Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

CFPB petitions 7th Circuit to reconsider Regulation O attorney exemption

Courts CFPB Appellate Seventh Circuit Enforcement Regulation O Mortgages Liu v. SEC U.S. Supreme Court

Courts

On October 7, the CFPB filed a petition for panel or en banc rehearing with the U.S. Court of Appeals for the Seventh Circuit, asking the appellate court to reconsider its recent determination “that practicing attorneys are categorically exempt from Regulation O,” as it strips the CFPB “of the authority given it by Congress to hold attorneys to account for violations not just of Regulation O, but of a host of other federal laws as well.” (Covered by InfoBytes here.) In 2014, the CFPB, FTC, and 15 state authorities took action against several foreclosure relief companies and associated individuals, alleging that they made misrepresentations about their services, failed to make mandatory disclosures, and collected unlawful advance fees (covered by InfoBytes here). A ruling issued by the district court in 2019 (covered by InfoBytes here) ordered nearly $59 million in penalties and restitution against several of the defendants for violations of Regulation O, but was later vacated by the 7th Circuit based on the application of the U.S. Supreme Court’s ruling in Liu v. SEC, which held that a disgorgement award cannot exceed a firm’s net profits—a ruling that is “applicable to all categories of equitable relief, including restitution.” (Covered by InfoBytes here.)

In its appeal, the Bureau did not challenge the vacated restitution award, but rather argued that a rehearing is necessary to ensure that the agency can bring enforcement actions against attorneys who violate federal consumer laws, including Regulation O. “The panel’s conclusion. . .threatens to disrupt the existing federal regulatory scheme for multiple consumer laws and expose ordinary people across the country to an increased risk of harm from illegal practices,” the Bureau stated, adding that 12 U.S.C. § 5517(e) does not limit the Bureau’s ability to pursue a civil enforcement action against practicing attorneys who are subject to Regulation O. According to the Bureau, Paragraph 3 of § 5517(e) states that the limitation on the Bureau’s authority “‘shall not be construed’ to limit the Bureau’s authority with respect to an attorney ‘to the extent that such attorney is otherwise subject’ to an enumerated consumer law or transferred authority.” The Bureau asked the 7th Circuit to reconsider its decision on this issue or, in the alternative, withdraw that portion as unnecessary to the outcome.

Share page with AddThis