By Tory Barringer
While regulatory compliance laws are often molded by legislators and executive heads, the courts can play just as big a role in shaping the compliance landscape. Mortgage Compliance Magazine took a look at some of the biggest issues currently cropping up in courtrooms and legal offices around the country to determine which ones might affect the regulatory compliance field in the years to come.
PHH v. Consumer Financial Protection Bureau
This is one that has made headlines for some time now (as evidenced by our coverage of it last year), but the dust has yet to settle. For those who need a refresher, here’s a recap so far.
Background: The backdrop of this case goes back to 2014, when the Consumer Financial Protection Bureau (CFPB) set its sights on PHH for allegedly referring customers to its own subsidiary for mortgage reinsurance, which the agency likened to kickbacks. In its action, the CFPB fined PHH a weighty $109 million, retroactively applying its authority as far as 20 years back. PHH argued that the action was a clear overreach, particularly since HUD had seemingly given its blessing to such arrangements in the 90s. The case then exploded into a larger debate about the CFPB’s structure and authority, bringing a long-standing legislative debate into the courtroom.
Why it matters: As mentioned above, lawmakers have been battling across the aisle over the CFPB and its director, Richard Cordray, ever since the bureau was established. Republicans have long maintained that the CFPB’s structure—having a single director who can only be terminated with cause—is unconstitutional and a gross overreach of executive power. Democrats, meanwhile, have argued that the agency’s mission to protect consumers from financial predators justifies its setup. A ruling in favor of either argument could significantly bolster or undermine the authority of an agency not well loved in the financial services sector.
In addition, a victory for PHH might embolden other firms who feel they’ve been treated unfairly by the bureau. Ocwen Financial Corp. has already made its own play against the CFPB in response to recent lawsuits, making similar arguments to those in the PHH case.
Where we stand now: After hearing arguments from both sides, the D.C. Circuit judges ruled in October 2016 that the CFPB’s structure is in fact unconstitutional, suggesting a removal of the termination-only-by-cause provision and striking a major blow against the embattled agency. (For those still paying following the alleged reinsurance “kickbacks” part of the case, the court also found that the CFPB’s enforcement actions are not exempt from statutes of limitations and further stuck to HUD’s position on captive reinsurance arrangements.)
As expected, the CFPB petitioned for a rehearing en banc, which was granted in February this year, vacating the October judgment and scheduling oral arguments for May 24. However, whatever momentum the CFPB picked up from that decision evaporated in March following the news that the Justice Department—now operating under President Trump, a vocal advocate for deregulation—now supported the prior panel decision to allow the president to fire the CFPB chief at will, which certainly can’t be welcome news for Cordray. Whatever happens to him, this case will continue to move forward.
Conference of State Bank Supervisors v. Office of the Comptroller of the Currency
Avid news readers might have thought that April Fools’ Day came a little late this year when, in late April, the Conference of State Bank Supervisors (CSBS) announced a complaint against the Office of the Comptroller of the Currency (OCC). Here’s what it’s about.
Background: Late last year, the OCC started publicly considering the idea of offering a special charter for financial technology (FinTech) firms that would establish a specialized office for handling FinTech regulatory concerns and simplify regulation in that space (again, you can find our coverage of that here). That announcement didn’t fly with state regulators, who are feeling like they’re being overridden when it comes to regulatory authority.
“The OCC’s action is an unprecedented, unlawful expansion of the chartering authority given to it by Congress for national banks. If Congress had intended for it to be used for another purpose, it would have explicitly authorized the OCC to do so,” said John W. Ryan, president and CEO of CSBS. “If the OCC is allowed to proceed with the creation of a special purpose nonbank charter, it will set a dangerous precedent that any federal agency can act beyond the legal limits of its authority.”
Why it matters: Though many in the mortgage space might not think of FinTech as a looming issue, as the mortgage process becomes increasingly digital, there’s a growing space for FinTech companies to break in. Currently, however, their disruption prospects are rather chilly as the regulatory puzzle is still being sorted out. If the OCC is allowed to go forward with its program, the climate might thaw.
In addition, there is the larger argument of state versus federal authority, one which has played out since this country’s earliest days. If this schism further develops, the compliance waters could grow murkier.
Where we stand now: CSBS filed its complaint April 26, so as of this writing, there haven’t been many developments. As the process moves along, look to Mortgage Compliance Magazine for additional coverage.
Public Citizen et al. v.
Donald J. Trump et al.
President Trump had a tumultuous 100 first days in office, drawing praise and criticism alike for his trademark bluster and numerous executive orders—one of which attracted attention (and a lawsuit) from consumer watchdog groups.
Background: On January 30, the president issued the Executive Order on Reducing Regulation and Controlling Regulatory Costs, with the headline being that any executive agency proposing a new rule or guideline must also identify two rules to potentially cut. It also required that new rules must be offset budgetarily by repealing at least two already in place. The measure wasn’t unexpected—the newly elected president had campaigned in part on reducing regulatory burdens for businesses—but caused no small amount of ire among certain groups, including Public Citizen, the Natural Resources Defense Council, and the Communication Workers of America, who banded together with a lawsuit directed at President Trump, director of the Office of Management and Budget Mick Mulvaney, and numerous executive department directors/acting secretaries to block the order.
Why it matters: A ruling in favor of the plaintiffs could spark many more suits on the president’s other various orders, some of which have led to protests. On the other hand, should the court agree with the White House’s argument that the president’s order is in line with his authority, that ruling could significantly defang future opposition lawsuits.
Where we stand now: The White House, backed by 14 states, has asked for the court to uphold the executive order. Further developments will take time, as the case is still young.
Irritated Executives v. Telephone Consumer Protection Act
Alright, so this one isn’t a specific case. Nevertheless, it’s an interesting one—and worth watching.
Background: You’re very likely familiar with the Telephone Consumer Protection Act (TCPA), which is designed to regulate how solicitors and collectors are allowed to contact consumers via telephone/cellphone. It’s led to numerous class actions and problems for mortgage servicers, who are required by law to contact delinquent borrowers but are limited by the TCPA when it comes to the tools they need to use to do so.
Those problems are compounded by so-called “professional plaintiffs,” men and women who make a business out of filing TCPA lawsuits and using the law as their means of income. Some collections of cellphones, all registered in high-default areas, in the hopes of receiving mistaken debt collection calls. That might be coming to an end soon.
Why it matters: This one is obvious—if you can’t use an auto dialer to make calls, you’re more prone to human error… like a mistaken phone number. All it takes is one wrong call to instigate multiple lawsuits.
Where we stand now: There’s a bit of good news on this front. Some judges are taking a stance against such plaintiffs, reasoning that a person who keeps multiple phones (or as many as 35, in the case of infamous litigant Melody Stoops) doesn’t have a reasonable expectation of privacy protection and cannot use TCPA violations as a nuisance when they are in fact the plaintiff’s entire business model. Wells Fargo won in its defense against Stoop, marking what will hopefully be one of many more successful defenses by other firms. However, until regulators grant some leeway to servicers—make sure you’re dialing correctly.
Thanks to Andrew K. Stutzman of Stradley Ronon for his assistance in putting together this list.
Tory Barringer is managing editor of Mortgage Compliance Magazine. He can be reached at TBarringer@MortgageComplianceMagazine.com.