Court of Appeals Rejects $ 59 Million Fine in CFPB Mortgage Case



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

The US Court of Appeals for the Seventh Circuit last week rejected a restitution order imposed on Mortgage Law Group and Consumer First Legal Group in 2019. The case, which could have challenged the CFPB’s restorative powers, was sent back to the lower court. recalculate penalties.

The panel of three judges of the appellate court determined that the appropriate restitution measure should be calculated on the basis of the company’s net profit, not income, which could affect other CFPB cases, experts said.

However, the commission also partially upheld the lower court’s decision, finding that two now defunct law firms misled consumers into thinking they would receive legal representation when applying for mortgage assistance. This decision was first published by Law 360.

The Eighth Amendment to the Constitution prohibits the federal government from imposing excessive bail, excessive fines, or cruel and unusual penalties.

“The penalties originally imposed by the court were really huge,” said Scott Pearson, partner at Manatt. “The case raises an important question as to whether the CFPB penal authority is in breach of the Eighth Amendment.”

The case dates back to 2014, when the CFPB sued two law firms and their four owner attorneys, alleging that they misrepresented their services, did not necessarily disclose information to consumers, and collected illegal advance payments.

Both firms have provided mortgage assistance in the wake of the financial crisis to more than 6,000 clients in 39 states. Firms raised approximately $ 3,375 from each client to cover the filing of an initial loan change application.

The appellate court upheld the CFPB’s findings that the four attorneys did not provide legal representation to consumers.

In 2019, District Court Judge William Conley ruled for $ 59 million in bankruptcy for the two firms. The District Court has imposed millions of fines on individual lawyers on the basis of admitting their recklessness, which entails fines of $ 25,000 per day, compared to strict liability violations that entail fines of $ 5,000 per day.

The judge found that three out of four lawyers associated with both law firms acted recklessly, and the fourth was held accountable for violations under strict liability.

The firms appealed, arguing that the 2017 Supreme Court ruling limiting the amount of fair remedy available in a Securities and Exchange Commission civil action concerned the CFPB’s ability to recover restitution.

The CFPB declined to comment.


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