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Former CFPB officials give insight on bureau’s SEFL actions

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Consumer Protection, Dodd-Frank Basics
Friday, November 20, 2020
Anthony Alexis, former assistant director and head of enforcement of the Consumer Financial Protection Bureau (CFPB), and Ori Lev, former deputy director of enforcement, engaged in a virtual forum with Dan Smith, Consumer Bankers Association executive vice president and head of regulatory affairs.

The trio discussed the current state of the CFPB’s supervisory, enforcement, and fair lending division.

“We’ve had lots of yin and yang at the bureau for the last year and a half,” Smith said. “We had a pretty stable understanding of how things operated at the bureau under Director [Richard] Cordray; Mick Mulvaney came in and made some significant changes. Director [Kathy] Kraninger now has sort of stabilized it. What should banks be thinking about for the rest of the year, and the next couple years under Kraninger?”

Alexis discussed the number of exams currently underway at the bureau. “[C]urrently there are a robust number of examinations going on, and I would say obviously the institutions being examined fall within the jurisdiction of the CFPB, so they are large banks. In addition, new companies, and banks, as they mature into the CFPB’s jurisdiction, they’re being examined.”

Alexis said it appeared the bureau’s enforcement team is working, and working hard. He said he had noticed lawsuits could be placed into two categories: bank and nonbank. Lawsuits against banks included account-opening matters, FDCPA-related (fair debt collection practices act) issues, and a myriad of other things. Actions against nonbanks appeared to be primarily related to telemarketer sales rules (TSR) investigations and lawsuits, and Mortgage Acts and Practices (MAP) rule investigations, suits, and settlements.

“You look back at some of the lawsuits that have been filed and you would say, well, some of the timing and the age of those lawsuits mean those investigations were legacy investigations that go back to Kraninger’s prior director,” Alexis said.

“I think the bureau has currently hit its stride,” he continued. “I don’t know – with the exception of the CIDs [civil investigative demands] that I have – what type of investigation it may have against banks, but certainly against the nonbanks, they’re present.”

Smith asked if Alexis thought there was a better balance between bank and nonbank actions under Kraninger than past directors. Alexis said it was difficult to say.

“One of the critical issues is, what is the view of the institution in terms of wanting to do battle with the CFPB?” Alexis asked. “In some cases, some institutions want certainty. They want to change their behavior; they want to understand what the regulator says the rules of the road are. They want to adjust their products to be consistent with the rules of the road, and their compliance systems, and move on. Uncertainty is not good for them.”

Alexis said nonbank entities could be more likely to fight the CFPB and those rules and regulations that would cause a loss of profit. He said those burdens could cause the entities enough stress that, to them, it would be worth filing a suit or challenging the investigation. He said, because of this, it is likely there’s a tilt toward nonbanks being investigated.

“Given the privacy that the CFPB affords while things are being investigated or examined, you don’t know what is being examined, and you don’t know what’s being investigated unless you’re participating with the investigation,” he said. “But you will know when things go to the bureau for the purposes of challenging a CID, or go to court in order to enforce a CID, or go to court because you have to file suit against the player.”

Lev said he agreed with Alexis’ points about the legacy investigations and his comment about the TSR and MAP rule investigations.

“I find the Kraninger CFPB somewhat enigmatic,” Lev said. “On the one hand, it’s a dramatic change from Cordray. On the other hand, there’s a lot of business as usual. The change on the enforcement front is really in the numbers.”

Lev then highlighted the difference in the number of public enforcement actions between the two directors. Under Cordray, there were approximately 40 actions brought each of his last two years in office, compared with Kraninger’s rate, which was around 30 actions each in the last two years.

“I filed a FOIA [freedom of information act] request with the bureau two years ago and got the response a week ago about the number of investigations they’re opening each fiscal year, and it was striking,” he said.

According to Lev, his request showed in the last four fiscal years under Cordray, the bureau opened 99, 45, 70, and 63 new investigations. Mulvaney opened 15 in his year as director, and Kraninger opened 20.

“That’s a precipitous drop, and that pipeline, it takes a couple years for those investigations to mature into the public actions we know about,” he explained. “We private practitioners get little slices from the matters we’re working on from talking to other folks, but the numbers suggest we’re going to see a tail in a couple years with fewer enforcement actions, even under a Biden administration. It’s going to take time for things to ramp up.”

Lev also pointed out that CMP (civil money penalties) and restitution have been different under Kraninger, and fair lending enforcement has been “all but non-existent.” On the other hand, he said, in his view, with respect to substantive enforcement claims, things remain largely the same and are inconsistent with the “rhetoric you hear from the ‘new’ bureau.”

“They have continued a lot of the matters that were either opened as investigations under Rich Cordray, or brought as lawsuits under Rich Cordray,” he said. “It would be really interesting for me to know whether Kathy Kraninger would have signed off on these cases, on these investigations, in the first instance.

“It’s much easier to not open something than it is to kill a public action,” he continued. “Mulvaney dismissed a lawsuit against a payday lender and there was a big brouhaha in the press about that, but that was frankly aberrational. They’ve continued to litigate against a case against the National Collegiate Student Loan Trust, which is a securitization trust, even after a district court said the consent order the bureau filed wasn’t entered into by the people authorized for the trust. It was a perfect opportunity to walk away. Nope, they doubled down on that.

“There’s a lot of what they’re doing that is consistent with the old CFPB, and I think it’s too soon to tell whether that’s just a matter of legacy investigations, or if that’s a matter of the career staff driving things, or a matter of Kathy Kraninger being more in the middle of the road than some of the rhetoric suggests.”

The trio also discussed prioritized assessments, a new development for the bureau.

Lev said he was not surprised by this response from the bureau, and prior directors would likely have done the same.

“To me, [prioritized assessments] seem to be a reasonable, regulatory reaction to the situation, and a moderate one for the bureau to say, ‘look, this is a new world, and with all these changes, we want to know what’s going on,’” he said. “Kraninger’s got this big emphasis on prevention of harm, which should be driving things toward the supervision side of the house, as opposed to enforcement, and [prioritized assessments] appear to target exactly that.”
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