CFPB: Look to Enforcement for Compliance Path

By Chris Bruce

Companies looking for signals about how to meet the CFPB’s expectations should study the agency’s enforcement actions and supervisory releases, Director Richard Cordray said May 31, saying the agency expects institutions to act on those signals right away.

“When we articulate the grounds of an enforcement action — as when we publish the results of our exam work in our Supervisory Highlights — we are speaking to every institution in that market by setting the expectations they must meet in their own compliance work to avoid similar violations, right away and without excuses,” Cordray said in remarks prepared for delivery, referring to the CFPB’s quarterly roundup of supervisory findings, the most recent of which came in April.

Cordray’s statement sparked mixed reactions among consumer advocates and attorneys who represent financial institutions. Some said regulators of all stripes frequently use enforcement actions to send a message, while others said Cordray’s statement isn’t new.

“The statement is unremarkable; Director Cordray has said this before and to a variety of audiences,” said Brian S. Marshall, policy counsel for Americans for Financial Reform, a coalition of consumer advocacy groups.

However, some called the statement an explicit acknowledgment of what the agency’s critics have said for some time — that the CFPB relies too much on enforcement instead of notice-and-comment rulemaking.

“This is an affirmation by the director that he views the primary role of the CFPB as regulation through enforcement,” Andrew L. Sandler, chairman and executive partner of Buckley Sandler LLP, told Bloomberg BNA.

Cordray Defends Agency

Cordray’s remarks were prepared for a conference hosted by the National Urban League and other groups that Cordray said provide leadership and advice on access to credit, housing, and consumer financial protection.

He defended the CFPB’s enforcement program against the backdrop of pending legislation by House Republicans that would scale back the agency’s powers. What’s often not understood, he said, is that the CFPB’s enforcement and supervision efforts come from “painstaking investigations that have uncovered specific violations of the laws.”

Cordray has taken up the relationship between enforcement and compliance before. In September 2016 testimony before the Senate Banking Committee on the Wells Fargo account-opening controversy, Cordray said enforcement action in that case “should serve notice to the entire industry.” He added that certain sales targets and initiatives at issue in the case are relevant for other institutions, saying they “should be carefully monitored as a basic element in a company’s compliance program.”

In March 2016 remarks to the Consumer Bankers Association, Cordray said CFPB enforcement actions “provide detailed guidance for compliance officers across the marketplace about how they should regard similar practices at their own institutions.”

If nothing else, Cordray’s remarks may more brightly underscore the already high importance attached to the CFPB’s statements and actions. Elizabeth A. Khalil, a former enforcement attorney for the Office of the Comptroller of the Currency, said any such actions have value for attorneys, no matter what they think of them.

“You ignore these enforcement actions at your peril,” said Khalil, a member with Dykema in Chicago. “Looking at them gives you incredible insight into what the agency considers a violation of a particular law or regulation or how it sees certain conduct. How can you ignore that? Why would you want to?”

Are Allegations Decisive?

However, some said Cordray’s May 31 remarks raised other questions. Helgi C. Walker, a partner with Gibson Dunn & Crutcher LLP in Washington who co-chairs the firm’s administrative law and regulatory practice group, criticized Cordray’s assertion about setting expectations for compliance.

Even allegations by the CFPB might have to be viewed differently, she said. “This is typical of the CFPB’s regulation-by-enforcement approach — indeed, the Director seems to be saying that the mere announcement of alleged grounds for an enforcement action in a particular case constitute binding, enforceable standards of conduct for entire industries,” Walker told Bloomberg BNA (emphasis in original). “That is a breathtaking assertion of power, and contrary to established understandings of administrative law.”

Marshall said Cordray is “very straightforward” about where the CFPB stands on its enforcement standards. “They are committed to treating like cases alike, so if one company violates the law and they later find another company doing the same thing, they will take the same enforcement action,” he told Bloomberg BNA.

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