If you blinked you might have missed a recent name change for the Consumer Financial Protection Bureau. Last month, in press releases, Acting Director Mick Mulvaney further recast the agency he oversees as the Bureau of Consumer Financial Protection, testing our collective habits with a new acronym, BCFP.
As anyone who follows the Bureau can attest, a name change is the least of Mulvaney’s overhaul (a kinder way of what critics refer to as his “destruction”) of the agency. Week by week, President Trump’s temporary appointee has quickly and surefootedly re-envisioned the Bureau as less a consumer crusader, and more another agency committed to pro-business deregulation.
The latest arrow in Mulvaney’s quiver is launching a public comment period for feedback on how the Bureau conducts enforcement efforts. These “Requests for Information” have become commonplace in recent weeks.
The Bureau is seeking information “to help assess the overall efficiency and effectiveness of its processes related to the enforcement of federal consumer financial law.”
The agency is collecting feedback on all aspects of its enforcement processes, including—but not limited to:
Communication between the Bureau and the subjects of investigations, including the timing and frequency of those communications, and information provided by the Bureau on the status of its investigation;
the length of Bureau investigations;
the calculation of civil money penalties, including whether the Bureau should adopt a civil money penalty matrix, and, if it does adopt such a matrix, what that matrix should include;
the standard provisions in Bureau consent orders, including conduct, compliance, monetary relief, and administrative provisions; and
the manner and extent to which the Bureau can and should coordinate its enforcement activity with other federal and state agencies that may have overlapping jurisdiction.
Among the responses thus far this month is a joint letter from the Financial Services Roundtable, the Consumer Bankers Association, and the Consumer Mortgage Coalition.
“CBA members support financial regulators’ duty to fully enforce the rules and regulations on the book,” CBA General Counsel and Executive Vice President Steve Zeisel said in a statement. “It is also vital for the Bureau to stop the practice of using enforcement actions to circumvent the rule-writing process and issuing press releases to create an illusion of guilt before a conclusion has been reached.”
The joint letter specifically addressed lack of enforcement coordination with other agencies, “regulation by enforcement,” and the length of investigations.
“CBA members support financial regulators’ duty to fully enforce the rules and regulations on the book. It is also vital for the Bureau to stop the practice of using enforcement actions to circumvent the rule-writing process and issuing press releases to create an illusion of guilt before a conclusion has been reached.”
Steve Zeisel, General Counsel and EVP, CBA
“Specifically, the Bureau has utilized enforcement actions to announce new standards for the industry in lieu of issuing rules or other guidance to provide advance notice of the types of conduct that it deems problematic,” the groups wrote. In some enforcement actions, “the Bureau has punished institutions for alleged violations of Bureau regulations immediately after their effective date,” they added.
Arizona Attorney General Mark Brnovich urged the Bureau to implement reforms to its enforcement processes. Specifically: focusing on “quickly stopping” unfair and deceptive practices and delivering complete restitution to harmed consumers as the first and most important types of relief in enforcement actions; and, through binding rulemaking, requiring early communication and coordination of enforcement with the relevant state agencies.
“Including these two reforms will make the Bureau a more effective and responsive consumer protection agency,” he wrote.
Elizabeth Eurgubian, deputy chief advocacy officer for the Credit Union National Association, elaborated on a long list of her constituent’s concerns.
The Bureau, she wrote, should delegate to the NCUA primary examination and enforcement of consumer protection laws for credit unions with over $10 billion in assets.
“If the Bureau retains examination and enforcement over credit unions with over $10 billion in assets, then it must work together with the NCUA as a partner throughout the examination and enforcement process,” Eurgubian wrote. “If the Bureau continues primary examination and enforcement over the largest credit unions, then its processes must be more transparent and directed at resolving any violations, with enforcement actions serving as a last resort.”
The Bureau, she wrote should establish for the financial services industry a matrix for how it determines civil money penalties. The matrix, as it is developed, should be published for notice and comment.
“In addition, the Bureau should not engage in enforcement actions based on a loose interpretation of regulations or guidance,” Eurgubian wrote. “For example, in PHH Corp. v. CFPB, the Bureau’s interpretation of the requirements under the Real Estate Settlement Procedures Act conflicted with the actual legal requirements, as found by both federal district and appellate courts. Enforcement actions should only be imposed on financial institutions for clear and unmistakable violations of law. And, the Bureau must enforce only the regulations that are under its jurisdiction and not create additional legal requirements that have not been subject to the notice and comment process.”
The CUNA letter adds that its members “urge the Bureau to issue a bulletin clarifying that previous enforcement actions or consent orders that conflict with statutory or judicial precedent create no new expectations for compliance.”
The Receivables Management Association International is composed of originating creditors, purchasers of defaulted and performing loans, and businesses and professionals that provide services to these entities.
“Changes in the Bureau’s Enforcement Process are sorely needed, because the Bureau’s Enforcement Process has caused significant disruption to RMA members and the consumers they serve,” wrote Jan Stieger, executive director.
The current enforcement process, she wrote, “does not set clear guidelines and regulations for legal compliance, leaving the industry without clarity on the performance standards that the Bureau expects.”
The Bureau’s consent orders “had a cratering effect on available secondary market transactions, which resulted in approximately half of U.S. debt-buying companies closing operations in the last six years,” she added.
The CFPB has relied upon “its broad and vague” Unfair, Deceptive, and Abusive Acts or Practices authority in the majority of enforcement actions, Stieger wrote, adding that more than 20 enforcement matters that the Bureau has made public have had alleged violations of UDAAP.
“However, the boundaries of what actually constitutes a UDAAP violation remain largely unknown. Because the UDAAP language is so broad and vague, the CFPB has been able—and is willing—to use UDAAP authority to challenge conduct it subjectively finds troubling, even if not in violation of any legal requirement,” she complained. “This lack of clarity is extremely challenging for an industry seeking further clarification and guidance and has no assurance that other stakeholders might be the subject of an enforcement action for activity that unbeknownst to them has been deemed by the CFPB to be a UDAAP violation.”
The Mortgage Bankers Association added its voice to the chorus of critics. Its recommendations:
End “regulation by enforcement” by issuing guidance or rules to facilitate compliance rather than relying on fact-specific enforcement actions to announce new regulatory interpretations;
communicate clearly when and how it plans to offer compliance guidance and acknowledge that it is bound by the guidance it releases;
and provide more due-process protections in its enforcement actions to ensure fairness and consistency.
Better Markets, a non-profit consumer and investor advocacy association, as expected, had a different view from the pro-business groups that responded.
“Unfortunately, too often now, when agencies declare their intention to make their regulations less burdensome, their real agenda is to roll back or weaken rules that are necessary to protect consumers and investors, hold wrongdoers accountable, and maintain the stability of our financial system,” wrote President and CEO Dennis Kelleher President & CEO. “This type of de-regulatory initiative is often in direct proportion to the effectiveness of the rules currently in place. We fear that the [request] illustrates the point and that the exercise is unnecessary and misguided.”
“The CFPB’s enforcement program has proven to be an extremely effective component of its oversight program, as it has focused appropriately on stopping patterns of fraud and abuse among many financial firms,” Kelleher wrote, adding that it has returned more than $12 billion to consumers. “Many in the financial services industry are ardently committed to curtailing the Bureau’s enforcement power, precisely because it has been so effective.”
Kelleher added that the current process for issuing Civil Investigative Demands “correctly balances the interests of those being investigated with the enforcement needs of the Bureau.”
“If the Bureau scales back its CID authority in the name of alleviating the ‘burdens’ of an investigation on companies, or adds additional unnecessary layers of process, it will frustrate the Bureau’s ability to get to the truth and it will prolong and delay the investigative phase,” he wrote. “This will make the entire process [lengthier] to the detriment of consumers who remain vulnerable to any violations that are ongoing. The faster an agency can get to the facts, the faster it can act to halt wrongdoing and determine whether enforcement should follow.”
Another factor that supports the need for a robust CID mechanism, he said, is the Bureau’s statute of limitations. The CFPB has a three-year statute of limitations. This short time period puts “exceptional pressure” on enforcement attorneys to initiate actions relating to complex financial misconduct in a comparatively short period of time.
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