First CFPB Appellate Decision Asserts Agency has Broad RESPA Enforcement Authority

The Consumer Financial Protection Bureau (CFPB) issued its first appellate decision. Because the CFPB supervises banks, credit unions, and financial companies its operations can have an impact on both the corporate and the real estate worlds. This case in particular has broad implications for those affected by the Real Estate Settlement Procedures Act (RESPA).

What is RESPA?

RESPA is a law designed to make sure consumers are provided with certain information about the cost of mortgage settlement and that they are protected from overly high settlement charges that can in some circumstances be considered the result of abusive practices. The law was created because decades ago companies involved with the buying and selling of real estate were engaging in undisclosed kickbacks to one another. This increased the costs of real estate transactions and negatively impacted competition. The law used to be enforced by the Department of Housing and Urban Development, but a few years ago the government transferred the enforcement authority to the CFPB.

What Happened in this Case?

The CFPB’s first appellate decision deals with RESPA. In the decision the director affirmed the Administrative Law Judge’s (ALJ) early decision that a company violated RESPA by accepting kickbacks from mortgage insurers. However, the director also reversed the ALJ on certain issues which resulted in an increase in the monetary remedy. The relevant section of RESPA was 12 U.S.C ยง 2607. This portion of the law makes it illegal for any person to give or accept kickbacks or unearned fees in connection with a real estate settlement service.

How the Director Expanded the Company’s Financial Liability

The director ruled against the company and reversed the ALJ in a number of ways that increased the company’s financial liability. For example, the director ruled that the statute of limitations does not apply where the CFPB challenges a RESPA violation administratively. The director held that the statute of limitations only applies to enforcement actions brought in court. This ruling regarding the statute of limitations only applies to violations that happened after July 21, 2008. Additionally the director held that the company committed a new violation of RESPA each time it accepted one of these “kickbacks” on or after July 21, 2008, even if the mortgage closed before that date. This shows that the Bureau’s view is that the RESPA violation occurs when the money is received, not when the loan is closed. This will dramatically increase the number of enforcement actions possible.

Standard of Review

One of the issues with the rules that apply to these administrative hearings has to do with the broad discretion held by the director in ruling. An example of this discretion is that the rules do not include a standard of review that the director must follow. In this case the director determined that the appropriate standard of review in any appeal to the director is de novo. That means that the director will not give any deference to the factual determinations made by the ALJ.