The impact of the Consumer Financial Protection Bureau’s recent crackdown on Prospect Mortgage, LLC, continues to reverberate throughout the real estate industry. Through that crackdown the bureau offers clues about how it intends to regulate in a Trump administration—and it’s not pretty.
Late last month, the CPFB entered into a consent order against Prospect Mortgage stemming from the company’s improper referral activities, which violated the Real Estate Settlement Procedures Act. That, in and of itself, is hardly surprising. Instead, the most notable part of the enforcement action was that it included related consent orders against three companies that supposedly received payments from Prospect Mortgage for unlawful referrals: Keller Williams Mid-Willamette, Re/Max Gold Coast Realtors, and Planet Home Lending, LLC. So the biggest new message from the CFPB is that it is no longer looking only at the company paying for referrals; instead, it is now also targeting the businesses that were paid for the referrals.
Also, this investigation reinforces the prevailing view of how the CPFB plans to regulate: through consent orders. Since implementing new regulations is difficult, especially in the Trump era, the bureau has found that it has more leeway in slamming a single company and then holding that entity out as an example of what not to do.
Moreover, as Ken Trepeta at the Real Estate Services Providers Council points out, the CPFB has long ignored arguments and court decisions finding that certain RESPA exemptions—including for providing actual services—can create a safeharbor for activity that might otherwise violate the law. In a recent case involving PHH Corporation, the United States Court of Appeals for the D.C. Circuit strongly embraced that finding. It remains to be seen whether that view will gain traction among other federal circuits.
Finally, the CFPB made sure to leave the door open as to future civil lawsuits against at least two of the offending companies. The consent orders bar those companies from seeking a reduction in payments in any “Related Consumer Action” in which they are sued for substantially the same conduct. This is very problematic because class-action lawyers often use regulatory-enforcement actions as easy predicates for huge lawsuits.