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CFPB Weekly Update: The CFPB Files Another Enforcement Action Against Respondents Who Are Not "Covered Persons" and the Nuclear Summer of 2013

May 24, 2013

1. On May 17, 2013, the CFPB signed a consent order with Paul Taylor (a home builder) and two of his companies related to their violations of section 8(a) of the Real Estate Settlement Practices Act.  Section 8(a) of RESPA prohibits the acceptance of fees, kickbacks or things of value in exchange for referrals of customers for real estate settlement services involving federally related mortgage loans.  The consent order is here.  Mr. Taylor agreed to pay the CFPB a monetary penalty of about $118,000, which is the amount that he received from his acts.  The CFPB found, which the Respondents did not admit or deny, the following:

  • Taylor and Stratford Mortgage Corp. formed a joint venture called Stratford Mortgage Services, LC.  Stratford Mortgage Corp. was a subsidiary of a Benchmark Bank.
  • Taylor referred customers to Stratford for mortgage origination services.  As a result of these referrals, 32 loans were originated through Stratford.  Stratford did not conduct any other business.
  • Taylor received periodic distributions from either Stratford or the bank, "purportedly based on his ownership interest in Stratford," in the aggregate amount of $106,194.20.
  • In June 2012, the FDIC determined that the bank violated RESPA by paying Taylor unlawful referral fees, the $106,194.20.  Because the FDIC had no jurisdiction over Taylor and his companies, it referred the Taylor matter to the CFPB.
  • Taylor entered into a similar joint venture with another mortgage lender called WBMC.  Through a similar arrangement, Taylor received about $12,000.

Three things come to mind with respect to this case.  First, this enforcement action reminds us that the CFPB is working closely with legacy regulators, as this case was a referral from the FDIC.  Second, the CFPB does not limit its enforcement scope to individuals and companies who obtain millions of dollars through their alleged acts.  I know that $118,000 is not small sum of money, but the amount is miniscule compared to the CFPB’s other consent orders.  Third, the last time I checked, “home builders” are not “covered persons” under the CFPA.  This case is yet another reminder that the CFPB’s jurisdiction extends beyond “covered persons” and an enforcement action can be filed against individuals and companies who violate one of the laws that the CFPB now enforces irrespective of whether the respondent is a “covered person.”

2. For the second week in a row, we will discuss the nomination of Richard Cordray.  The Senate vote on Cordray's nomination as Director has been delayed (it was scheduled for Monday, May 20.)  Word on the street (also known as the Washington Post) is that Senate Majority Leader, Harry Reid, has a strategy to get the Senate to vote and end the bickering concerning the structure and funding of the CFPB.  The vote on Cordray will occur after the Senate votes on immigration reform.  Senator Reid wants to lump the Cordray vote with the votes on Thomas Perez as Secretary of Labor, and Gina McCarthy to head the Environmental Protection Agency.  Reid is also going to attempt to change the Senate rules to omit the 60 votes that are required to close debate on all judicial and executive branch nominations (also known as the “nuclear option.”)  The nuclear option and lumping may shift the focus of the debate to Cordray as a nominee and away from the structure and funding of the CFPB.  Translation?  It will be a while before the Senate votes on Cordray.

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