Out of the Box

On April 20, 2017, the CFPB sued one of the country’s largest non-bank mortgage loan servicers, Ocwen Financial Corporation (simply referred to as “Ocwen”)[1], and its subsidiaries for “failing borrowers at every stage of the mortgage servicing process.” See CFPB v. Ocwen, 17-cv-80495-KAM (S.D. Fl. 2017) at ECF 1. The Bureau alleges that Ocwen’s years of widespread errors, shortcuts, and runarounds cost some borrowers’ money and others their homes. Id. Ocwen allegedly botched basic functions like sending accurate monthly statements, properly crediting payments, and handling taxes and insurance. Id. Ocwen was allegedly illegally foreclosing on struggling borrowers in violation of federal law, ignoring customer complaints, and sold off the servicing rights to loans without fully disclosing the mistakes it made in borrowers’ records thereby furthering the errors without any recourse to fix those problems. Id.

The CFPB claims to have uncovered substantial evidence that Ocwen has engaged in significant and systemic misconduct at nearly every stage of the mortgage servicing process. The CFPB is charged with enforcing the Dodd-Frank Wall Street Reform and Consumer Protection Act, which protects consumers from unfair, deceptive, or abusive acts or practices, and other federal consumer financial laws. In addition, the Bureau adopted common-sense rules for the mortgage servicing market that first took effect in January 2014.

You may be sitting up a little straighter now if Ocwen happens to be your servicer, but let’s talk about what Ocwen said in response to the CFPB’s filed Complaint because that may impact servicing much more long term.

First, Ocwen hasn’t actually responded to the CFPB’s Complaint yet. Rather Ocwen has hired one of the most powerful law firms in the Country, oh and they also managed to try and pull a move right of the PHH handbook. I think that their approach is left wanting, but first, let’s explain a bit about what the PHH “handbook” is all about. So, the PHH corporation case began as a challenge to a 2015 penalty the CFPB levied against PHH, which was collected as part of what the CFPB deemed – a “captive reinsurance arrangement.” In fighting the penalty, PHH called into question the Bureau’s constitutionality and in October 2016, a panel of the D.C. Circuit concluded both that the CFPB misinterpreted RESPA, and also that its single-Director structure violated the constitutional separation of powers. On February 16 of this year, however, the D.C. Circuit granted the CFPB’s petition for rehearing en banc of the October 2015 panel decision. In granting en banc review, the court sought guidance from the parties on three specific questions:

• Is the Bureau’s structure unconstitutional because its Director may be removed only for cause, and if so, is the appropriate remedy to sever the for-cause removal provision from the Consumer Financial Protection Act?;
• May the Court avoid addressing the constitutionality of the Bureau’s structure if it adopts the panel’s holdings as to PHH’s liability under RESPA (and should it adopt those holdings)?; and
• What is the appropriate disposition of this case if this Court concludes that the SEC’s administrative law judges are “inferior officers” under Lucia v. SEC?

Oral argument occurred on May 24. Oh and the Department of Justice (DOJ) got in on the action too by having the Attorney General of United States speak his mind on just what he thinks about the CFPB’s constitutionality. Attorney General Jeff Sessions did not hide his opinion that CFPB is unconstitutional as currently structured and provided his basis for the reasons why.

In the Southern District Court of Florida case which the CFPB filed against Ocwen not only is Ocwen trying to get Attorney General Sessions to give his two cents on the CFPB’s Constitutionality, but Ocwen also is trying to get the District Court to enter an order for an early case management conference for their case in order to expedite what Ocwen undoubtedly hopes will be a quick dismissal of the CFPB’s Complaint against them by virtue of the current holding in the PHH matter discussed above. As the District Court summarized:

“Defendants seek to “discuss with the Court why it should address Rule 12 issues in two pieces, and thereby grant Ocwen relief from the requirements of Rule 12(g)(2). (DE 9 at 1.) Further, Defendants note that “Ocwen believes the parties should brief and the court should decide, on an expedited basis, whether the suit must be dismissed because Plaintiff Consumer Financial Protection Bureau (“CFPB”), is an unconstitutional agency…” (Id.) Defendants additionally seek to address their Motion to Invite the Views of the Attorney General of the United States (DE 10). (Id.) Finally, Defendants note their “open[ness] to stay of the presentation of those aspects of dismissal until after the constitutional questions are resolved…” (DE 10 at 5).”

[ECF 23]

The Honorable Kenneth Marra for the Southern District of Florida also wrote in his Order that:

Excusing Defendants from the requirements of Rule 12(g)(2) represents a departure from the rules of procedure. Defendants sole basis for seeking this relief is their anticipated challenge to the constitutionality of the Consumer Financial Protection Bureau. There is, however, nothing unique about bringing a constitutional attack alongside other legal challenges potential undergirding a motion to dismiss. Moreover, if Defendant’s constitutional challenge proves unsuccessful, a matter on which this Court expresses no opinion , it will cause additional unnecessary delay in moving the case forward on its merits. Hence, the Court denies the request for relief from Rule 12(g)(2) which underlies Defendant’s Motion for Early Case Management Conference. (DE 9.)

In view of the Court’s unwillingness to grant relief from Rule 12(g)(2), Defendants’ request of a stay “until after the constitutional questions are resolved” is rendered moot. Additionally, Defendants’ Motion to Invite the Views of the Attorney General of the United States (DE 10) will be addressed by the Court in a separate order.

Id.

Interestingly enough, here is what I think is a move the CFPB took that distinguishes its actions against Ocwen away from that of PHH. In PHH the CFPB levied a fine which quite frankly obviated the Article III courts and can understandably ruffle a few feathers, to say the least, but in the Ocwen case the CFPB did exactly what they would be assumed to have been endowed to accomplish, namely to bring forth powerful deterrents in the form of robust litigation before an Article III Judge and let the Courts of Law weigh both facts and law reach a conclusions of liability and enforcement of codified regulations. In other words, the CFPB did the unexpected perhaps, they toed the line, the came in lock, stock and barrel and ready to duke it out rather than wage war by exercising powers which right now whether valid or not should stay under the radar. Yes, as many critics point out this took way too long for the CFPB to bring forward a case against Ocwen for its servicing blunders, but if there was ever a point in time where the CFPB should have brought this action, it most certainly should have been now, a time when use of the court system is the out of the box theory, and the only way to protect the consumers these days is by thinking out of the box all around. Stay tuned.

Contact us for more information about the FDCPA or RESPA.

[1] Ocwen, headquartered in West Palm Beach, Fla., is one of the nation’s largest nonbank mortgage servicers. As of Dec. 31, 2016, Ocwen serviced almost 1.4 million loans with an aggregate unpaid principal balance of $209 billion. It services loans for borrowers in all 50 states and the District of Columbia. A mortgage servicer collects payments from the mortgage borrower and forwards those payments to the owner of the loan. It handles customer service, collections, loan modifications, and foreclosures. Ocwen specializes in servicing sub prime or delinquent loans.