As soon as a putative class action complaint hits the clerk’s office alleging a new theory of liability, plaintiffs’ lawyers rush to sign up potential class representatives and file copycat suits in as many jurisdictions as they can cover. This saves would-be class counsel the trouble of trying to come up with their own new liability theories and, under the principle of “where there’s smoke, there must be fire,” each new filing can create, in the minds of some courts, the impression of more substantive merit than many of these claims actually have. This has been common practice for years.
Never placing a terribly high premium on originality, plaintiffs’ lawyers are just as happy to follow on the heels of regulators. Unfortunately, some regulators appear all too ready to cooperate with those efforts. The Consumer Financial Protection Bureau (CFPB), for example, has taken increasingly aggressive positions on murky questions of law under complex and rapidly changing regulations. Moreover it has built into many of its enforcement orders provisions that seem to affirmatively invite the plaintiffs’ bar to target entities that cooperate and settle with the CFPB. These provisions increasingly seem to be triggering “regulator chaser” class actions, which lay in wait like landmines for title insurers, other settlement service providers, and financial institutions.
For example, in July 2013, the CFPB sued Cast & Cooke Mortgage LLC in federal court in Utah, alleging that the lender’s bonus program violated the Federal Reserve Board’s Loan Originator Compensation rule by tying loan officer bonuses to the interest rates of the loans they made. Six months later, Cast & Cooke settled for $9.2 million in restitution and a $4 million civil penalty. Yet the CFPB insisted on a consent order providing that “Redress provided by the Company shall not limit consumers’ rights in any way.” Predictably, consumers soon filed an action seeking certification of a putative nationwide class under TILA and RESPA. The lead plaintiff had received $795.02 from the $9.2 million restitution fund, and alleged that the one year statute of limitations on his RESPA claim had been tolled until he got the CFPB mandated check from the lender, since he had been “unaware that [the lender] had implemented a secret, illegal bonus program.”
The CFPB may be creating similar risks for title insurers, their agents, and other settlement service providers with newly aggressive RESPA enforcement actions. In May, the CFPB levied a $500,000 fine against one of Alabama’s largest settlement service provider families, Realty South and its affiliate TitleSouth, LLC, alleging that their Affiliated Business Arrangement disclosures failed to satisfy RESPA’s safe harbor provisions. Even though the providers revised their disclosures right away, and voluntarily entered the consent decree, the decree seemed to invite a follow-on civil action, providing that “In the event that there are…any private damages actions…in order to preserve the deterrent effect of the civil money penalty, Respondents shall not argue that they are entitled to, nor shall Respondents benefit by, any offset or reduction of any monetary remedies…”
The private plaintiffs’ bar will certainly attempt to use the CFPB’s authority to lend credence to theories of liability that are so aggressive they might not even have been advanced without the CFPB’s lead. The CFPB’s June 2014 entry of a consent order with New Jersey’s Stonebridge Title Services, Inc., imposing a $30,000 civil penalty for allegedly illegal referral fees, provides chilling regulatory precedent. In this action, CFPB simply disregarded the fact that the fees had been paid to employees who had received W-2s from Stonebridge and alleged that the salespeople were, in fact, independent contractors, and therefore not within the RESPA safe harbor that
Stonebridge had probably thought protected it. Similarly, in September 2014, the CFPB entered a $200,000 consent order with Lighthouse Title, Inc., alleging that the title agent’s Marketing Service Agreements (MSAs) with advertisers violated RESPA’s anti-kickback provisions. But the CFPB’s basis for that conclusion, as recited in the consent order, was so vague and overbroad that an enterprising plaintiffs’ lawyer may have little difficulty arguing that it encompasses virtually any MSA.
It is troubling, and more than a little ironic, to consider that the CFPB’s regulatory enthusiasm and apparent willingness to spur on new consumer class actions could ultimately lead to increased costs for consumers as it drives up the cost of doing business for the settlement service providers and financial institutions that serve those consumers.