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Group Seeking Licensing Exemption Has a Case

WASHINGTON (CN) - The Consumer Financial Protection Bureau may be liable for a rule allegedly designed to punish a "tenacious" consumer advocate, a federal judge ruled.

Congress passed the Secure and Fair Enforcement for Mortgage Licensing, or SAFE, Act as a way for states to establish minimum standards for residential mortgage loan originators in the wake of the subprime mortgage crisis. The law encourages states to participate in a nationwide mortgage licensing system and registry.

In its final rule, the Department of Housing and Urban Development excluded only 501(c)(3) nonprofits from the licensing requirements that the SAFE Act imposes on loan originators.

The Neighborhood Assistance Corporation of America, or NACA, filed suit, claiming that the government had unfairly excluded its breed of nonprofit, a 501(c)(4) group, as a punishment for the adversarial role it often takes as tenacious consumer advocate.

Though Minnesota, Delaware and the District of Columbia have allegedly granted the organization exemptions to their licensing requirements, NACA says those exemptions will be lost and the "onerous loan originator licensure requirements ... will cost NACA hundreds of thousands of dollars."

Before the rule took effect in August 2011, Congress transferred SAFE Act regulatory authority to the Consumer Financial Protection Bureau.

On Monday, U.S. District Judge Robert Wilkins found that HUD adopted the rule by proper procedure and dismissed claims under the Administrative Procedure Act.

NACA can still advance claims that the final rule "lacks any rational basis and was improperly motivated by personal malice and bad-faith retaliation," in violation of the Fifth Amendment, according to the ruling.

"NACA identifies several places where it claims the Final Rule would be the cause of the organization having to pay for licenses," Wilkins wrote.

"Here, NACA has sufficiently alleged it will suffer an adverse economic effect to satisfy the injury in fact requirement," he added.

Since HUD previously settled the claims against it and was dismissed from the case, the ruling applies only to the Consumer Financial Protection Bureau.

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