Page 75 - Pay Magazine s2014

volume 9 • fall 2016
Companies should review past CFPB enforcement actions to ensure they don’t make the same costly mistakes.
in connection with its accreditation of for-pro t schools, which were themselves under investigation for allegedly improper student loan practices. The accreditation body opted to litigate the matter rather than respond to the inquiry, ar- guing that the bureau didn’t have jurisdiction over its operations.
The U.S. District Court for the District of Columbia agreed and refused to enforce the CID, holding that the CFPB’s attempt to assert jurisdiction over an accreditation body of for-pro t schools was
“a bridge too far” because the bureau’s authority to investigate the lending and nancial-advisory services of for-pro t schools did not encompass college accredita- tion. The district court concluded that “[al]though it is understand- able that new agencies like the CFPB will struggle to establish the exact parameters of their authority, they must be especially prudent before choosing to plow headlong into elds not clearly ceded to them by Congress.”
In another challenge to the scope of the CFPB’s authority, PHH Cor- poration, a mortgage lender, ser- vicer and reinsurance company, appealed an administrative order for alleged violations of the Real Estate Settlement Procedures
Act (RESPA). The case is com- plex, but in short the CFPB alleged that the company’s reinsurance arrangements were not permitted under RESPA despite past inter- pretive guidance from the O ce of the Comptroller of the Currency
and the Department of Housing and Urban Development recog- nizing the permissibility of these arrangements.
In an administrative proceeding,
a CFPB administrative law judge ordered PHH to pay a civil penalty of about $6 million. PHH led an administrative appeal to Director Richard Cordray, who not only up- held the CFPB’s ndings but also increased the disgorgement amount to $109 million, reasoning that RESPA’s three-year statute of lim- itations did not apply and that the company was responsible for dis- gorging all reinsurance premiums it had received since the Dodd-Frank Act became law. PHH appealed the decision and received a de novo hearing from the District of Colum- bia Circuit to review the case, after obtaining a stay on the order to pay the civil monetary penalty.
At oral arguments in April 2016, the court appeared to seriously consider PHH’s claims that: 1) the agency is unconstitutional because its single director is only removable for cause; and 2) the Dodd-Frank Act did not eliminate all statutes
of limitation in an administrative appeal, among others. The case is currently pending, but the decision could have far-reaching implica- tions on the powers of the director
and the bureau’s remedial powers when using an administrative enforcement forum.
While these challenges to the CFPB’s authority could clarify the agency’s jurisdictional reach and remedial powers, the CFPB likely will continue investigating actors involved in alleged wrongful prac- tices that are related to the o ering of consumer nancial products or services. Companies that facilitate the actions of many others, includ- ing payment processors and service providers that might not view themselves as nancial institutions subject to CFPB oversight, will continue to be viewed as e ective, e cient enforcement targets. Organizations subject to the CFPB’s jurisdiction should review past enforcement actions to avoid alleged violations of the law con- ducted by others to ensure they don’t make the same mistakes.
Adam Maarec and Chris Chamness
are associates in the nancial services practice of the Washington, D.C., o ce of Davis Wright Tremaine LLP. Read their blog PaymentLawAdvisor.com
for developments on CFPB enforcement activity, including their UDAAP data- base. Adam can be reached at adammaarec@dwt.com. Chris can
be reached at chrischamness@dwt.com.
paybefore.com 73