Lender Still on the Hook Despite CFPB Consent Order


A recent motion filed by a mortgage
company to dismiss portions of a class action suit against it shows, according
to an attorney familiar with the matter, that a consent order settling charges
brought by the Consumer Financial Protection Agency (CFPB) “does not
necessarily bring finality to the issues it covers.”   At least not in the absence of releases
from affected consumers.

Barbara S. Mishkin, writing in the
Ballard Spahr CFPB Monitor says
that earlier this week Castle Cooke Mortgage, LLC filed a motion to
three counts in a class action complaint filed against it in federal
court last July.  The named plaintiff, a consumer,
had received redress under a consent order from CFPB against Castle
Cooke finalized in November 2013.  The
order had settled charges that the mortgage company had violated the Regulation
Z loan originator compensation rule by establishing a quarterly bonus system
giving loan officers greater bonuses for originating loans at higher interest
rates.  CFPB maintained that the bonus
system was not reflected in the company’s compensation agreements and while
payroll records reflected the bonuses there was nothing indicating what portion
of a bonus was attributable to which loan

Castle Cooke did not admit to
any of the Bureau’s allegations but did consent to a judgment of equitable
monetary redress of $9.23 million against the company and two of its officers and
to a civil money penalty in the amount of $4.0 million.  Mishkin said at the time Ballard Spahr
had commented that the size of the judgment “was likely intended by the CFPB to
send a strong message to the mortgage industry that violations of the LO
Compensation Rule will be addressed in a serious manner.”

The consent order stated that the
redress provided under the judgment “shall not limit consumers’ rights in any
way” and this was noted by the named plaintiff in his suit on behalf of a
nationwide class defined to include “all individual consumers who on or after
April 1, 2011 obtained a mortgage loan from the company in which the company
paid a bonus or other compensation based on the loan terms other than the
amount of credit extended or paid a referral fee or split a charge other than
for services actually performed.”

According to Mishkin’s article, the
complaint alleges that the company’s violations entitle the named plaintiff and
class members to actual and statutory damages, alleging the bonus payments were
unlawful referral fees or fee splits under RESPA entitling the plaintiff and
class members to three times the loan origination and settlement charges they
paid to the mortgage company.  The complaint also includes claims that the
bonuses violated the Utah Residential Mortgage Practices and Licensing Act and for
some members of the class, California’s Unfair Competition Law (UCL).

On Monday the mortgage company filed
for dismissal of the RESPA, Utah and California claims. As to RESPA the company
argues that the complaint alleges no facts showing the company paid a referral
fee in connection with the named plaintiff’s loan or paid anyone for services
not provided.  The motion cites Ninth
Circuit precedent that RESPA Section 8 does not prohibit overcharges nor does
the named plaintiff have a RESPA claim to the extent he is trying to allege
that he was charged too much for his loan.  The company argues that the
plaintiff’s Utah unjust enrichment and California UCL claims should be
dismissed because his TILA/Regulation X and other claims provide an adequate
legal remedy.  As a further reason for dismissal of the UCL claim, the
company argues that only injunctive relief and restitution are available under
the UCL and plaintiff’s claim is one for damages rather than restitution.

Leave a Reply