Ocwen must face CFPB lawsuit, but not all claims: U.S. appeals court

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Signage is seen at the Consumer Financial Protection Bureau (CFPB) headquarters in Washington, D.C., U.S., August 29, 2020. REUTERS/Andrew Kelly

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  • CFPB can sue over claims not covered in 2014 Ocwen accord
  • 11th Circuit takes "middle-course" approach
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A federal appeals court said the Consumer Financial Protection Bureau may pursue claims accusing Ocwen Financial Corp of mortgage servicing misconduct, rejecting Ocwen's contention that an earlier nationwide settlement precluded the lawsuit.

But the 11th U.S. Circuit Court of Appeals in Miami said the CFPB could sue only over alleged violations between January 2014 and February 2017 not covered by the February 2014 settlement's servicing-standard, monitoring and enforcement regime.

Ocwen is one of the largest U.S. mortgage servicers.

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In a statement, Ocwen said the decision showed that the CFPB "cannot unilaterally ignore the provisions of a prior settlement agreement." The company said it plans to demonstrate that the settlement bars the remaining CFPB claims.

The CFPB did not immediately respond to requests for comment. Ocwen was represented by William Jay, at Goodwin Procter, and the CFPB by Lawrence DeMille-Wagman.

Ocwen's earlier accord with the CFPB, 49 U.S. states and Washington, D.C. called for the company to reduce $2 billion of principal owed by underwater borrowers, refund $125 million to borrowers who went through foreclosure, and hire a monitor.

Though the West Palm Beach, Florida-based company abided by the servicing standard and monitoring regime, the CFPB sued it again in February 2017, alleging in 10 counts that the company violated various federal consumer protection laws.

U.S. District Judge Kenneth Marra in West Palm Beach dismissed nine of the counts — the CFPB dropped the 10th — prompting the regulator's appeal.

Wednesday's decision vacated Marra's ruling.

U.S. Circuit Judge Kevin Newsom agreed with the CFPB that the terms of the 2014 settlement, not claims raised in the complaint that the settlement resolved, determined the basis on which the regulator might again sue Ocwen.

"That rule makes sense," he wrote. "And because a consent judgment is legitimized by the parties' agreement, the judgment's preclusive scope extends only as far as that agreement."

Newsom agreed with Ocwen that the CFPB did not have carte blanche to sue if it suspected wrongdoing covered by the settlement's enforcement regime, saying Ocwen "surely wouldn't have agreed" to the "costly" regime otherwise.

But he said barring the CFPB from suing over alleged misconduct during the three-year enforcement period "would require us to conclude that the CFPB silently relinquished its authority to enforce the law."

A "middle-course reading," he wrote, "avoids the problem of rendering the settlement agreement's enforcement mechanism meaningless, while preserving the CFPB's authority to enforce the law."

Newsom was joined by U.S. Circuit Judge Stanley Marcus and U.S. District Judge Richard Story from Atlanta, sitting by designation.

The appeals court returned the case to Marra to decide which CFPB claims were barred by the 2014 settlement.

The case is Consumer Financial Protection Bureau v Ocwen Financial Corp et al, 11th U.S. Circuit Court of Appeals, No. 21-11314.

For Ocwen: William Jay, at Goodwin Procter

For CFPB: Lawrence DeMille-Wagman

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