UPDATE: CONSUMER FINANCIAL PROTECTION BUREAU

By Matthew Kirkpatrick, Kirkpatrick Law, LLC

2018 has started with a bang at the Consumer Financial Protection Bureau (CFPB).  Congress created the CFPB in 2010 as part of the Dodd-Frank financial reforms in response to the 2008 financial crisis.  The agency’s purpose is to ensure “that, with respect to consumer financial products and services—

(1)  consumers are provided with timely and understandable information to make responsible decisions about financial transactions;

(2)  consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination;

(3)   outdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens;

(4)  Federal consumer financial law is enforced consistently, without regard to the status of a person as a depository institution, in order to promote fair competition; and

(5)   markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.”

12 U.S.C. § 5511(b).

President Obama nominated and the Senate confirmed Richard Cordray to a 5-year term as the CFPB’s initial Director in a 66–34 vote on July 16, 2013.  Under Cordray, the CFPB actively engaged in rulemaking and enforced laws protecting protect American consumers, recovering “nearly $12 billion for 29 million consumers in refunds and canceled debts.”[1]

Following President Trump’s inauguration, however, the CFPB found itself in the hot seat.  Former CFPB Director Cordray had long faced criticism from Republican lawmakers who complained that the CFPB’s single-director structure unconstitutionally concentrated too much power in a single, un-elected official who lacked accountability to the executive branch.  Critics also argued that its enforcement of consumer regulations was overzealous, unfair to business, and harmful to the economy.  This article provides an update on the CFPB’s status one year into the Trump presidency.

CFPB Leadership

Cordray resigned November 24, 2017, and appointed his chief of staff, Leandra English, as acting director.  President Trump rejected English’s appointment, however, and appointed Office of Management and Budget Director Mick Mulvaney to serve as the CFPB’s acting director instead.  Mulvaney, a long-time CFPB critic, once called the agency a “joke * * * in a sick, sad kind of way.”[2]  A federal judge denied English’s motion for a temporary restraining order and Mulvaney has acted as the acting director ever since.  Trump has not nominated a permanent director.

CFPB Constitutionality

On January 29, 2018, the D.C. Circuit Court of Appeals ruled 7-3 that the CFPB’s single-director structure is constitutional and that the director cannot be fired without cause.[3]

CFPB Activity

On July 19, 2017, the CFPB issued its final Arbitration Rule that prohibited arbitration provisions in financial contracts from including class action waivers.  Companies have used such waivers to dismiss class action lawsuits and force consumers to bring individual arbitrations, for example, against Wells Fargo Bank for opening unauthorized consumer accounts.[4]

On November 1, 2017, before the Arbitration Rule went into effect, President Trump signed a Congressional Review Act (CRA) resolution repealing the rule and precluding similar rules in the future, after Vice President Mike Pence broke a tie vote on the resolution in the Senate.[5]  More information on the repeal of the Arbitration Rule is available here.

On December 4, 2017, Mulvaney said he “would support the Congress moving forward with the CRA” review of the CFPB’s payday lender rule.[6]  Mulvaney said he did not think the $31,700 he received from payday lenders during his 2015-16 campaign to maintain his South Carolina House seat would influence his position on the rule, “because I am not in elected office anymore.”  Id.

On January 16, 2018, the effective date of the agency’s rule to “stop payday loan debt traps by requiring lenders to take steps to make sure people can repay their loans[,]”[7] the agency said it was reconsidering implementation of the rule and would “entertain waiver requests from any potential applicant.”[8]

On January 17, 2018, the agency announced a formal evaluation “to ensure the Bureau is fulfilling its proper and appropriate functions to best protect consumers.”[9]  The first request for information seeks input on how the agency demands information from businesses.  Id.

On January 18, 2018, the CFPB dismissed a lawsuit against four online payday lenders for failing to disclose annual interest rates as high as 950%.[10]  More information on the now-dismissed lawsuit is available here.

On January 24, 2018, the CFPB closed its nearly four-year investigation into South Carolina payday lender World Acceptance Corporation, which has given Mulvaney at least $4,500 in campaign donations.[11]

On February 5, 2018, the CFPB reportedly pulled back from its investigation into the Equifax data breach that affected 143 million Americans.[12]

[1] https://www.nytimes.com/2017/08/31/business/consumer-financial-protection-bureau.html.

[2] https://www.youtube.com/watch?v=RaVeNafdyVA.

[3] https://www.politico.com/story/2018/01/31/consumer-financial-protection-bureau-court-ruling-380226.

[4] https://www.usatoday.com/story/money/2016/11/25/wells-fargo-seeks-arbitration-scores-customers/94419028/.

[5] https://www.federalregister.gov/documents/2017/11/22/2017-25324/arbitration-agreements.

[6] https://www.usatoday.com/story/money/2017/12/04/mick-mulvaney-payday-lending-campaign-contributions-pose-no-conflicts-interest/920056001/.

[7] https://www.consumerfinance.gov/payday-rule/.

[8] https://www.consumerfinance.gov/about-us/newsroom/cfpb-statement-payday-rule/.

[9] https://www.consumerfinance.gov/about-us/newsroom/acting-director-mulvaney-announces-call-evidence-regarding-consumer-financial-protection-bureau-functions/.

[10] https://www.bloomberg.com/news/articles/2018-01-18/trump-led-cfpb-signals-shift-by-dropping-payday-lender-lawsuit.

[11] http://www.ibtimes.com/political-capital/cfpb-drops-investigation-payday-lender-contributed-mick-mulvaneys-campaigns.

[12] https://www.reuters.com/article/us-usa-equifax-cfpb/exclusive-u-s-consumer-protection-official-puts-equifax-probe-on-ice-sources-idUSKBN1FP0IZ.

One thought on “UPDATE: CONSUMER FINANCIAL PROTECTION BUREAU

  1. David Koen

    The DC Circuit’s opinion holding that the CFPB’s structure is constitutional can be found here:
    https://www.cadc.uscourts.gov/internet/opinions.nsf/B7623651686D60D585258226005405AC/$file/15-1177.pdf
    This decision (an en banc review of the panel’s earlier decision) is important for 2 reasons:
    1) Absent an appeal to the Supreme Court, it resolved the question of whether the structure of the CFPB is constitutional; and
    2) It confirmed the original 3 judge panel’s holdings that:
    a) The CFPB violated PHH’s due process rights by retroactively applying a new interpretation of RESPA contrary to interpretations announced by HUD when HUD had RESPA enforcement authority.
    b) The CFPB violated PHH’s due process rights by initiating enforcement action based on its new interpretation of RESPA without ever having announced a new interpretation of RESPA, whether by rulemaking or otherwise.
    c) Administrative actions by the CFPB are not exempt from the statute of limitations; and
    d) The CFPB’s interpretation of RESPA in the PHH case was legally incorrect.
    Putting aside the substantive RESPA issue, this is an important decision on due process and fairness in agency regulation and enforcement proceedings.
    The original panel ruling, which was confirmed in all respects except regarding the structure of the CFPB, can be found here:
    https://www.cadc.uscourts.gov/internet/opinions.nsf/AAC6BFFC4C42614C852580490053C38B/$file/15-1177-1640101.pdf

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