Last week, I had the opportunity to hear several high-ranking lawyers with the CFPB speak at PLI’s 18th Annual Consumer Financial Services Institute in Chicago. As an initial matter, the attendees owe a debt of thanks to each of CFPB lawyers for taking the time to attend the seminar, which Alan Kaplinsky co-chaired. I know that many members of the audience appreciated the opportunity to hear directly from the people at the CFPB involved in determining the direction of the CFPB’s examination and enforcement efforts. Below are a few notable comments and remarks regarding the CFPB’s current positions and future goals.
First, during her keynote address, Meredith Fuchs (the CFPB’s General Counsel) stated that one of the CFPB’s future goals is to increase the amount of transparency regarding its examination results. Ms. Fuchs stated that to this end, the CFPB will soon publish a “Supervisory Highlights” report. This report will provide a high-level summary of the CFPB’s findings and conclusions to date in connection with its examinations. Ms. Fuchs did assure the audience that the identities of the subjects of those examinations will not be revealed in the report. Alice Hrdy (Deputy Assistant Director, Office of Supervision Policy) echoed Ms. Fuchs in this regard and also reiterated a theme that we have heard before from the CFPB, i.e., that the industry should not read too much into the presence of enforcement attorneys during exams. According to Ms. Hrdy, the fact that very few enforcement actions have resulted from examinations shows that the enforcement role is not significant in the examination process. However, when a member of audience suggested that perhaps the time has come for enforcement to exit the examination process, Ms. Hrdy’s response suggested that the CFPB does not share this view. Therefore, I expect that the involvement of enforcement attorneys in examinations will continue for the foreseeable future, which risks continued concern in the consumer financial services industry about the CFPB’s examination process and its true purpose.
With regard to the CFPB’s current enforcement priorities, Ms. Fuchs noted that the CFPB has implemented an advance notice process that will work similar to the Wells Notice used by the SEC prior to initiating an enforcement action. Under the CFPB’s process, a company that may be subject to a potential enforcement action will receive advance notice from the CFPB regarding its intent to pursue an action. Thereafter, the company will have an opportunity respond and attempt to persuade the CFPB to change course. It will be interesting to see how this plays out and whether the industry will take advantage of this opportunity. Hopefully, the CFPB will demonstrate a willingness to consider the company’s response in a meaningful way in reconsidering what the appropriate course of action, if any, should be against the company.
Additionally, we heard from Anthony Alexis (Deputy Enforcement Director for Field Litigation). My colleague, Alan Kaplinsky, pressed Mr. Alexis for information regarding the total number of active CIDs served by the CFPB. In response, Mr. Alexis continued the CFPB’s tradition of declining to provide any specific numbers or information about this topic. Instead, Mr. Alexis repeated what we have heard before – that the CFPB has served CIDs to companies in a variety of areas of the consumer financial services industry but did not provide any more specific detail.
Alan also asked how a company will know when the CID process is complete. Mr. Alexis’ response suggested to me that the CFPB does not have a consistent process by which such notice is delivered to companies at the conclusion of the investigation. Instead, Mr. Alexis mentioned a number of potential ways in which such information could be conveyed, including: (1) through a discussion with CFPB enforcement attorneys; (2) through a formal closing letter (which is not always sent); or (3) as a result of the company inquiring as to how much longer the company will be required to continue its litigation hold. My interpretation of Mr. Alexis’ response is that companies may want to consider following up with CFPB as to whether the CID process is concluded from time to time after completing its response to a CID. Otherwise, the company risks a potentially significant investment of time and resources in continuing preservation efforts that may not be necessary.
Finally, during her keynote remarks, Ms. Fuchs highlighted four areas for continuing focus by the CFPB:
Disparate impact. In the eyes of the CFPB, disparate impact is here to stay and will continue to be a significant part of the CFPB’s examination and enforcement efforts.
Identification of deceptive and misleading advertising. Ms. Fuchs noted that an advertisement does not have to be “outright misleading” to be deceptive or misleading. Rather, an advertisement can run afoul of this prohibition if critical information is not readily understandable, buried in the advertisement, or presented in a way that made it difficult for consumers to compare products.
Continuing scrutiny of financial products that function as “debt traps.” Ms. Fuchs defined these products as those where profitability is tied to consumers rolling over their debts on a recurrent basis.
Scrutiny of companies not chosen by consumers. By way of illustration, Ms. Fuchs referred to the mortgage servicing industry as an example of an area where consumers do not have a choice in selecting the company with which they do business. Ms. Fuchs explained that this concerns the CFPB because consumers often lack any ability to change who services their loan or have any other available method for recourse against their servicer in the event that customer service problems or other issues arise during the course of that business relationship. While Ms. Fuchs used the mortgage servicing industry as an example of where the CFPB is concerned about consumer choice, I did not understand Ms. Fuchs to imply that the CFPB would limit its analysis of this issue to just that industry.