Federal Court Takes Expansive View of CFPB Statute of Limitations, Limits Restitution
On September 8, 2017, the U.S. District Court for the Northern District of California entered an order granting a civil penalty and injunctive relief in a CFPB case against mortgage loan servicer Nationwide Biweekly Administration, Inc. (“Nationwide”), its wholly-owned subsidiary Loan Payment Administration, and the principal of Nationwide. In its suit, the CFPB alleged that the defendants engaged in abusive and deceptive practices and violated the Telephone Sales Rule (“TSR”) in the course of offering its mortgage payment program.
Among the notable aspects of this case was the court’s interpretation of the relevant statute of limitations period. The Dodd-Frank Act generally sets a statute of limitations for the Bureau of “3 years after the date of discovery of the violation to which an action relates.” 12 U.S.C. § 5564(g)(1). Prior to this decision, no court had ruled on how to interpret the Dodd-Frank “date of discovery” provision.
Here, the court found that “mere receipt of a consumer complaint” does not cause the statute to run, and moreover that such an interpretation would be “unworkable.” Instead, the court wrote that even a “credible and specific” consumer complaint would “at most” provide “inquiry notice” and that the statute begins running only after the CFPB “actually” discovers facts allegedly constituting a violation of law or until a “reasonably diligent plaintiff would have” discovered those facts. In other words, the clock does not begin to run until the Bureau has had enough time to conduct a preliminary investigation into the wrongdoing alleged in a consumer complaint.
Another point of interest is the court’s rejection of restitution. Although the court found in the CFPB’s favor on some of its claims of deception, it rejected the Bureau’s request for $73.9 million in restitution. The Bureau had proposed that all customers receive refunds of set-up fees charged by Nationwide as part of its debt assistance program. The court rejected that proposal on the grounds that the Bureau had not proved that all consumers were harmed by the program nor proposed a fair way to limit restitution to those who did suffer harm. Accordingly, the court limited its decision to injunctive relief and a civil penalty of $7.93 million.
Finally, the court made quick work of both the CFPB’s claim of “abusive” conduct (noting that the Bureau had emphasized deception at trial) and Nationwide’s claim that the Bureau is unconstitutional (noting that the bulk of authority was against the claim).