CFPB's Busy 2020 May Foretell Regulatory Uptick Ahead

By Richard Gottlieb
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Law360 (January 15, 2021, 4:14 PM EST) --
Richard Gottlieb
Richard Gottlieb
In a Trump administration dedicated to deregulation and other business-friendly actions, 2020 stands out as a year in which there was a marked resurgence at the Consumer Financial Protection Bureau. And a Biden administration implies much more of the same in 2021.

The 2020 lead story at the CFPB comes courtesy of the U.S. Supreme Court, which finally resolved the significant question regarding whether the CFPB was constitutionally structured. In Seila Law LLC v. CFPB, the court ruled that CFPB structure was indeed unconstitutional because it limits the ability of the president to fire its director without cause.

That said, the court cured the infirmity by severing the problem provision from the Dodd-Frank Act that created the bureau. In short, while the CFPB would survive to fight another day, its director's tenure would depend on the whims of the president.

Not surprisingly, the pandemic is the second lead story. In March, Congress enacted the Coronavirus Aid, Relief and Economic Security, or CARES, Act, and included among its many provisions numerous new protections for consumers.

Likewise, the major financial regulators, including the CFPB, issued a joint inter-agency statement that encouraged lenders to work "prudently" with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19.

The CFPB took a number of steps to assist both consumers and lenders during the pandemic. Most controversially, the CFPB relaxed certain Fair Credit Reporting Act investigation timing requirements. A number of Democratic state attorneys general protested the move, claiming it would just harm consumers.

CFPB Shuffles the Deck

Will we see a new CFPB director in 2021?

On Jan. 18, it was announced that President-elect Joe Biden will nominate Rohit Chopra, a CFPB veteran and current commissioner on the Federal Trade Commission, to serve as director of the CFPB.

The Seila Law decision means that CFPB Director Kathy Kraninger's days will be numbered after President-elect Biden is inaugurated. But that outcome did not slow down the director's efforts in 2020 to revamp the bureau from top to bottom, and those efforts have continued notwithstanding the election.

In October 2020, the CFPB announced major changes to its organizational structure, placing enforcement operations under the effective control of supervision. If finalized, this would be a significant reformation of the lines of authority within the CFPB, and might diminish the role of the bureau in enforcement against nonsupervised entities.

When the CFPB opened its doors in 2011, the bureau established separate units or offices for enforcement and supervision policy, each housed, along with fair lending, in a division appropriately named Supervision, Enforcement and Fair Lending, or SEFL.

Taking matters a significant step further, the bureau announced it would create the Office of SEFL Policy and Strategy, disband the Office of Supervision Policy, and rebrand the expanded Office of Supervision Examinations as the Office of Supervision with enforcement reporting to it, among other changes. Highly respected CFPB Assistant Director Peggy Twohig would lead the expanded division.

But the election of Biden forced the CFPB to change course. In mid-November, the bureau quietly shelved the plans and it is doubtful that new leadership will embrace the proposed changes. That said, Twohig, who has been with the CFPB since before its formation, has ample progressive-side credentials for her new, enhanced, position. Time will tell.

Supervision of Regulated Entities

The CFPB maintained an active role with examinations covering a wide variety of areas. In 2020, the CFPB commenced over 100 supervisory exams and reviews, and completed over 140 such exams and reviews. Published highlights discussed the results of reviews in the areas of consumer reporting, mortgage servicing, short-term lending, student loan servicing, debt collection and consumer deposits.

The CFPB also focused on the pandemic, crafting a targeted supervisory approach known as prioritized assessments, which consist of high-level inquiries designed to obtain information from entities to assess the impacts on consumer financial product markets due to pandemic-related issues.

In November, the bureau finalized a new policy on issuing advisory opinions. The program provides written guidance to assist regulated entities in better understanding their legal and regulatory obligations through advisory opinions, with a focus primarily on clarifying ambiguities in the bureau's regulations.

Regulation

The CFPB engaged in a significant number of major regulatory initiatives, leading with debt collection.

On Oct. 30, 2020, and Dec. 18, 2020, the CFPB finalized its long-awaited rules on debt collection: Regulation F. The lengthy rules provide much-needed guidance for debt collectors, particularly on using technologies that did not exist when the Fair Debt Collection Practices Act was enacted in 1977, while also offering additional protections for consumers.

The combined rules address communication frequency, limited-content messages, use of social media and other topics discussed below, validation notices, and credit reporting by debt collectors. Worst news for debt collectors? No more efforts to collect time-barred debts. The best news? The rules should greatly reduce class action litigation against debt collectors since the rules provide certainty on the types of conduct both permitted and prohibited by the rules.

Payday lending also received some compliance certainty. In July, the CFPB issued its long-awaited final rule amending the regulations that govern payday loans, vehicle title loans and certain high-cost installment loans. As expected, the CFPB revoked the mandatory underwriting provisions from its own final rule dated Nov. 17, 2017, and reaffirmed the payment provisions from that same rule.

Under the old rule, lenders were barred from making a covered short-term loan or a covered longer-term balloon-payment loan without reasonably determining that the applicant had an ability to repay the loan according to its terms. The 2020 final rule excises that restriction based on fears that it would entirely cut off a particularly vulnerable — and often unbanked — group from the credit market.

In early October 2020, industry observers were surprised when the CFPB rescinded a 2015 compliance bulletin concerning marketing services agreements. Section 8 of the Real Estate Settlement Procedures Act prohibits, among other things, the use of certain marketing arrangements that generate unearned fees or kickbacks.

Back in 2012, the CFPB informed lenders and mortgage brokers of formal investigations targeting several companies believed by the CFPB to have violated RESPA in this regard. The rescission arguably reopens the debate on the proper role of marketing services agreements.

The CFPB also provided much-needed guidance on what types of conduct will be considered abusive. The Dodd-Frank Act had added the "abusive" prong to the preexisting unfair and deceptive acts and practices framework, and the CFPB had long promised to issue rules addressing the topic.

In January 2020, the CFPB instead issued a policy statement advising it would, among other things, cite conduct as abusive only when the consumer harms outweigh the benefits, and seek monetary relief for abusive conduct only when the entity has acted in bad faith.

During the year, the CFPB took action to ease the burdens of financial institutions. In April, the CFPB raised the coverage thresholds for financial institutions reporting data under the Home Mortgage Disclosure Act. Enacted in 1975, the law requires certain financial institutions to report data about mortgage loan applications and originations and their purchases.

In May, the CFPB finalized rules on remittance transfers that greatly eased certain compliance hurdles encountered by financial institutions by allowing them to estimate certain required disclosures.

Enforcement

It was a busy enforcement year, but notably, the CFPB likewise made news for enforcement moves it decided not to take.

In the entire era Richard Cordray was director, the CFPB declined to issue a single no-action letter in connection with an enforcement investigation. But, following up on its development of a no-action letter policy, as well as its issuance of the very first no-action letter in late 2019, the bureau issued a second no-action letter to Bank of America Corp. in its capacity as a mortgage lender.

In its first no-action letter of 2020, the CFPB also responded to a request from the U.S. Department of Housing and Urban Development on behalf of thousands of housing counseling agencies querying the applicability of RESPA to their counseling services. No worries, said the CFPB.

The CFPB otherwise flexed its muscles against a variety of regulated entities. As this article was being finalized, the CFPB had already filed well over 40 public enforcement actions, a significant uptick from the prior few years. More than two dozen cases are currently in an active litigation status, including suits against Townstone Financial Inc., a nonbank mortgage lender, and another against Performance SLC LLC, a student loan servicer.

Concluded enforcement matters likewise demonstrate materially increased CFPB enforcement activity. Collectively, the actions collected, or will collect, about $1 billion in combined consumer relief and civil monetary penalties, of $700 million is consumer relief. One of the very largest civil monetary penalties — $25 million — was assessed in December against Discover Bank, which was accused of violating an earlier 2015 consent order addressing various practices.

Overall, few regulated entities escaped the bureau's wrath. In early January, the CFPB filed enforcement actions against various student loan providers and servicers, and settled them throughout the year with substantial redress payments and smaller civil monetary penalties.

Later, in a major settlement with Deutsche Bank AG's trust affiliate and related companies, the CFPB entered into a stipulated final judgment in September that resulted in an estimated $330 million in student loan forgiveness.

On the short-term lending front, the CFPB entered into multiple consent orders, including ones tied to their advertising and telemarketing, finance charge disclosures, failure to refund overpayments, and unfair debt collection practices. In late December, the CFPB announced a settlement with a Military Lending Act lender, Omni Financial Services Inc., over its practice of demanding repayment by "allotment," an autopay system under which the U.S. Department of Defense withdraws funds from a paycheck and directs it to a creditor.

The CFPB continued its long assault against nonbank mortgage servicers. In May and December, the bureau settled with Specialized Loan Servicing LLC and Nationstar Mortgage LLC's Mr. Cooper, resolving myriad claims regarding the two entities' default servicing practices. A third entity, Ocwen Financial Corp., remains in active litigation with the CFPB, which has long pursued these companies regarding a number of practices.

While the CFPB had largely ignored debt collection under Mick Mulvaney's tenure, the Kraninger-led CFPB took a markedly different approach. For example, in July, the bureau settled with TimeMark Inc., a Florida-based student loan debt-relief servicer alleging illegal advance fees in violation of the Telemarketing Sales Rule to consumers who were seeking to renegotiate their loans. The order imposed $3.8 million in consumer redress and civil money penalties.

Auto finance companies did not escape the CFPB's wrath. In October, the bureau settled with Nissan Motor Acceptance Corp. regarding its auto repossession practices. In December, Banco Santander SA's auto finance unit settled with the CFPB over inaccurate credit reporting.

What to Expect in 2021

This coming year will be one of more vigorous enforcement, enhanced fair lending initiatives, and renewed assaults on consumer arbitration, payday lending and other favored targets during the Cordray era.

Made possible, if not inevitable, by the Seila Law decision, look for Biden to replace Kraninger and cast aside other political appointees, even those nominally embedded in nonpolitical positions.

Although many names were mentioned, most expected longtime CFPB employee Patrice Ficklin to serve as the new director. But, instead, President-elect Biden went with CFPB veteran (and current FTC commissioner) Rohit Chopra. His first act? Undoing many or all of the most recent organizational changes, the largest impact of which was to place enforcement under the auspices of supervision. Also expect to see a revived fair lending office, a renewed effort to resuscitate guidance or rulemaking on payday lending, indirect auto "dealer markups," and limits on consumer arbitrations. It will be a busy next four years.

Finally, look for the CFPB to enter into a more coordinated enforcement alliance with the burgeoning state mini-CFPBs, the most important of which is the new California Department of Financial Protection and Innovation. If that occurs, expect an even more vigorous enforcement regime from the DFPI, the implications of which will be felt far beyond California's borders.

Update: This article has been updated to reflect President-elect Biden's plan to nominate Rohit Chopra to lead the CFPB.



Richard Gottlieb is a partner at Manatt Phelps & Phillips LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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