“The CFPB’s permit is vast. It has supervisory authority over banks, thrifts and credit unions with over $10 billion in assets, as well as many nonbank consumer financial services providers, such as mortgage lenders and servicers, student lenders and servicers, payday lenders and certain participants in the debt collection and consumer reporting markets.”
From attorney Jon Eisenberg of K&L Gates, an in-depth look at the first three years of Consumer Financial Protection Bureau enforcement and lessons that the organizations under its authority – banks, credit unions, mortgage lenders, payday lenders, and more – should draw. It’s a valuable read for those institutions, certainly, but also for everyone looking to understand the agency and how it will shape the financial future of consumers and providers alike.
Of particular note: nine conclusions Eisenberg draws from the CFPB enforcement actions to date:
First, to date the CFPB has focused principally on practices it regards as deceptive (especially in the credit card space) or in violation of RESPA (in the mortgage business referral space) or discriminatory, rather than bringing cases based on novel interpretations of the terms “unfair” and “abusive” in the Consumer Financial Protection Act. The major exception is the CFPB’s recent student loan action, which alleges that students were “unfairly” subjected to pressure to take out predatory loans and that the students were misled about their future job prospects.
Second, critics are right that the combination of extraordinarily vague language in the Consumer Financial Protection Act, the unusually expansive monetary relief that the CFPB can impose, and the creation of an agency with only a single Director at the top of the organization and no Congressional budget constraints, poses a danger of government overreach in enforcement cases. That criticism, however, is better directed at Congress than at the agency that is using the authority that Congress granted it.
Third, the CFPB has adopted a number of practices that other enforcement agencies should emulate. For example, when it files an unsettled case, it states in its press release that a mere complaint is “not a finding or ruling that the defendant has actually violated the law.” It does not publish the notice of charges until ten days after the notice is served on the respondents. At least in its early enforcement cases, it is less obsessed with naming individuals when it can obtain full relief by naming a company. […]
Fourth, the CFPB has brought both large and small enforcement cases. For example, it was one of the plaintiffs in a case that resulted in more than $2 billion of relief for underwater borrowers. But it also brought a reporting violation case involving $34,000 in monetary relief.
Fifth, the CFPB uses quite a few people in its examination program and for each enforcement action it brings. […] As the CFPB’s enforcement and examination programs continue to evolve, the CFPB is likely to become more efficient, which may result either in the deployment of people elsewhere in the Bureau or the filing of far more enforcement actions. We suspect the latter, especially since the number of employees in the unit is scheduled to increase from 563 in 2013 to 731 in 2014.
Sixth, and most importantly, the CFPB’s approach to restitution often provides a pure windfall rather than damages to consumers. For example, in the credit card add-on product cases, the CFPB seems to take the position that if some consumers may have reasonably misunderstood the product or services that they were buying, then all consumers purchasing the same product or services should get a refund regardless of whether they were misled. That is nothing more than a CFPB-mandated wealth transfer from owners/shareholders to consumers who were not hurt by the alleged misconduct. No consumer financial statute authorizes such a naked wealth transfer. […]
Seventh, the CFPB’s approach to civil money penalties is unnecessarily mystifying. There is no reason it cannot do a better job explaining the basis for its penalty determination. The D.C. Circuit, in Rapoport v. SEC, 682 F.3d 98 (D.C. Cir. 2012), held that an agency needs to be consistent in applying its civil money penalty authority. But if the CFPB provides no meaningful information about how it calculates the penalty in its cases, courts will have difficulty determining the bona fides of penalties that are challenged.
Eighth, in some of the cases the Staff seems to show an almost preternatural belief in the value of massive, detailed, prescriptive governance/process requirements. If massive reliance on process would ensure that there are no future violations, then the tradeoff might be worthwhile. But the reality is that overkill in the process/governance area has a high potential to be distracting, disruptive, and expensive while providing very limited value.
Finally, as is true in securities enforcement cases, almost all of the largest cases brought to date were filed as settled actions. For whatever reason, and firms may choose to settle for many reasons not necessarily tied the merits of a particular case, the largest defendants have chosen to settle even when the settlement terms have been onerous. Whether that trend continues remains to be seen and may depend, in part, on outcomes in cases that are litigated.
Read the full update: We’ve Only Just Begun – Lessons From the CFPB’s First 35 Enforcement Cases>>