Another day, another major pronouncement from the Consumer Financial Protection Bureau (CFPB or Bureau), which just took two important actions. First, it rescinded seven different policy statements that offered flexibility to financial institutions during the COVID-19 pandemic and the resulting economic downturn. Second, it dropped what many viewed to be an important supervisory tool. We explain what happened and why it matters.
If it was not apparent before today, the era of COVID-19 accommodations for industry is coming to a screeching halt. On March 31, 2021, the CFPB rescinded seven policy statements, all issued from March to June 2020 during the tenure of then-Director Kathy Kraninger:
- Statement on Bureau Supervisory and Enforcement Response to COVID-19 Pandemic (March 26, 2020) – This initial policy statement provided little in the way of specifics but did state that the CFPB would take into account the staffing and resource challenges created by the pandemic.
- Statement on Supervisory and Enforcement Practices Regarding Quarterly Reporting Under the Home Mortgage Disclosure Act (HMDA) (March 26, 2020) – This policy statement provided that the CFPB would not cite in an examination or initiate an enforcement action against any institution for failure to report its HMDA data quarterly. With the rescission of this statement, the first quarterly submissions in 2021 are now due by May 30, 2021.
- Statement on Supervisory and Enforcement Practices Regarding CFPB Information Collections for Credit Card and Prepaid Account Issuers (March 26, 2020) – This policy statement provided that the CFPB would not cite in an examination or initiate an enforcement action for failure to meet the requirements under the Truth in Lending Act, Regulation Z or Regulation E regarding the submission to the Bureau of information related to credit card and prepaid accounts.
- Statement on Supervisory and Enforcement Practices Regarding the Fair Credit Reporting Act (FCRA) and Regulation V in Light of the CARES Act (April 1, 2020) – This policy statement, issued a few days after President Trump signed the CARES Act into law, expressed the Bureau’s intention to employ a flexible supervisory and enforcement approach for the FCRA and Regulation V during the pandemic, including by “considering the circumstances that entities face as a result of the pandemic and their good faith efforts to comply with their statutory and regulatory obligations.”
- Statement on Supervisory and Enforcement Practices Regarding Certain Filing Requirements Under the Interstate Land Sales Full Disclosure Act (ILSA) and Regulation J (April 27, 2020) – This policy statement expressed the CFPB’s intention to not take supervisory or enforcement action against land developers subject to the ILSA and Regulation J for delays in filing annual reports and financial statements with the Bureau.
- Statement on Supervisory and Enforcement Practices Regarding Regulation Z Billing Error Resolution Timeframes in Light of the COVID-19 Pandemic (May 13, 2020) – This policy statement provided for a relaxation of billing error resolution timeframes and a tolerance for good faith efforts that take longer than required by the regulation.
- Statement on Supervisory and Enforcement Practices Regarding Electronic Credit Card Disclosures in Light of the COVID-19 Pandemic (June 3, 2020) – This policy statement expressed the Bureau’s intention to take a flexible supervisory and enforcement approach to requirements regarding E-Sign consent.
In explaining the action, Acting Director Dave Uejio asserted that, over one year into the pandemic, the time had come for a shift: “Providing regulatory flexibility to companies should not come at the expense of consumers. Because many financial institutions have developed more robust remote capabilities and demonstrated improved operations, it is no longer prudent to maintain these flexibilities. The CFPB’s first priority, today and always, is protecting consumers from harm.”
CFPB Replaces Bulletin 2018-01. In an action unrelated to COVID-19, the CFPB also rescinded its Bulletin 2018-01 and replaced it with Bulletin 2021-01, discontinuing the use of supervisory recommendations as a softer alternative to matters requiring attention (MRAs).
Back in September 2018, the Bureau issued Bulletin 2018-01, which, among other things, added a new type of supervisory action, known as “Supervisory Recommendations” (SRs), that would be used “to recommend actions for management to consider taking if it chooses to address the Bureau’s supervisory concern” related to a compliance management system (emphasis added). Prior to the addition of SRs, the only tools to address supervisory expectations were MRAs. Neither MRAs nor SRs were technically enforceable, but MRAs reflected more substantial concerns.
With its March 31 release of Bulletin 2021-01, however, the Bureau has expressly returned to an MRA-only approach, stating simply that “the Bureau no longer will issue formal written Supervisory Recommendations (SRs). The Bureau believes that MRAs will more effectively convey our supervisory expectations. Bureau examiners will also continue to provide informal feedback and suggestions to supervised entities as part of the supervisory process.”
The Bureau’s formal announcement on rescission of the policy statements may be found here.
CFPB Bulletin 2021-01 may be found here.
Why It Matters
So why is it, as Acting Director Uejio claims, “no longer prudent” to offer flexibility to both consumers and industry? The answer is not just that the CFPB has become less supportive of industry and more aggressively consumer-focused.
As we warned at the time when these policy statements were coming down, there was always a risk in relying too heavily on the increased flexibility because of its temporary nature and the possibility of rescission without notice. Now, with the COVID-19 pandemic still affecting the operations of financial institutions and limiting staffing and resources, the CFPB has ended its period of supervisory and enforcement accommodation.
Financial institutions that adjusted their practices based on the rescinded policy statements should promptly recalibrate. As the Bureau stated in its press release, “the CFPB is providing notice that it intends to exercise the full scope of the supervisory and enforcement authority provided under the Dodd-Frank Act.” In short, there will be no transition period.
The rescission of Bulletin 2018-01 is also a significant action (and a signpost for how the CFPB will be conducting its supervision and examinations) being taken by the CFPB under Acting Director Uejio. The supervisory recommendation allowed the CFPB to formally convey optional suggestions to financial institutions without the implicit threat of enforcement action underlying an MRA. But Bulletin 2021-01 eliminates this concept and stresses that “the Bureau expects supervised entities to correct the matters identified in MRAs promptly and effectively.” In other words, while the Bureau may continue to make suggestions informally, it is viewing supervision as more of an adversarial process in which it will speak and regulated companies are to do as they are told.
We do not expect this to be the last move by the CFPB to unwind Bureau actions taken during the Mulvaney and Kraninger eras.