While Bureau officials tamped down high-profile rulemaking efforts during the Trump administration, existing rules within the CFPB’s jurisdiction — including the Dodd-Frank Act’s unfair, deceptive, or abusive acts or practices (UDAAP) prohibition — remained intact and untouched under President Trump. Many of these regulations were enshrined in federal consumer finance law for over forty years and only came under the purview of the Bureau in 2011. Career Bureau staff effectuated vibrant regulatory activity in the Bureau’s short history, during (and, at times, in spite of) the Trump administration. The cases discussed below involve matters filed during the tenures of Trump’s two appointees — former acting Director, Mick Mulvaney, and former Director, Kathleen Kraninger, who resigned following President Biden’s inauguration.
With the eyes of businesses, consumers, and advocates on the Biden administration, reviewing CFPB enforcement dockets over the last four years will help further an authentic dialogue. In this article, we organize our discussion of enforcement cases around a list of myths and the facts needed to debunk them.
Myth 1: Under Trump, the CFPB Would Decrease Scrutiny of the Banking Industry in a Reversal of Bank Oversight under the Obama Administration
Following President Trump’s appointment of Acting Director Mick Mulvaney over Thanksgiving weekend in 2017, the CFPB issued an order that resulted in the largest fine imposed in the agency’s history. On April 20, 2018, the CFPB settled with a large national bank for violations of Title X of the Dodd-Frank Act’s UDAAP prohibition. The violations were rooted in allegations regarding the bank’s (1) fees to consumers for mortgage rate-lock extensions, and (2) force-placed insurance products[i] on consumers’ financing of auto purchases. In addition to the order of consumer redress, the CFPB, which brought the suit in collaboration with the Office of the Comptroller of the Currency, assessed a $1 billion penalty against the bank — an amount much greater than any penalties imposed during the Obama administration.
Two months later, on June 29, 2018, the CFPB issued an order against Citibank, N.A. that required the bank to pay $335 million in restitution to consumers for specified Truth in Lending Act (TILA) violations. The Bureau found that Citibank had failed to (1) reevaluate and reduce the annual percentage rates (APR) on consumers’ credit cards as required under TILA, and (2) maintain reasonable policies and procedures governing the required APR reevaluations.
After the Bureau’s founding in the early years of the Obama administration, it was relatively rare for the agency to sue banks in federal court. Traditionally, bank oversight occurred in the agency’s administrative proceedings as opposed to in court, before an Article III judge. In fact, only one such instance occurred during the Obama administration, in a case filed in federal court in Minnesota. Notably, this previously isolated practice did not stop once the Trump administration’s leadership took over; instead, it continued.
On January 30, 2020, the CFPB filed suit against Citizens Bank, N.A. in federal court in Rhode Island. The CFPB alleged that Citizens had committed violations of the Fair Credit Billing Act, which was enacted and incorporated into TILA in 1974. The Bureau’s lawsuit alleged that when consumers asserted claims of unauthorized account usage and notified Citizens of billing errors on credit card accounts, Citizens (1) ignored the notices or denied the claims, (2) failed to refund finance charges and fees, and (3) failed to notify consumers of the status of their claims.
Two months later, on March 9, 2020, the CFPB filed suit against Fifth Third Bank, N.A. in federal court in Illinois, alleging that Fifth Third (1) engaged in sales practice violations in contravention of the Dodd-Frank Act’s UDAAP prohibition and (2) violated TILA and the Truth in Savings Act, as well as their implementing regulations. The Bureau alleged that Fifth Third incentivized its employees to “cross-sell” products to consumers, rewarded employees with incentive-based compensation programs, and rated employees based on ambitious sales goals. These practices allegedly led Fifth Third’s employees to open multiple products or services on behalf of consumers without their consent or knowledge, including deposit accounts, credit cards, online banking accounts, and new lines of credit. Notably, rather than resolving the issue with Fifth Third in a nonpublic Memorandum of Understanding, the CFPB publicly sought an injunction to force the bank to cease its conduct, seek redress for affected consumers, and obtain an order of civil money penalties in court.
These cases thus debunk the myth that the CFPB under the Trump administration lessened its oversight of national banks.
Myth 2: Under Trump, the CFPB’s Leadership Crippled its Own Fair Lending Program
In a highly publicized announcement on February 1, 2018, the CFPB reconfigured its internal organization to move the Office of Fair Lending out of the Bureau’s Division of Supervision, Enforcement, and Fair Lending, and into a new “Office of Fair Lending and Equal Opportunity” housed in the CFPB’s Front Office. The reorganization did not, however, preclude the CFPB from enforcing anti-discrimination law.
Filed approximately 45 days after the killing of George Floyd and amid national protests against systemic racial injustices, under leadership appointed by Trump, the CFPB brought the first case in recent history to breathe new life into existing legal theories aimed at combatting redlining.[ii] On July 15, 2020, the CFPB filed a complaint in federal court in Illinois against Townstone Financial, Inc. (Townstone), a nonbank mortgage company, for alleged violations of the Equal Credit Opportunity Act (ECOA).
Specifically, the CFPB alleged that Townstone aired weekly podcasts and AM radio shows for marketing purposes, during which Townstone made statements that “would discourage African-American prospective applicants from applying to Townstone for mortgage loans.” (Compl. ¶ 13.) The Complaint alleged that the following additional statements made during those discussions were grounds for an ECOA violation:
- Townstone’s CEO referred to a defunct grocery store previously located in downtown Chicago as “Jungle Jewel”—a derogatory reference to foreigners, African Americans, and Black people—and called it “a scary place.” (Id. ¶ 32.)
- Townstone’s vice-president and its senior loan officer made inappropriate statements, comparing the “rush” from skydiving to the implied risk of harm from “walking through the South Side [of Chicago] at 3 AM” which would allow one to “get the same rush.” (Id. ¶ 35.)
- Townstone’s president told a caller from a predominately Black city, which he noted was “crazy . . . on weekends” and a place that “[y]ou drive very fast through . . . and . . . don’t look at anybody or lock on anybody’s eyes” while there, that he should “stop spending freaking money [on his wife] and tell her to get a better job” and that because the caller’s wife “probably doesn’t have good credit because she’s a woman.” (Id. ¶ 39.)
The CFPB alleged that the above statements would discourage both African-American prospective applicants in general and prospective applicants living in African-American neighborhoods from applying to Townstone for mortgage loans. It is remarkable that the very first redlining case brought by the CFPB occurred under the Trump administration, in the face of vigorous available defenses, including those based on the mortgage company’s First Amendment right of free speech.[iii]
Given that the CFPB brought enforcement matters alleging novel fair lending theories in Townstone, it is untrue that the relocation of the CFPB’s fair lending office crippled the agency from pursuing anti-discrimination policy priorities.
Myth 3: Under Trump, the CFPB Would Stop Pursuing Enforcement Actions that “Push the Envelope”
As mentioned above, one of the consumer financial services industry’s key criticisms of the CFPB prior to the Trump era was the agency’s penchant for doing “regulation by enforcement.” During the Trump administration, however, on October 4, 2018, the CFPB filed an enforcement action against Bluestem Brands, Inc. and related entities that had been doing business as Fingerhut and Gettington.com.
While the CFPB’s enabling statute contains an exemption to the Bureau’s jurisdiction with regard to retailers, the Trump-era CFPB did not explain the basis for the CFPB’s reach over retailers in any guidance, advisory letters, or rulemaking. Instead, the CFPB merely filed an enforcement action. Moreover, the publicly filed consent order did not even specify the legal bases for the CFPB’s jurisdiction and instead presented the Bureau’s jurisdiction as a fait accompli.
The CFPB also pursued a novel theory in the Bluestem matter, relying on logic reminiscent of the Bureau’s consumer protection ethos during the Obama era. It is helpful to revisit a prior debt buyer case involving JP Morgan Chase (Chase) that the Bureau pursued during former Director Cordray’s tenure. On July 8, 2015, the CFPB, in collaboration with 47 states and the District of Columbia, brought an enforcement action against Chase based on its alleged failure to confirm the amounts and/or existence of credit card debts before selling them to debt buyers or filing debt-collection lawsuits. The Chase matter launched shockwaves that reverberated throughout the industry because it imputed liability for the reverse scenario—a bank’s liability for its involvement or omissions that ultimately facilitated misconduct by debt buyers. Rather than issue the guidance or prescribe the standards in new rules in advance, however, the CFPB opted instead to raise the issue for the first time in an enforcement action.
The Bluestem matter is quite similar to Chase. The CFPB did not prescribe a rule to inform retailers of the federal illegality of continuing to accept payments from consumers after retailers sell the consumers’ delinquent debts (for merchandise purchased on credit) to debt buyers or debt collectors. Instead, the CFPB declared the practice to be Unfair under the UDAAP authority for the first time in an enforcement action. Additionally, the CFPB utilized its UDAAP authority to hold one party liable for the harmful acts of another. The CFPB found that Bluestem had acted too slowly to forward information to debt buyers, prevented debt buyers from updating account balances, and helped debt buyers subject consumers to misleading debt-collection efforts. In both the Chase and Bluestem matters, which the Bureau pursued during the Obama and Trump administrations, the CFPB engaged in “regulation by enforcement.”
With respect to consumer financial regulation, the Bureau achieved each of the above accomplishments under an “anti-regulation” Trump regime of protecting consumers. As lawyers and advisors, we feel it is important to view the political turbulence of a change in administration through a sober lens. While any shift in policy priorities by Democrats will change the CFPB’s enforcement work, the ultimate outcome may be less dramatic when viewed in the context of the CFPB’s vibrancy in the Trump era, as measured by facts and filings, rather than popular opinion. The overview of where the CFPB has been providing the industry with useful context for where it is primed to go next. Moving forward, the Bureau will be galvanized to openly achieve an even more vibrant enforcement agenda than the one pursued under the radar during the Trump era.
[i] Forced-placed insurance is collateral-protection insurance, the cost for which is included in the financing charges for auto loans.
[ii] Redlining is defined as “[c]redit discrimination (usu[ally] unlawful discrimination) by an institution that refuses to provide loans or insurance on properties in areas that are considered to be poor financial risks or to the people who live in those areas,” a form of obstructive lending practices that ultimately impede home ownership among African Americans or other people of color. See Black’s Law Dictionary (11th ed. 2019).
[iii] Townstone did ultimately make this argument in its Motion to Dismiss. (Motion to Dismiss at 9.)