On May 16, the CFPB filed a motion for summary judgement in the U.S. District Court in the Southern District of Florida seeking a $20 million civil penalty against a California-based mortgage provider for allegedly submitting inaccurate government mortgage loan data.

The CFPB alleged significant violations of the Home Mortgage Disclosure Act (HMDA) and its implementing regulation, Regulation C. According to the CFPB, data in the mortgage provider’s loan/application/register, submitted in accordance with HDMA, included over 150,000 errors. Further, the CFPB alleges that internal audits from 2019 and 2022 uncovered systemic deficiencies and procedural gaps that contributed to the widespread HMDA reporting errors.

The Bureau seeks the hefty penalty in light of the mortgage provider’s “reckless conduct, financial resources, and history of failing to comply with HMDA and Regulation C.”

In its motion, the CFPB notes that the Regulation C “bona fide error exception” exempts from enforcement action errors that (1) are unintentional, and (2) occur despite implementing reasonable error-prevention procedures. The CFPB argues, however, that the exception does not apply in this case because high-level compliance officials at the mortgage provider knew of the lack of internal controls and the company knowingly used software that was not designed to catch the kinds of errors found in the loan/application register submitted. The Bureau argues that this knowledge, coupled with the lack of formal controls and the widely inaccurate data, places the case outside the scope of the exception.

This Bureau’s suit comes on the heels of previous reporting issues for the same company: following violations in 2019, where a consent order was issued, mandating the company’s compliance with HMDA and Regulation C. The CFPB alleged the company violated this 2019 order by reporting inaccurate data, yet again. 

Putting it into Practice: While the Bureau notes that the criteria for a “bona fide error” has not yet been analyzed in a court of law, the Bureau argues for strict, narrow interpretation of this exception. If the court agrees, the standard of the compliance programs, reporting procedures, and internal controls needed by covered financial institutions could increase dramatically.