The CFPB. What Have We Learned?

To date, the Consumer Financial Protection Bureau has not taken any public reverse mortgage-specific enforcement actions. However, with a general consumer complaint database now 300,000 complaints strong and at least 35 cases brought so far—about half of which involved mortgage lenders—those operating in the reverse mortgage business can take some cues from the CFPB as to where it’s going next.

With an unprecedented set of “super” powers, those under the CFPB’s rule now have some evidence to follow when working with the agency and adhering to its rules going forward.

Washington, D.C.-based legal giant K&L Gates spoke of its experience with the CFPB via a recent alert and media roundtable with several of its financial services practice attorneys last week.

While there are some chinks in the CFPB armor, the attorneys say, the agency has spared some, nailed others and raised questions in between.

“Whether or not the CFPB creation was warranted, we all agree they have achieved a significant number of actions,” said K&L Gates attorney and financial services practice area leader Steven Kaplan. “Many were welcomed, some not so welcome, and some questionable.”

Further, there is still much of an uncertainty aspect to the agency, despite its having been in operation for more than two years.

“Some things are, frankly, brand new,” Kaplan said. “It’s almost like a superpower—like a combination of Superman, Batman and Aquaman, an all-star team that is still feeling its way through the process.”

The cases, the lessons

From credit card marketing to mortgage kickbacks, the enforcement cases have spanned many different types of financial services companies, including a multi-billion-dollar Ocwen mortgage servicing settlement. There are some common threads that can be found, said K&L Gates attorney Jon Eisenberg in his recent alert.

The pace of cases is increasing. The pace of filings has increased, Eisenberg says in his alert, noting that the CFPB took year to file its first enforcement action and by December 2013, had filed six cases in a single month.

And the pace is likely to continue increasing.

“I think you’re going to see a lot more cases,” says Eisenberg. “It’s common for there to be a two- to three-year period before [the CFPB] brings an enforcement case. The fact they have brought 35 already is not indicative of what they will do. I think this is the tip of the iceberg.”

Payments and penalties are uncertain. Some cases have showed restitution paid to be windfall. “If you look at the number of cases where the CFPB says some people were misled, they ordered the company to pay back everybody. Clearly they’re overpaying. While some people were misled, not everyone was.”

Civil money penalties are equally hard to predict, K&L Gates has found. “It’s almost hard to understand the basis to civil money penalties. There’s almost never much of an explanation for how they reach their result,” Eisenberg says.

Issues are resolved equally in and out of court. The CFPB has filed about half of its actions in court with the other half being administrative actions, K&L Gates has found, including those cases involving alleged mortgage kickbacks or referrals.

“Those who have practiced before the SEC will find much similarity between CFPB administrative proceedings and SEC administrative proceedings,” Eisenberg writes.

In the vast majority of cases, administrative enforcement actions have been settled. Two cases have been litigated with one settled soon after filing. In court cases, more than half were filed as settled actions.

Individuals are often not named. About a third of the cases named individuals while the majority did not, Eisenberg writes. However, there is little indication this trend will hold for future actions taken by the Bureau.

Steps toward prevention of future violations on the individual level as being imposed “aggressively,” the alert states. [See the K&L Gates alert for more specific findings on mortgage cases.]

The future

The CFPB is not all bad, the attorneys note of their experience in representing clients who have been investigated by the agency.

“They do some good things,” Eisenberg said. “They give guidance. When they file a complaint, it is not a ruling. They’re not [overly concerned with] naming individuals. Overwhelmingly they settle with neither admissions nor denials.”

But lenders and other financial services providers can also expect more from the CFPB in the coming months and years. With about 35 enforcement filings behind the agency, attorneys expect there will be many more.

“Although it’s still young, it’s living up to its expectations to be a very aggressive agency,” Eisenberg told reporters. “Both in terms of complaints and relief.”

This edition of the RMD Report is sponsored by national appraisal management company Landmark Network.  

Written by Elizabeth Ecker

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