appeals for the District of Columbia Circuit has stayed a $109.2 million civil penalty against PHH Corporation by the Consumer Financial Protection Bureau (“CFPB”) while the mortgage lender appeals that 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 earlier this year 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 Cordray’s decision 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 separation of powers doctrine.

The Bureau argued that PHH had not demonstrated its likelihood to prevail in its appeal and had not shown that it would be harmed by paying the penalty. “PHH contends that it will be irreparably harmed by the second and third provisions of the order because they are ‘impermissibly vague,’” the CFPB said. “But, in fact, it is PHH’s allegations of harm that are vague.”

The federal appeals panel did not provide any discussion of either party’s arguments, but sided with PHH, saying that it had “satisfied the stringent requirements for a stay pending appeal.”

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