As regulatory oversight continues to evolve, real estate professionals have an opportunity to take a more proactive role in protecting consumers throughout the transaction process. On October Research, LLC’s, webinar “Taking Ownership of Consumer Protection” on June 24 at 2 pm EST, Mike Silver, partner at Spencer Fane, LLP and Justin Wiseman, vice president for residential policy and managing regulatory counsel from Mortgage Bankers Association, will speak to the shifting federal rules and what needs to happen to ensure consumer protection.
We spoke with Silver and Wiseman in advance of the webinar.
With federal agencies pulling back on supervision and enforcement activities, what incentives are there for businesses to maintain strong compliance standards?
Wiseman: While federal enforcement and supervision is a driver of compliance risk, it is not the only one. Most consumer financial statutes carry a private right of action, as well as statutes of limitations longer than any one administration. State attorneys general can also enforce many federal consumer financial laws in addition to analogous state laws. It would be foolish to materially lower compliance standards in response to a perceived relaxation of federal supervision and enforcement given the other sources of liability and long lookback periods.
Silver: The incentives remain as they always were, because the laws are still on the books. The dynamic now is one of temporary federal pullback on enforcement. It’s temporary because a new administration in 2029 could fire up the enforcement machine even more aggressively, including conduct occurring during this time period if it falls under statutes of limitations. And it’s only a federal pullback because the states are getting more active, as are class action attorneys. There may be a short-term temptation to relax compliance to save costs or push the envelope on product development or lead generation, but doing so would be a Pyrrhic victory.
As consumers expect more speed and convenience driven by technology, how can businesses keep pace without compromising on consumer data privacy?
Wiseman: Keeping consumer information private and handling it responsibly is a threshold requirement for any business implementing new technology. Fortunately, the mortgage industry is used to handling sensitive information, keeping it secure and sharing it within the established legal framework that has been in place for decades.
Silver: It’s not a binary choice. Consumers demand speed and convenience, but they also are fiercely protective of their data and their privacy rights. It’s obviously good for compliance and for consumers of the business to prioritize both rather than trading one versus the other. Whether it’s a more “traditional” data breach or a newer risk of an AI (artificial intelligence) hallucination that harms a consumer, the legal and reputational implications are problematic if best practices and strict adherence to laws and TPRM policies aren’t employed.
What are some of the compliance risks AI poses to financial institutions?
Wiseman: The greatest compliance risk posed by AI would be to think that using AI relieves you of any compliance obligations. For instance, a fair lending violation committed by AI will be imputed to the institution that deployed the AI with the same damages, liability and reputational harm as a violation committed by a human employee or employees. AI adds additional compliance risk if institutions can’t adequately understand and explain the outputs of AI models, ensure the models provide appropriate and accurate answers or ignore the licensing requirements that AI activities might implicate.
Silver: Under the Biden administration, the Consumer Financial Protection Bureau (CFPB) was highly skeptical of use of AI and made this view known through speeches and also more formal policy issuances. But the administration more generally framed it as an opportunity/challenge dichotomy. There is great promise, and also great peril.
What is the most significant obstacle to state regulators enforcing federal consumer protection laws against large banks?
Wiseman: State attorneys general or other regulators can enforce consumer protection laws, with some exceptions, against their licensees or national banks. What will differentiate them from the CFPB is their resources and mandate to cover many different subject areas beyond consumer finance. With that said, we have seen some states add capacity to enforce consumer finance regulations — often by hiring former CFPB staff or officials.
Silver: The biggest impediment to state enforcement is their narrower reach than the CFPB or the prudential regulators. They have fewer resources and more limited jurisdiction. Some states have been staffing up, including hiring ex-CFPB leaders or staff. California recently named former CFPB Director Rohit Chopra to a top consumer protection role following a legislative reorganization of state agencies.
What rulemaking or rollback at the CFPB since January 2025 will have the greatest impact on lenders over the next five years?
Wiseman: The CFPB hasn’t really yet materially modified or rolled back rules in a manner that will impact lenders. For example, while they removed disparate impact from the Equal Credit Opportunity Act, lenders are still subject to disparate impact liability under the Fair Housing Act. While I think there is a lot of regulatory reform work the CFPB could do — loan originator compensation and the Reg X servicing rule come to mind — they have not yet fundamentally changed the regulatory architecture of the mortgage industry. We hope they do make some changes, though, as many of these rules are duplicative or overlapping in ways that increase consumer costs while offering few consumer protections.
Silver: The CFPB is busy with a 24-item rulemaking agenda, mostly focused on deregulatory items. There are also numerous Executive Orders where policies will need to be implemented across the agencies. And with Brian Johnson, former CFPB deputy director, now nominated for CFPB director, the agenda will be sharpened. It’s hard to identify exactly which one will have no impact. This question also assumes the rule proposals are finalized, and there is no legal challenge.
Wiseman and Silver discuss these topics and more on the “Taking Ownership of Consumer Protection” webinar. Click here to register for the webinar, which is free for Dodd Frank Update subscribers.