In an action that will come as a surprise to no one, CFPB Director Cordray has refused to modify or set aside a Civil Investigation Demand (CID) issued by the CFPB to PHH Corporation (PHH), a leading non-depository mortgage services provider. The CFPB served the CID in May 2012 in connection with its investigation to “determine whether mortgage lenders and private mortgage insurance providers or other unnamed persons have engaged in, or are engaging in, unlawful acts or practices in connection with residential mortgage loans in violation of the [Consumer Protection Act] and [the Real Estate Settlement Procedures Act].” PHH objected to the CID as overly broad,  unreasonable and irrelevant.

After several failed attempts to reach a resolution with the CFPB over its objections, PHH pursued the only option available to it under the Dodd-Frank Act and the rules promulgated by the CFPB—it filed a 75-page petition with Director Cordray to modify or set aside the CID. Yes, under Dodd-Frank, Director Cordray, and not an independent judicial body, is final arbiter regarding objections to CID issued by his own agency.  It its petition PHH argued, among other things, that the CFPB violated Dodd Frank by failing to state the nature of the conduct at issue and, instead, submitted a description that "covers every aspect of mortgage lending." Despite its objections, PHH still produced a number of documents to the CFPB.

On  September 20, 2012, Cordray issued his decision and order denying PHH’s petition. In his decision, Cordray found that the PHH “has offered little or no detail to make the kind of showing required to substantiate [its] claims [that the requests are overly broad or unduly burdensome]” and ordered PHH to produce all documents and information responsive to the CID within 21 days. In an announcement on its website, the CFPB indicated  that Cordray’s decision was part of the bureau’s “mission. . .to ensure compliance with federal consumer financial laws through effective enforcement of those laws.” Cordray also used his decision to warn other financial institutions that his decision should be a guide in “developing [their] expectations about how they should handle the CID process.”

Neither Dodd-Frank nor the rules established by the CFPB provide PHH with a vehicle for appealing this decision. On the other hand, the CFPB, by its own rules, may initiate enforcement proceedings in federal district court to compel compliance with the CID. Either way, it’s a troubling situation not only for PHH, but also for financial institutions everywhere. Stay tuned to the CFPB-Lawblog for updates and analysis as the story evolves.