It’s a new day at the Consumer Financial Protection Bureau. Under Mick Mulvaney, the CFPB appears to have pulled back from its formerly aggressive enforcement style, emphasizing, in the Acting Director’s words, “quantifiable and unavoidable harm to the consumer” rather than “excuses to bring lawsuits.”
But as lenders know, there’s a big difference between soundbites and regulatory actions. Has the “new” CFPB truly eased pressure in the consumer finance industry?
We recently had a chance to get answers to this question—straight from the source. During our recent webinar with the American Financial Services Association, Regulatory Alphabet Soup: As the CFPB evolves, who’s watching lenders now?, we paused our presentation to poll the institutions in attendance about their current concerns around enforcement of fair lending laws. What we learned is that while the CFPB’s new direction is genuine, so is the backlash: state attorneys general and the Federal Trade Commission are indeed stepping in to pick up the Bureau’s slack, and shrewd lenders are paying attention.
Here’s what attorney Michael Benoit, who presented during the webinar, had to say about the agencies that have assumed the CFPB’s place as consumer finance sheriff:
State AGs’ Reach Extends Further Than You May Think
By and large, webinar attendees responded that in terms of regulatory action, they are currently most concerned about enforcement from state AGs.
“I don’t think that’s an accident,” said Michael. “Anybody who’s operating in this space has seen an uptick in the activities of state attorneys general, and they’ve actually been encouraged by Acting Director Mulvaney to step up and use their authority under Dodd–Frank to enforce the law.”
Michael told us that numerous states are going after lenders with as much aplomb as the CFPB ever had. He brought up a handful of recent cases as examples (emphasis added):
“California had a $9 million settlement with Nationstar Mortgage over excess of interest, excess fees, and inadequate complaint handling.
Georgia had a $9 million settlement with a debt collector.
New York is undertaking a study of online lending practices and virtual currencies.
Pennsylvania created its own ‘mini CFPB’: the Consumer Financial Protection Unit within the Pennsylvania AG’s office, and that is actually headed by a former CFPB enforcement attorney, Nick Smith.
Virginia’s attorney general has set up a team focused on predatory lending, and it’s filed several cases against online and payday lenders.
There’s a $45 million multi-state settlement against PHH Corporation for mortgage servicing practices and also multi-state investigations into the Uber and Equifax breaches.”
Additionally, because of the ways in which the structures of state lawmaking authorities can differ, some consumer finance organizations have even more on their plate than ever. Michael shared the following piece of “disturbing trivia” about Mississippi:
“If you’ve ever been the subject of an investigation by the Mississippi Attorney General, you will have noticed that Mississippi outsources many of its investigations to local plaintiffs’ firms. This is a very unusual way to operate, and it creates a lot of post-investigation activity for that point of time to engage in once the investigation’s been closed.”
The FTC Has New Leadership and a Renewed Focus
Last month, the Senate confirmed all five pending nominees to lead the FTC, giving the agency its first full group of commissioners in several years. Michael told us that this change in leadership should have lenders taking stock of their data security and privacy practices:
“The FTC is going to be focused, like the CFPB, but I think their focus is going to be a little more narrow. Under Dodd–Frank, the FTC’s privacy jurisdiction got transferred to the CFPB, but the data security authority remained with the FTC. So, they’re focusing on data breaches and other privacy concerns that have to do with data; data sharing, data access. Think Facebook, think Equifax—that sort of thing.”
But it’s not all cybersecurity: the FTC’s recently issued Staff Perspective indicates renewed attention on several more areas of fair lending compliance. Michael told us the Commission is focusing on the Military Lending Act and other issues affecting military consumers; illegal debt collection practices; and unfair, deceptive, or abusive acts and practices.
…And the CFPB Isn’t Going Anywhere
There may be more “AG” and “FTC” in the can, but the new recipe for regulatory alphabet soup still contains “CFPB.” Michael urged attendees to take the Bureau at its word and not assume that narrower governance means no governance:
“Some people have characterized the CFPB as being ‘defanged.’ I wouldn’t necessarily characterize it that way. I would characterize it as having its reach narrowed in terms of the focus of its efforts. But even with that narrowing of its each, it’s got a pretty big sandbox to play in. There’s a lot that they can do even within that more narrow scope.”
On the topic of investigations, Michael said he expects them “to start up again, maybe not at the rate they were going before, but I think we are going to see some investigations because there is no lack of conduct out there in some spaces that results in quantifiable and unavoidable consumer harm.”
Looking for more consumer lending guidance in this brave new world? Hungry for more regulatory alphabet soup? Catch up on the webinar recording.