CFPB: Fair Lending Moves, New RFIs and Director Fight

by Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

Firestorms continue to brew at the Consumer Financial Protection Bureau, as Acting Director Mick Mulvaney tackles a wholesale overhaul of the much-criticized bureau. In the most recent news, the CFPB’s new five-year plan raises eyebrows; Mulvaney downgrades the Fair Lending Division and seeks out new Requests for Information (RFIs) on its supervision program, administrative actions and enforcement processes; and the never-ending battle over leadership continues.

What happened

The Firestorm Continues—Is Mulvaney finally reining in an overzealous, overaggressive government monster, or is he illegally tearing apart an agency without congressional authority to do so? A longtime critic of the CFPB’s tactics, Mulvaney has set about to change the very way the CFPB views its mission. We already reported on his note to staff, in which he called on staffers to act with more “humility.” Senator Elizabeth Warren disagrees, arguing in a recent American Banker article that Mulvaney is, instead, trying to hamstring CFPB examinations over false or misleading concerns about cybersecurity, putting “the interests of Wall Street banks and various scam artists ahead of the interests of American families who are trying to buy a home or save for college. Instead of standing up for these families, Mulvaney is trying hard to make the consumer agency work for the people who want to cheat consumers.”

Fair Lending—In an email to bureau employees, Mulvaney announced that the Office of Fair Lending and Equal Opportunity will move from the CFPB’s Supervision, Enforcement and Fair Lending division to the Office of the Director. There, the group will focus on “advocacy, coordination and education,” according to the email, and will no longer have responsibility for enforcement or the day-to-day oversight of companies.

Previously, the office used its enforcement power in several high-profile cases.

In what was touted as the largest auto loan discrimination settlement in history, the office reached a deal with an auto lender and its parent company to pay $98 million to settle charges of discriminatory lending in violation of the Equal Credit Opportunity Act. The office also obtained a $25 million settlement in 2015 with a New Jersey-based bank accused of racially discriminating against minority mortgage borrowers, an agreement the bureau called the country’s largest redlining deal.

Consumer advocates and civil rights groups criticized the move, arguing that by stripping its enforcement power, the office was rendered essentially toothless. “These changes … threaten effective enforcement of civil rights law, and increase the likelihood that people will continue to face discriminatory access and pricing as they navigate their economic lives,” Lisa Donner, executive director of Americans for Financial Reform, said in a statement.

A spokesperson for the acting director disputed the criticism. “By elevating the Office of Fair Lending to the Director’s Office, we have enhanced its ability to focus on its other important responsibilities,” John Czwartacki said in a statement. “By combining these efforts under one roof, we gain efficiency and consistency without sacrificing effectiveness.”

Requests for Information—Mulvaney’s other efforts to overhaul the CFPB include a complete review of the bureau’s enforcement, supervision, rulemaking, market monitoring and education activities. The first RFI focused on the process for requesting documents from companies under investigation.

For its second review, the bureau asked for more information on the benefits and impacts of its use of administrative adjudications and how the existing process may be improved. The RFI asked for input on whether the CFPB should abandon the process completely and pursue contested matters only in federal court, whether bureau staff should be permitted to issue subpoenas without approval of the administrative law judge, and whether limitations should be placed on expert witnesses or discovery (including deposing fact witnesses or servicing interrogatories), and sought feedback on the policy for proceedings to be conducted expeditiously, among other questions.

Comments are due by April 6.

Next on the list: enforcement processes. The third RFI seeks information “to help assess the overall efficiency and effectiveness of its processes related to the enforcement of federal consumer financial law”—an opportunity for stakeholders and the public to submit comments and suggest ways to improve outcomes for both consumers and covered entities, the bureau said.

The RFI listed seven topics for feedback: the length of CFPB investigations; communication between the bureau and the subjects of investigations (including timing, frequency and what information the bureau should provide on the status of an investigation); the Notice and Opportunity to Respond and Advise process (whether it should be mandatory or discretionary, among other questions); whether the subjects of potential enforcement actions should have the right to make an in-person presentation to the CFPB before it decides to initiate legal proceedings; the calculation of civil money penalties; standard provisions in CFPB consent orders; and the manner and extent to which the CFPB should coordinate its enforcement activity with other federal or state agencies.

The CFPB’s fourth RFI seeks comments on the bureau’s supervision program, requesting comment on myriad aspects of its program, focusing primarily on 12 topics it says constitute “a preliminary attempt by the Bureau to identify elements of the Bureau processes related to its Supervision Program that may be deserving of more immediate focus.” The 12 topics are (1) the timing, frequency and scope of supervisory exams; (2) the timing, method or process used by the bureau to collect information and documents; (3) the type and volume of information and documents requested; (4) the effectiveness and accessibility of the CFPB Supervision and Examination Manual; (5) the efficiency and effectiveness of on-site examination work; (6) the effectiveness of supervision’s communications when potential violations are identified; (7) the clarity, organization and quality of communications that report the results of supervisory activities (such as potential action and request for response (PARR) letters); (8) the clarity of matters requiring attention (MRAs) and the reasonability of timing requirements to satisfy MRAs; (9) the process for appealing supervisory findings; (10) the use of third parties (e.g., independent auditors) to conduct assessments specified in MRAs, or to assess the sufficiency of completion of an MRA; (11) the usefulness of Supervisory Highlights to share findings and promote transparency; and (12) the manner and extent to which the bureau can and should coordinate its supervisory activity with federal and state supervisory agencies. Comments are due 90 days after formal publication.

Five-Year Strategic Plan—Reflecting the new direction in which Mulvaney is taking the CFPB, the bureau released its five-year (FY 2018–2022) strategic plan on Feb. 12, 2018. In an opening message, Mulvaney implicitly acknowledges that this is a substantial rewrite of a draft plan released in late 2017, and that this version reflects wholesale changes in the CFPB mission. “If there is one way to summarize the strategic changes occurring at the Bureau, it is this: we have committed to fulfill the Bureau’s statutory responsibilities, but go no further.” No more “pushing the envelope,” he adds. Among the key differences between the draft and final plan are slightly varied emphases on reducing regulatory burdens and on increasing the transparency in rulemaking and cost-benefit analyses. Likewise, the plan adds some language now favored by Mulvaney, noting the CFPB will conduct itself with “humility and moderation.”

Leandra English—In the latest developments in the litigation surrounding leadership at the bureau, Leandra English filed her appellant’s brief with the U.S. Court of Appeals for the D.C. Circuit. Reiterating her arguments from the district court, she told the federal appellate panel that the Dodd-Frank Wall Street Reform and Consumer Protection Act reigns supreme over other presidential appointment powers and that Mulvaney’s appointment by President Donald Trump was inconsistent with the statute’s creation of an independent agency.

Oral argument in the case is set for April 12.

Challenge Dismissed—In related news, a similar suit filed by a New York credit union challenging Mulvaney’s appointment was dismissed. The Lower East Side People’s Federal Credit Union argued that its members were at risk with President Trump’s appointee at the helm.

But U.S. District Court Judge Paul G. Gardephe granted the government’s motion to dismiss the action. Simply because the credit union is regulated by the CFPB does not establish its standing to challenge Mulvaney’s appointment, the court said, and mere “speculation regarding the future actions of third parties is not sufficient to establish an imminent injury.” Having failed to allege a “concrete and particularized injury caused by CFPB actions under Mulvaney’s leadership,” the court found the credit union lacked standing to bring suit.

To read the RFI on Adjudication Proceedings, click here.

To read the RFI on Enforcement Processes, click here.

To read the RFI on Supervision, click here.

To read the memorandum opinion and order in Lower East Side People’s Federal Credit Union v. Trump, click here.

Why it matters

The CFPB headlines keep coming, and uncertainty could lead to confusion in updating systems to comply with the rules the CFPB supervises and enforces. Regulated entities should take an active role, offering comments on the RFIs as the CFPB re-examines its essential roles. Mulvaney continues to make his mark on the CFPB, reorganizing the structure of the bureau and releasing three more RFIs in his ongoing review of the agency’s activities. As for the ongoing battle over leadership, there will be a lull for the next few weeks with the dismissal of the credit union action and oral argument set in English’s case for April 12.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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