PHH Ruling Not the Last Word on RESPA Enforcement, Cordray Says

By Chris Bruce

Oct. 25 — The Consumer Financial Protection Bureau is sticking to its fact-based approach on enforcement of the Real Estate Settlement Procedures Act and marketing services agreements despite a recent federal appeals court ruling against the agency, CFPB Director Richard Cordray said Oct. 24.

A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit Oct. 11 held in favor of PHH Corp., a Mount Laurel, N.J., mortgage company that challenged a $109 million disgorgement order by Cordray last year (197 BBD, 10/12/16).

Although the decision rejected the CFPB's reading of RESPA with respect to captive reinsurance arrangements, some have wondered whether it might encourage the CFPB to change its stand on analogous contracts known as marketing services agreements (MSAs).

In general, MSAs, which can take oral or written form, involve payments for advertising or promotional services that are sometimes alleged to function as illegal kickback arrangements that mean higher payments by consumers.

Any such claims carry important enforcement implications for lenders and settlement services providers.

No Pullback

Cordray said the D.C. Circuit panel's decision isn't yet final, and that his agency is “considering its options for seeking further review.” But he signaled that the CFPB isn't changing course.

“In the meantime, we will continue to consider how best to apply the Real Estate Settlement Procedures Act to specific factual situations just as we always do,” Cordray said in prepared remarks. “In particular, we continue to adhere to our 2015 bulletin identifying the substantial risks posed by marketing services agreements as we have encountered them in our enforcement actions and through our supervisory oversight.”

In its October 2015 bulletin on MSAs, the CFPB voiced “grave concerns” about MSAs that violate RESPA, citing increasing reports by whistle-blowers.

“Based on the Bureau’s investigative efforts, it appears that many MSAs are designed to evade RESPA’s prohibition on the payment and acceptance of kickbacks and referral fees,” the guidance said.

Laurence E. Platt, a partner in the Washington offices of Mayer Brown and a member of the firm's consumer financial services group, Oct. 25 called Cordray's prepared remarks on that matter “essentially a repudiation” of the D.C. Circuit's holding in the Oct. 11 decision. He said the CFPB's 2015 guidance basically presumes that MSAs are illegal.

“The only way you can get to a presumption of illegality is to disregard the statutory exception for reasonable payment for services actually performed,” Platt said, referring to a RESPA provision. “He’s essentially doubling down on his already repudiated position.”

The CFPB, which said it was considering its options for review immediately after the PHH ruling was issued, predicted in a separate case filing that the decision is unlikely to stand (200 BBD, 10/17/16).

To contact the reporter on this story: Chris Bruce in Washington at

To contact the editor responsible for this story: Mike Ferullo at

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