Who remembers 2008? People thought we were all gonna die because they switched on the Large Hadron Collider, Breaking Bad was – WAIT A MINUTE! We’ve done this opening bit already.
Dang it! Well, anyway, along with everything else, there was also the release of the Coen brothers flick Burn After Reading, a movie about two bumbling gym employees who find a CIA agent’s memoirs and have to decide whether to sell it back to him or to the Russian embassy. It gets weirder from there, and, yes, it’s oddly prescient considering current events.
Why am I bringing this up? The release coincided with the financial crash, so it’s relevant to today’s topic, and it’ll help set up the conclusion…
November 2019 marked a turning point: in accordance with the Consumer Financial Protection Act (CFPA), a federal court delivered an unprecedented $59 million judgment against two mortgage-relief services companies and four of their principals, with $21.7 million in restitution for consumers and $37.3 million in civil penalties.
The two companies, The Mortgage Law Group LLP (Mortgage Law) and Consumer First Legal Group LLC (Consumer First), were sued by the Consumer Financial Protection Bureau (CFPB) on charges of conduct violating the Mortgage Assistance Relief Services Rule (MARS).
(PS: MARS was the last acronym, I promise.)
(PPS: I guess PS was the last one.)
MARS forbids deceptive or unfair acts towards consumers and prohibits charging advance fees, meaning the company can’t ask the consumer to pay until after the mortgage-loan or foreclosure-relief services have been rendered.
As a response to the 2008 financial crisis, the Obama administration passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, in an effort to prevent a repeat of the infamous Too Big To Fail disaster. The law allows for liquidations and restructurings by means of a fund created to help dismantle failing financial companies, to avoid tax dollars being dumped into a sinkhole, and agencies created under Dodd-Frank can monitor companies and break up banks so large they pose structural risks. The CFPB was established to prevent predatory mortgage lending, one of the key causes of the crash. With all this in mind, it makes sense that the CFPB would sue Mortgage Law and Consumer First for guzzling up over $22 million through illegal advance fees, misrepresentation of their relief services, and other shenanigans.
To give a brief timeline, Consumer First folded in 2013 and Mortgage Law filed for bankruptcy protection in April 2014. The same year, they were sued and the Consumer Financial Protection Bureau v. The Mortgage Law Group LLP et al case began. After preliminary motions and discovery throughout 2015, the Court granted the Bureau summary judgment as to liability in July 2016. The trial occurred in April 2017. Some liability issues were decided on summary judgment, but it took a while to figure out the adequate response, meaning everything dragged on until late last year.
Now, why is the Court’s decision so groundbreaking? A few reasons. These crimes took place from 2011 to 2013, but we’ve now established that the Bureau is fully capable of digging into the past to demand restitution.
Second, Dodd-Frank has had the potential for high penalties since its inception in 2010 (ranging from $5k per day to $1 million per day (!)), but these had rarely been enforced without mitigating factors bringing the amounts down a fair bit. This time, the Court didn’t go soft, consistently finding that they “weighed in favor of substantial civil penalties with respect to each of the defendants,” and meticulously analyzing individual parties’ actions to find precise penalty amounts. When you consider how many people were involved and how many days were spent committing violations, you might get a better idea of why it took so long to figure out this case. We’re talking looking into people’s daily routines to calculate just how badly they messed up. Move over, CSI.
Moreover, this is a rare moment where those liable are actually facing significant fines. The defendants argued they should pay zero dollars, and the Court very explicitly responded that “this is not a situation where the defendants’ finances are so limited that only a nominal penalty should be imposed, particularly given the egregious and calculated nature of their violations.” I mean, what do you say to that, really? It sets a definite precedent for individuals in management and leadership roles being held liable for company misconduct. That’s huge. Especially considering these penalties can’t be written off by declaring bankruptcy.
You can bet this decision has other businesses currently being investigated by the Bureau sweating. If you’re among them, well, I guess you’d better brace yourself and pray for the best. Whether the CFPB’s actions and powers are fair is up to interpretation, but revenge is a dish best served cold, and everyone who lost money or a home or worse to greedy swindlers is licking their lips.
Now, you’d hope this would be a learning moment for anyone involved in mortgages, or the real estate industry as a whole. Let me bring back the movie I mentioned in the introduction, Burn After Reading. After a whole lot of implausible events that I won’t spoil, a bigshot CIA agent struggles to find a lesson or a moral, and with a shrug, delivers the line “I guess we learned not to do that again,” with the implication that nothing has been gained. I’d love to thing that we really have learned not to do “that” again, I really would. But knowing how humans work? I’m not gonna hold my breath…