A lot can happen in 7 years. Just ask the Consumer Financial Protection Bureau, which, in its brief lifetime, has attracted more controversy and undergone greater changes than federal agencies with histories 10 times as long.
Established in 2011, the CFPB quickly earned support from consumer protection advocates—and criticism from many financial services organizations—for its aggressive enforcement style and its broad interpretations of regulations. Under the authority of its lone Director, Richard Cordray, the Bureau established a new paradigm in the consumer finance industry. The message was clear: consumer protection requires constant vigilance, and as long as the CFPB’s around, lenders better watch their backs.
That all changed in November 2017, when Cordray announced he would be stepping down as Director. Cordray’s resignation sparked a battle over Bureau leadership, with his chosen successor, Leandra English, pitted against President Trump’s appointee, Mick Mulvaney—a Republican Congressman who once called the CFPB a “joke” and commented that he would like to “get rid of it.” English sued the Trump Administration, seeking that the US District Court for the District of Columbia acknowledge her as the rightful Acting Director of the CFPB. Although the Court struck down her request for preliminary injunction, the lawsuit remains ongoing as of this writing.
In the meantime, however, the consensus from within and outside of the Bureau is that Mulvaney is the one is charge. And the agency has already started to look very different than it used to. Mulvaney, who also leads the Office of Management and Budget, has set himself from apart from Cordray in a number of ways: he issued a memo calling for an end to the CFPB’s “governing philosophy of pushing the envelope,” ordered staff to drop a number of pending investigations, and suggested the Bureau may take its public complaints database offline.
What does these changes mean for lenders? Are we witnessing the beginning of the end of CFPB, a momentary swing of the pendulum, or something else entirely?
“Yes, we’ve had some leadership changes at the CFPB. Yes, there has been the appearance of some pulling back on certain things, but nobody should believe in any way that the CFPB is going away or that the CFPB is not going to be paying attention to lenders,” said Michael Benoit, Chairman of Hudson Cook, during our recent webinar with the American Financial Services Association, Regulatory Alphabet Soup: As the CFPB evolves, who’s watching lenders now? Over the course of an hour, Michael and Compli Sales Director Brian Larson explored some of the truths and misconceptions about the CFPB under Mulvaney, and discussed how lenders can adjust to the new reality.
Here are some of the highlights:
The CFPB Is Modifying Its Approach, Not Tearing It Down
“The CFPB is still paying attention to lenders, and I think it will certainly continue to do that as part of its mission,” said Michael. “Mostly what’s happened is that it’s taken a modified approach to its work. It is taking some time to get its arms around what’s going on and how it’s been doing things. Staff are revisiting how they’d been doing some things, and reaching out for some input from industry consumer advocates and the public on how they’ve performed their mission so far, and how they can do it better.”
Michael told us that the key to understanding the new CFPB is understanding how Mulvaney’s philosophy differs from Cordray’s. He cited a memo the new Director issued back in January, bringing our attention to the following passage:
“We will be reviewing everything that we do, from investigations to lawsuits and everything in between. When it comes to enforcement, we will be focusing on quantifiable and unavoidable harm to the consumer … [but] we won’t go looking for excuses to bring lawsuits.”
According to Michael, Mulvaney’s memo can be summed up as follows (emphasis added):
“We’re going to focus on the things that really are causing harm to consumers, not things that might cause harm to consumers or, in some sort of abstract way, represent something that we don’t necessarily like, but we can’t really put our finger on how people are being harmed. We’re going to focus on conduct that is actively causing harm to consumers and we’re going to address it.”
Michael told us that the CFPB has begun to move away from instigating new enforcement actions and civil investigative demands, focusing instead on “what they have on their plate and trying to bring those [cases] to appropriate closure.” However, that isn’t to say that the Bureau isn’t looking ahead. Michael asserts that the CFPB is prioritizing issues based on what consumers file the most complaints about.
“Frankly,” he said, “the thing that consumers complain about the most right now is debt collection as the bulk of the complaints that they get. Expect to see a fair amount of investigation in that area.”
The CFPB Is Looking to Establish Industry Dialogue Through Requests for Information
Michael told our audience that as part of Mulvaney’s effort to take stock of what the Bureau has been doing, the Acting Director has ordered the CFPB to publish a number of requests for information on its activities:
“These include civil investigative demand, administrative adjudications, supervision and enforcement, external engagements, regulations and rule-making, and—most recently, I believe—they issued RFI for consumer complaints. They’re requesting information from the public, from industry, from counsel for the industry, from counsel for consumer advocates, to tell the CFPB what it’s done well, what it hasn’t done well, what it can do better, how it can be more efficient, and how staffers can do their jobs in a way that causes the least amount of burden to all involved.”
Exams and Supervision Aren’t Going Anywhere
Next, Michael warned the audience not to assume that CFPB exams might be over just because investigations have been dropped:
“It’s interesting—when Acting Director Mulvaney came on board, we started getting questions from clients about whether exams were going to continue or if they were going to shut down because things had slowed on the investigation side. I can tell you from personal experience that exams are in fact continuing to be scheduled. Exams are still going on, and I don’t expect much to change with that, although I do expect that the focus on exams, particularly in referral situations and things that get referred to enforcement, are likely to be the sorts of things where there is quantifiable and unavoidable consumer harm.”
How does Mulvaney’s emphasis on quantifiable and unavoidable harm change how the CFPB operates? In Michael’s perspective, it means fewer actions connected to an “amorphous” definition of unfair, deceptive, or abusive acts and practices kind of “that may or may not have any injury attached.” If the Bureau can surmise how consumer harm may occur, but can’t actually prove harm, it may be unlikely to follow through on a claim.
More Clues: Mulvaney Made a Couple “Stunning” Suggestions in His Semi-Annual Report to Congress
In April, Mulvaney submitted his semiannual report to Congress, and made four recommendations. Michael said that while some were expected, “some were rather stunning.” Let’s start with the non-surprises:
“The first was a request or admonition to Congress that the CFPB should be funded through congressional appropriations as opposed to its current entitlement funding from the Federal Reserve Board. That’s nothing new. There’s actually a bill floating around in the House that addresses that specifically.”
Mulvaney also recently endorsed an idea lawmakers on both sides of the aisle have proposed: namely, changing the CFPB’s structure from a single directorship to a five-member commission. Michael said that while this idea has bipartisan support, it may not be high on Congress’ agenda.
“Whether we see anything happening with that or not,” he said. “I am not sure.”
Now, onto those less predictable recommendations:
“One thing [Mulvaney] suggested was to require legislative approval of major CFPB rules. That one was rather stunning because I’m not aware of any agency out there that is required to get congressional approval of major roles before they go into effect. And, in fact, that’s what the Congressional Review Act process is designed to deal with, in somewhat of a different way. Rules get sent to Congress, and Congress has 60 legislative days to disprove them if they do not agree with them.”
To demonstrate how this law works, Michael pointed us to the recent news about the Senate passing a joint resolution under the CRA to eliminate auto guidance from March of 2013. (That resolution, by the way, passed through the House, and is expected to be signed by the President shortly.)
Another recommendation Mulvaney made to Congress was “to ensure that the director answers to the president in the exercise of executive authority.” In other words, according to Michael:
“Make the director an at-will employee of the president. Allow him to be fired or serve at the pleasure of the president to be fired for no cause as opposed to the situation now where the president has to have cause—defined as inefficiency, neglect, or malfeasance— in order to fire the director.”
Finally, Mulvaney suggested the creation of an independent inspector general for the CFPB:
“Right now the Bureau shares an inspector general with the Federal Reserve Board. That inspector general is already quite busy. And I think part of the impetus behind that recommendation is that there’s enough going on in the CFPB that needs to have an eye kept on it, that an independent inspector general would be appropriate in that case.”
For more perspectives about the CFPB’s past, present, and future, and to find out how you can keep your organization compliant regardless of the changes that occur, catch up on the recording of Regulatory Alphabet Soup: As the CFPB evolves, who’s watching lenders now?