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From Banking and Finance Law Daily, June 19, 2017

PHH Corporation says CFPB’s statute of limitations argument misguided

By Philip A. Janquart

In a June 13 letter to the U.S. Court of Appeals for the District of Columbia Circuit, PHH Corporation refuted the Consumer Financial Protection Bureau’s claim that a three-year statute of limitations provided under the Real Estate Settlement Procedures Act does not apply to the CFPB’s enforcement action brought against the financial services provider based in New Jersey.

CFPB’s argument. The bureau claims that RESPA’s limitations provision applies only to "actions" brought in a "United States district court or any other court of competent jurisdiction"—rendering it not applicable—and that the U.S. Code section (28 U.S.C. §2462), which provides a five-year statute of limitations, does apply. "The panel incorrectly held that RESPA’s three-year statute of limitations applied to the administrative proceeding that the Bureau brought to challenge PHH’s violations of RESPA," according to the CFPB’s June 7, 2017, letter to the D.C. Circuit.

The Bureau initiated enforcement proceedings against PHH in January 2014, claiming it received hundreds of millions of dollars in kickbacks in an alleged mortgage reinsurance scheme. In its notice of charges, the bureau claims, among other things, that PHH used "captive mortgage reinsurance arrangements to solicit and collect illegal kickback payments and unearned fees, disguised as reinsurance premiums, through PHH Corporation’s subsidiaries … in exchange for the referral of private mortgage insurance business." In June 2014, the CFPB concluded that no statute of limitations applied to its administrative proceeding and ordered PHH to pay over $109 million in disgorgement.

In May 2017, the D.C. Circuit, en banc, heard oral argument on the questions of the CFPB’s constitutionality and the statute of limitations regarding RESPA.

Kokesh decision. In its decision in Kokesh v. Securities and Exchange Commission, the U.S. Supreme Court ruled that a "5-year statute of limitations applies to any ‘action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise. 28 U.S.C. §2462." Addressing "whether §2462 applies to claims for disgorgement imposed as a sanction for violating a federal securities law," The Court held that it does. "Disgorgement in the securities-enforcement context is a ‘penalty’ within the meaning of §2462, and so disgorgement actions must be commenced within five years of the date the claim accrues," The Court stated. In its June 7 letter, the CFPB cites the Court’s Kokesh decision in support of its argument in the PHH Corp. litigation.

PHH letter. In its recent letter, PHH said that the panel for the D.C. Circuit had it right: the three-year statute of limitations provided under RESPA, like section 2462, is not limited to court actions, but also applies to enforcement proceedings. "A three-year limitations period governs ‘[a]ny action’ under RESPA’s Section 8," according to the PHH letter. "Unlike the one-year limitations period in the first part of Section 2614 for actions brought by private plaintiffs, in the "second part of Section 2614, the term ‘actions’ is not limited to actions brought in court." Indeed, Dodd-Frank "repeatedly uses the term ‘action’ to encompass court actions and administrative proceedings."

According to PHH, the CFPB "cannot explain why—despite Section 2614’s plain text and structure—Congress would have allowed the CFPB to circumvent the three-year statute of limitations simply by bringing the enforcement action administratively rather than in court. The CFPB’s anomalous reading would destroy the certainty that Section 2614 was intended to provide."

Referring to CFPB Director Richard Cordray’s initial claim that no statute of limitations governed the enforcement action, PHH added: "Moreover, the Director unambiguously concluded that ‘no statute of limitations applies’ here. The CFPB’s eleventh-hour embrace of Section 2462 suggests that it now recognizes the absurdity of the Director’s position."

Companies: PHH Corporation

MainStory: TopStory CFPB DoddFrankAct NewJerseyNews RESPA

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