Earlier yesterday, at the Practicing Law Institute’s (“PLI”) 22nd Annual Consumer Financial Services Institute in New York City, Alan Kaplinsky (who is co-chairing the event) moderated a panel entitled “The CFPB Speaks,” that featured three senior CFPB lawyers: Anthony (“Tony”) Alexis (Assistant Director for Enforcement), Diane Thompson (Deputy Assistant Director, Office of Regulations), and Peggy Twohig (Assistant Director for Supervision Policy).  Ballard Spahr attorney James Kim, a former senior CFPB enforcement lawyer who now represents industry, was also a panel member.

In response to questions posed by Alan and audience members, the CFPB lawyers discussed regulatory, supervisory and enforcement developments and upcoming initiatives.  Particularly noteworthy comments were:

• Ms. Twohig stressed the importance of an entity’s response to a PARR letter – a notice of Potential Action and Request for Response – in the supervisory process.  She commented that there have been instances where the CFPB has decided not to cite a company for a violation based on its response to a PARR letter.
• Mr. Alexis and Ms. Twohig discussed the CFPB’s process for deciding whether the CFPB will use a supervisory or an enforcement action to address violations found in an examination.  Ms. Twohig indicated that the decision whether to refer a matter to enforcement is made by an Action Review Committee (ARC), which considers various factors such as the severity of the violation, the entity’s cooperation with the CFPB, and policy factors that include the need for the CFPB to send a public message of deterrence.  Mr. Alexis indicated that if a matter is referred to enforcement, the Enforcement Division will consider similar factors as well as input from witnesses obtained through CIDs.  Enforcement will then decide whether to proceed with an enforcement action, return the matter for supervisory resolution (which Mr. Alexis called a “reverse ARC” process), or drop the case.  Mr. Alexis acknowledged that a supervisory resolution through an MOU or similar agreement is the only vehicle available to the CFPB to enter into a non-public settlement.  Accordingly, if a company is not subject to CFPB supervision, a settlement can only be entered into through a public consent order.
• Mr. Alexis indicated that the constitutional challenge to the CFPB’s use of an administrative judge in the PHH case has not caused the CFPB to direct more enforcement matters to lawsuits filed in federal district court rather than administrative proceedings.  He noted that the CFPB’s decision of which forum to use is frequently driven by the facts involved in a matter, with a district court lawsuit more likely to be filed when the CFPB is in need of more discovery to support its case.  He also indicated that the panel’s rejection in PHH of the CFPB’s position that it is not bound by statutes of limitation in administrative enforcement actions has not changed the CFPB’s approach to enforcement matters.
• Mr. Alexis indicated that he saw no need to advocate for the CFPB’s adoption of a matrix for assessing civil money penalties similar to those used by the prudential regulators because the factors are laid out in Dodd-Frank.
• Ms. Thompson declined to estimate when the CFPB is likely to issue a final arbitration rule or a final payday/small dollar loan rule, stating that it was “too speculative” for her to do so and that the CFPB was continuing to consider the unprecedented number of comments received on both rules.  She also indicated that the CFPB was in the early stages of developing a proposed rule to implement Dodd-Frank Section 1071.  (Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data include the race, sex, and ethnicity of the principal owners of the business.)  According to Ms. Thompson, the CFPB is attempting to address the absence of good sources of data on small business lending.
• Ms. Twohig indicated that the CFPB’s next larger participant rule will deal with consumer installment lending and auto title loans and that the CFPB is continuing to consider creating a registration system for non-bank lenders to assist the CFPB in identifying market participants.  She also indicated that to address the widespread use of compliance technology solutions by entities it supervises, the CFPB has stood up the National Information Systems Supervision Program (NISSP).  Through the NISSP, the CFPB uses specialized managers to inform and focus supervisory reviews of entities’ compliance-related information systems, some of which are designed in-house but many of which rely upon third parties to develop and maintain.
• Ms. Twohig defended the CFPB’s proposed rule that would amend the CFPB’s information disclosure rules to allow it to share confidential supervisory information with any federal or state agency (including state attorneys general) regardless of whether the agency has jurisdiction over the company whose CSI is shared as long as the CSI is “relevant” to the agency’s authority.
• Mr. Alexis stated that the CFPB’s decision to assert that the non-bank, and not the tribal-affiliated lender, was the “true lender” in the pending CashCall case was fact specific and dependent on how that case unfolded.  Mr. Alexis said that the CFPB would consider using the “true lender” theory and the predominant economic interest test in other cases if it is appropriate.  Mr. Kim remarked that the CFPB’s application of the “true lender” theory requires states to cooperate by alleging that the non-banks, who service or collect on the loans, are violating state usury and licensing laws.