September 19, 2021

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Mortgage News

Appeals court throws out $59 million penalty in CFPB mortgage case

An appeals court overturned a $ 59 million judgment in a lawsuit filed by the Consumer Financial Protection Bureau against two mortgage repair firms and their attorneys.

The U.S. 7th District Court of Appeals last week overturned the 2019 reimbursement ruling against the Mortgage Law Group and the Consumer First Legal Group. The case, which the CFPB’s reimbursement authority could challenge, was referred back to the lower court, and penalties were recalculated.

A three-judge panel of the appellate court ruled that the reasonable action for reimbursement should be calculated based on a company’s net profit rather than revenue, which could affect other CFPB cases, experts said.

However, the panel also upheld part of the lower court’s judgment by finding that the two now defunct law firms misled consumers into believing they would get legal counsel when applying for mortgage assistance. The judgment was first reported through Law 360.

The eighth amendment to the constitution prohibits the federal government from imposing excessive deposits, excessive fines or cruel and unusual penalties.

“The sentences originally imposed by the court were really enormous,” said Scott Pearson, a partner at Manatt. “The case raises the important question of whether the CFPB’s power of attorney violates the Eighth Amendment.”

The case dates back to 2014 when the CFPB sued the two law firms and their four lawyers for alleging false information about their services, failure to provide mandatory information to consumers and unlawful advance payment fees.

The two companies offered mortgage assistance to more than 6,000 customers in 39 states after the financial crisis. The firms raised approximately $ 3,375 per customer to cover filing an initial loan modification application.

The appeals court upheld the CFPB’s findings that the four lawyers had not legally represented the consumers.

In 2019, District Court Judge William Conley pronounced a $ 59 million judgment on the two companies’ bankruptcy assets. The district court had fined each attorney in the millions based on a finding of recklessness punished with fines of $ 25,000 per day versus strict liability violations, which were punished with fines of $ 5,000 per day.

The judge found that three of the four attorneys associated with both law firms acted recklessly, while a fourth is liable for strict liability violations.

The firms appealed, arguing that a 2017 Supreme Court ruling that limited the scope of fair remedies available in a Securities and Exchange Commission’s civil enforcement action was applicable to the CFPB’s ability to collect refunds.

The CFPB declined to comment.