Last week, more than a year after its structure was deemed unconstitutional, the Consumer Financial Protection Bureau secured a win in appeals court.
On January 31st, Judge Cornelia Pillard overturned the lower court’s ruling, validating the Bureau’s existing structure, in which it is overseen by a single director whom the President can only remove for cause—i.e. for wrongdoing, and not just because the President wants someone else on the job. At the same time, however, the court threw out the CFPB’s $109 million penalty against mortgage lender PHH Corp., who brought the case in the first place. And, at least for the time being, the CFPB remains in the hands of Mick Mulvaney, under whose direction the Bureau seems to be reining in investigations and enforcement actions.
In other words, the CFPB has lost some of its fangs and is stuck with a director who seeks to limit, rather than broaden, its authority. But it’s not dead. And that means members of the consumer finance industry still need to pay attention to the theatrics going on each week at the federal agency everyone either loves or loves to hate.
Fortunately, we recently got some invaluable perspective about what’s next for the CFPB—
from someone who was there at the beginning.
In our recent Consumer Finance in the Trump Era webinar, we were joined by Lucy Morris, an attorney at Hudson Cook and former founding member and Deputy Enforcement Director at the CFPB. Here’s what Lucy anticipates for the Bureau’s future:
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Last month, Acting Director Mulvaney sent a memo to all CFPB staff in which he affirmed the need to protect consumers, and stated that the Bureau will enforce consumer financial protection laws vigorously but that it will no longer “push the envelope of the law in order to send a message to regulated entities.” He rejected “good guy versus bad guy” language and promised to execute the Bureau’s mandate with humility and prudence.
This kind of tone could lead to a CFPB that looks and acts more like its older cousin, the Federal Trade Commission.
The FTC has figured out how to achieve the balance between preventing disruption in the marketplace and informing consumers, while not overreaching and not constricting or preventing access to credit.
It’s a hard balance. Under former Director Richard Cordray, the CFPB was extremely aggressive. Now we have a more conservative leader in Mulvaney, who many CFPB proponents claim is too reluctant to carry out the Bureau’s mission.
When Mulvaney joined the Bureau late last year, he announced he would pause and review a number of pending enforcement matters and open investigations, and determine whether each was worth pursuing.
Based on the first handful of cases reviewed, we’re already starting to see how Mulvaney’s decision-making process works.
For instance, the CFPB voluntarily dismissed its lawsuit against Golden Valley Lending, Inc. et al., which involved tribal lending. While we can’t provide the exact reason why it was dismissed, clues indicate that Mulvaney and his team could not find “quantifiable and unavoidable” consumer harm on the part of the lender, and determined that it was another instance in which the former Bureau was “pushing the envelope” through enforcement.
Simultaneously, many “settle or sue” matters authorized by Cordray in the days before his departure have been put on hold. CFPB enforcement staff are asking companies to sign tolling agreements to stop the running of the statute of limitations during the review process. Some companies are consenting to those agreements and some are not.
Then there are the closing investigations. Last month, for example, World Acceptance Corporation announced that it had received a letter indicating that the CFPB had concluded its 4-year investigation into the company.
What does this all mean?
Going forward, lenders can count on continued enforcement activity, but chances are we’ll see more selective, targeted investigations that are focused the fraud and clear violations of law—i.e. where there’s concrete, quantifiable consumer harm. That doesn’t mean there will be less investigation activity—there could, in fact, be more—but it will be focused on those clear, grievous violations of law.
Overall, lenders can expect to see less litigation and more compromises on the part of the CFPB. Mulvaney’s Bureau will be more likely to resolve investigations short of litigation, and will be careful to not impose new rules through enforcement.
In effect, the CFPB is slowing down, which means now is a perfect opportunity for lenders to make sure their compliance is in great shape, because the pendulum will swing back.
Companies that proactively invest in compliance management systems are less likely to be selected for enforcement now and in the future.
This is just a small sample of the predictions and insights we discussed during Consumer Finance in the Trump Era. For more, make sure to watch our webinar recording.