The CFPB's First Contested Ruling By an ALJ From the Securities and Exchange Commision The CFPB's First Contested Ruling By an ALJ From the Securities and Exchange Commision

The CFPB's First Contested Ruling By an ALJ From the Securities and Exchange Commision

In re PHH Corporation, et. al. was another CFPB milestone – the first adjudication of a contested administrative action.  Until now, all but two of the CFPB’s administrative actions were filed as consent orders.  One of those exceptions later resulted in a settlement. This makes In re PHH unique as the first test of the CFPB’s administrative hearing procedure.
 
In re PHH involved an alleged mortgage kickback scheme.  PPH is a mortgage lender that allegedly did business only with mortgage insurance companies that agreed to purchase reinsurance from a subsidiary of PPH at above market rates.  The CFPB sought $430 million in disgorgement and civil penalties from PPH.  The ALJ (on loan from the SEC) ruled in favor of the CFPB, but only for $6 million – far less than the CFPB sought.  The ALJ’s reasoning for limiting the damage award was that most of the CFPB’s claim for damages consisted of civil penalties, but many of the alleged transgressions occurred before the CFPB had jurisdiction to levy civil penalties.  PPH filed a notice of appeal to the ALJ’s decision and Director Cordray will rule on the appeal in early 2015.
 
In addition to its novelty, In re PHH is instructive for two reasons.  First, the case went from filing (January 29, 2014) to decision (November 25, 2014) in 300 days – much faster than typical litigation.  Second, the “discovery” process in the administrative proceeding is very different than litigation.  Pursuant to the mandatory disclosure deadline, the CFPB sent PHH a hard drive containing every document PPH had turned over through the CFPB’s investigation, but only five weeks before trial.  The ALJ found the administrative disclosure rules did not require more.  

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
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