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Why it matters
Over the years, companies and individuals that have been the subject of enforcement actions by the Federal Trade Commission, state attorneys general, or other agencies have often found themselves on the receiving end of a plaintiff attorney civil lawsuit in the wake of the regulatory action. Now the subject of a Consumer Financial Protection Bureau (CFPB) action has been named in a putative class action suit after settling charges with the CFPB. Companies and individuals should be aware that the trend of copycat civil suits has now spread to the CFPB. While it can be difficult to limit agency actions in a way to prevent such suits, it may be more fruitful to take steps to limit the ability of the civil plaintiff to obtain the results of the agency’s investigation through Freedom of Information Act requests or other means. Experienced enforcement counsel should be consulted from the start of any investigation or inquiry to reduce the potential for follow-on litigation to the extent possible.
Detailed discussion
In July 2013, the CFPB filed suit against Castle & Cooke Mortgage LLC and related individuals. The Utah federal court complaint alleged that the defendants “developed and implemented a scheme by which the Company would pay quarterly bonuses to loan officers in amounts that varied based on the interest rates of the loans they originated,” in violation of the Federal Reserve Board’s Loan Originator Compensation Rule.
The defendants reached a deal with the CFPB by the end of 2013. In addition to a $4 million civil penalty and $9.2 million in restitution, they agreed to end the unlawful compensation practices. Importantly, the consent order also provided that “[r]edress provided by the Company shall not limit consumers’ rights in any way.”
Taking that provision to heart, Utah resident Luis Cabrales filed a putative class action suit against Castle & Cooke in July. Alleging violations of the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and California and Utah state laws, Cabrales said he purchased a home in 2012 and financed the purchase using a residential mortgage loan with Castle & Cooke.
“At the time plaintiff entered into the mortgage loan with [the defendants], plaintiff was unaware that [they] had implemented a secret, illegal bonus program,” the complaint alleged. The suit referenced the CFPB action and stated that Cabrales received a check from the CFPB in May for $795.02, his share from the restitution fund.
“Plaintiff is owed additional amounts as a result of [the defendants’] illegal practices,” according to the complaint, adding that his claims were tolled until the date he received his check from the CFPB.
Cabrales sought to represent both a statewide and a nationwide class of consumers who obtained a mortgage loan where the defendants paid a bonus based on the terms and conditions of the loan. Class members are entitled to actual and statutory damages, three times their loan origination and settlement charges pursuant to RESPA, injunctive relief and restitution, plus attorneys’ fees and costs, the suit contends.
The defendants responded with a partial motion to dismiss the complaint. Leaving the TILA claims for another day, the defendants told the California federal court that the plaintiff failed to state a valid claim under RESPA and could not recover under his state law claims based on equitable remedies and unjust enrichment.
Cabrales alleged that “Castle & Cooke improperly compensated its own loan officers for work that they actually performed,” the defendants wrote. “But plaintiff does not allege any facts showing that Castle & Cooke paid a referral fee to a third party, or that it split charges with persons who did no work. Therefore, he cannot state a RESPA claim.”
RESPA doesn’t prohibit overcharges, the defendants added.
As for the state law claims, both were premised upon the lack of an adequate remedy at law, Castle & Cooke said. Because the plaintiff asserted a legal claim for violation of TILA, he cannot contend he lacks an adequate remedy at law, the defendants said, requiring dismissal of the claims.
To read the complaint in Cabrales v. Castle & Cooke Mortgage, LLC, click here.
To read the defendant’s motion to dismiss, click here.