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Financial Services Law Insights and Observations

CFPB gets $29.2 million judgment in mortgage relief suit

Courts CFPB Enforcement Mortgages Appellate Seventh Circuit Regulation O Consumer Finance

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On August 1, the U.S District Court for the Western District of Wisconsin granted over $29.2 million to the CFPB, revising a $59 million judgment that was thrown out by the U.S. Court of Appeals for the Seventh Circuit last year. As previously covered by InfoBytes, in July 2021, the 7th Circuit vacated a 2019 restitution award in an action brought by the CFPB against two former mortgage-assistance relief companies and their principals (collectively, “defendants”) for violations of Regulation O. In 2014, the CFPB, FTC, and 15 state authorities took action against several foreclosure relief companies and associated individuals, including the defendants, alleging they made misrepresentations about their services, failed to make mandatory disclosures, and collected unlawful advance fees (covered by InfoBytes here). The district court’s 2019 order (covered by InfoBytes here) held one company and its principals jointly and severally liable for over $18 million in restitution, while another company and its principals were held jointly and severally liable for nearly $3 million in restitution. Additionally, the court ordered civil penalties totaling over $37 million against company two and four principals.

According to the recent opinion and order, the district court concluded that it would be “appropriate” to characterize the redress as legal restitution because the “plaintiff’s claim is against defendants generally and not one, identifiable fund or asset,” calling it “valid and necessary” for consumers to be compensated for the advance fees they paid. Instead of ordering “complete restitution,” the district court noted it would require the defendants to “refund 50% of the moneys paid, which plaintiff shall return directly to the injured parties to the extent practical,” because the 7th Circuit “found that defendants' conduct was not the product of reckless disregard of the CFPA, but rather a failure to fit themselves under an exception for the delivery of legal services.”