The Consumer Financial Protection Bureau on Thursday urged a Florida federal court to reject mortgage servicer Ocwen Financial Corp.’s constitutional challenge to the bureau’s structure, saying that the company was attacking a “strawman” to get out from a lawsuit over problematic servicing practices.
In a brief filed in federal district court in West Palm Beach, the CFPB claimed that Ocwen was incorrect in arguing that the bureau’s single director structure, which only allows the president to fire the director for cause, was a violation of the Constitution’s separation of powers clause.
Ocwen bases a large portion of its arguments on a D.C. Circuit opinion from last year that found the structure to be unconstitutional, but that decision was vacated and is now under review by the full panel of judges in the circuit. A decision in that case is expected in the coming months.
The CFPB reiterated many of the arguments that it made in the D.C. Circuit litigation, noting the U.S. Supreme Court in the 1935 Humphrey’s Executor case said that a for-cause removal standard for Federal Trade Commission members that is identical to the one for the CFPB director was constitutional.
Ocwen argues the CFPB’s questionable constitutionality bars it from bringing its case or regulating mortgage servicers, and that the bureau should instead be a multi-member commission with staggered terms for commissioners like the FTC.
But the CFPB said that argument had no place in the enforcement action.
“It may be that a multi-member commission would reach decisions more to defendants’ liking, but that has nothing to do with separation of powers. The issue is whether the president has sufficient control over executive officials, not whether fellow commissioners have an impact on one another,” the CFPB said.
The CFPB sued Ocwen in late April, saying the firm’s servicing database is riddled with inaccuracies and incomplete information that resulted in wrongful foreclosure proceedings against at least 1,000 people. The state of Florida filed a similar suit on the same day, and more than 20 other states have filed cease-and-desist orders against Ocwen to stop it from purchasing additional mortgage servicing rights until it can prove it is able to handle customer escrow accounts.
A major culprit behind Ocwen’s problems is its proprietary data system called REALServicing, the CFPB alleges, saying the system itself generated errors because of poor programming. Ocwen reported in March 2016 that 90 percent of the loans it verified contained data errors or incomplete information, according to the complaint.
The mortgage servicer on April 25 teed up its constitutional challenge against the CFPB’s structure, calling it a threshold issue that could dispose of the bureau’s case in its early stages. U.S. District Judge Kenneth A. Marra rejected that request in early June.
The CFPB also took on the substantive arguments Ocwen made to dismiss the case.
Ocwen argued that the claims in the case should be barred because it had agreed to a settlement with the CFPB and 49 state attorneys general in 2013. However, the CFPB said that the settlement allowed the bureau and state AGs to bring claims for improper conduct committed after the dates covered by that settlement.
The CFPB also asked the court to reject Ocwen’s arguments that the CFPB did not adequately plead its case.
“Defendants would rather deflect and make excuses than acknowledge and correct their conduct. The bureau cannot stand by and allow defendants to continue to fail in performing the basic, fundamental functions of a mortgage servicer, such as properly accounting for borrowers’ payments, managing escrow accounts, and disbursing insurance payments,” the CFPB said.
Representatives for Ocwen could not immediately be reached for comment.
The case is Consumer Financial Protection Bureau v. Ocwen Financial Corp., case number 9:17-cv-80495, in the U.S. District Court for the Southern District of Florida.