In what was the first appeal of an administrative decision before the CFPB, Director Richard Cordray issued a decision on June 4, 2015 that increased disgorgement sanctions against PHH Corporation from $6.4 million to approximately $109.2 million. The decision drew an immediate vow from PHH to appeal the decision, perhaps driven to some extent by the stark increase from the financial penalty contemplated by an Administrative Law Judge’s ruling.

After a trial, the ALJ had ruled in November 2014 that PHH Corp. referred consumers to mortgage insurance companies in exchange for kickbacks, which took the form of mortgage reinsurance premiums paid to a subsidiary of PHH, and that that this activity constituted a violation of the Real Estate Settlement Procedures Act (“RESPA”). He also rejected PHH’s “safe harbor” defense under Section 8(c)(2) of RESPA because, he found, the reinsurance agreements did not adequately transfer risk nor were they priced in a manner commensurate to reflect “facilities actually furnished or [] services actually performed.”

The Decision of Director on appeal largely upheld the ALJ’s liability determinations but changed the disgorgement calculation significantly. Although the ALJ held that any RESPA violations by PHH occurred at the time of the loan closing, Director Cordray disagreed and concluded on appeal that “PHH committed a separate violation of RESPA every time it accepted a reinsurance payment from a mortgage insurer” which in turn meant “PHH is liable for each payment it accepted on or after July 21, 2008, even if the loan with which that payment was associated had closed prior to that date.” As such, Corday “order[ed] PHH to disgorge all premiums that it had accepted on or after July 21, 2008, not just those associated with loans that closed on or after July 21, 2008.” Based upon that framework, Cordray ordered PHH to pay over $109 million. The Final Order issued concurrently with the Decision contemplates that, within 30 days, the disgorgement will be paid to the Bureau or, if an appeal is taken, deposited in an escrow account “held by an entity... acceptable to the Bureau.”

The detailed nature of the Decision, coupled with the huge increase in the disgorgement penalty, send a clear message that the Bureau is viewing enforcement very seriously. Entities subject to Bureau enforcement jurisdiction are well advised to take careful note.

The Decision and Final Order are publically available in In the Matter of PHH Corporation, et al, CFPB Administrative Proceeding File No. 2014-CFPB-0002.