In what may be the first action of its kind, a consumer who received restitution under the CFPB consent order has filed a class action lawsuit based on the same alleged violations. While this litigation is still in its early stages, it serves as an important reminder that an institution’s exposure does not end when it reaches a public settlement with a regulator and may, in fact, increase.
SETTLEMENT OF CFPB ACTION
As previously discussed in a BuckleySandler webinar, on July 24, 2013, the CFPB filed suit against Castle & Cooke Mortgage LLC, its President, and its Senior Vice President of Capital Markets, alleging that the defendants “developed and implemented a scheme by which the Company would pay quarterly bonuses to loan officers in amounts that varied based on the interest rates of the loans they originated” in violation of the Truth in Lending Act’s loan originator compensation rules.
On November 7, 2013, the defendants entered into a consent order with the CFPB, agreeing to pay $9.2 million for restitution and a $4 million civil penalty to resolve the allegations. Consistent with current CFPB practice, the consent order stated that “[r]edress provided by the Company shall not limit consumers’ rights in any way” – in other words, affected consumers are not required to sign releases in order to receive remediation.
CLASS ACTION LAWSUIT
On July 21, 2014, Luis Cabrales filed a class action lawsuit against Castle & Cooke Mortgage LLC in the U.S. District Court for the Eastern District of California. The complaint asserts violations of the Truth in Lending Act, the Real Estate Settlement Procedures Act, and state law based on the allegation that the “loan officer who sold plaintiff his mortgage loan was paid a bonus that was based, at least in part, on the fact that plaintiff received a more expensive and/or less favorable loan than he otherwise would have received.” The complaint seeks various remedies, including actual and statutory damages under the Truth in Lending Act.
The complaint specifically references the CFPB consent order and states that, “plaintiff received a check from the CFPB in the amount of $795.02, representing his share of the CFPB’s restitution fund.” However, the complaint further asserts that “[p]laintiff is owed additional amounts as a result of C&C Mortgage’s illegal practices” and that the statute of limitations was tolled until the date the CFPB distributed restitution checks to plaintiff and other members of the putative class.
While the ultimate resolution of this particular private action is unclear, it highlights the substantial ongoing risks for institutions that enter into public settlements with regulators when releases are not obtained as part of the consent order’s remediation plan.