March 18, 2014

More CFPB Overreach?

The Dodd-Frank Act (DFA) established the Consumer Financial Protection Bureau (CFPB) to search out unfair, deceptive, and abusive acts injuring consumers. It authorized CFPB to set up its own administrative adjudication system, with its own rules, and its own hired judges. To date, the administrative system has been used only to rubber-stamp settlements negotiated (or perhaps coerced, depending on your perspective) from banks and other financial-service providers.

Now, defendant, PHH Mortgage is fighting back. PHH is contesting CFPB charges that it violated the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA). Since 1974, it has been well-accepted that government charges under these provisions must be brought within three years of the date of the loan closing. PHH relied on this statute of limitations (SOL) to move to dismiss charges based on claims that occurred prior to January 2009 (three years, plus a two year tolling agreement requested by the CFPB to conduct its investigation).

Remarkably, CFPB argued that it is not subject to RESPA's three-year statute of limitations and so can still bring charges on conduct that occurred eighteen years ago. Even more remarkable, the administrative law judge (ALJ) agreed.

He held that RESPA's SOL applies only to proceedings brought in court. According to the ALJ, when Congress created the Dodd-Frank Act, it set up on extrajudicial, administrative procedure not subject to RESPA's SOL. The ALJ relied on the DFA statute, which does not impose any limitations period, but which was not in effect at the time of the conduct. In other words, in its own administrative forum, CFPB is not bound by any statute of limitations at all!

The ALJ denied defendant's motion to dismiss on the SOL, and other grounds argued by defendant, and it appears the case will proceed to trial. Under the DFA, an adverse final decision can be appealed to Director Richard Cordray (who of course signed the notice of charges that marked the commencement of the case), and then to the federal courts. It seems likely that this decision should be appealed.