CFPB Seeks Industry Input on Possible Enforcement Revamp

By Jeff Bater

What’s wrong with the Consumer Financial Protection Bureau’s enforcement practices? High on the list of likely industry complaints is the agency’s practice of setting expectations for an entire marketplace by negotiating settlements with just one or two companies.

That’s just one of the responses expected to the CFPB’s Feb. 7 request for information (RFI) on the “efficiency and effectiveness” of its enforcement program.

The notice is the third in three weeks as the Trump-led bureau conducts a top-to-bottom self-examination under acting Director Mick Mulvaney. The CFPB has already asked for input on civil investigative demands and administrative adjudications.

“This anticipated RFI seems like it’s going to be pretty broad, which I think the industry will be happy about because they can comment on anything and everything they have issue with,” James Kim, who is of counsel at Ballard Spahr, told Bloomberg Law before the Feb. 7 notice.

Regulation Through Enforcement

The CFPB’s past crackdowns on auto lenders and debt collectors are two examples of how the agency under former Director Richard Cordray addressed what it saw as bad practices using its broad Dodd-Frank Act enforcement powers against unfair, deceptive, or abusive acts or practices (UDAAP).

Critics charged that the bureau was engaging in policy making outside the formal rulemaking process.

“Rather than tell a company, ‘Don’t do the bad conduct again,’ CFPB consent orders often contain detailed and prescriptive conduct provisions,” Kim said. “The bureau expected other companies to follow the same instructions. So the injunctive relief in consent orders became substitutes for rulemaking and other ways of providing guidance.”

Companies might “suggest that before deciding to use the enforcement tool, the bureau consider guidance and rulemaking,” Ori Lev, a Washington-based partner at Mayer Brown, told Bloomberg Law. “That echoes complaints about regulation through enforcement and holding people to a standard that hadn’t previously been articulated.”

The bureau will focus on analyzing its future actions for costs and benefits, Mulvaney signaled in an internal staff memo in January.

“Dodd-Frank requires that for rulemaking, but it doesn’t contain that provision for enforcement,” said Lev, a former CFPB deputy enforcement director. “His memo suggests that would be part of the enforcement calculus.”

Tight Deadlines

The strict deadlines involved in the enforcement process are a big tension for banks and other companies, said Anthony Alexis, a partner at Goodwin Procter who headed the CFPB enforcement division for more than two years.

The CFPB issues civil investigative demands (CID) to obtain information, and recipients have 10 days to meet and confer with bureau litigators. Twenty days are allowed for filing a petition to set aside or modify a CID.

“The feedback I was getting from industry was, that’s an incredibly tight window,” Alexis told Bloomberg Law.

Going Public

Allyson Baker, a partner at Venable, said companies might complain about the CFPB making the fact of an investigation public after a target files to adjust or quash a CID.

“Some people take issue with that practice and feel pretty strongly that ‘I should be allowed to petition to modify a CID without the investigation itself becoming public because of the presumption baked into that investigation potentially,’” she told Bloomberg Law.

Companies might ask the CFPB for more transparency in the enforcement process. “What’s the investigation about?” Alexis said. “Is there a relevancy, or nexus, between what’s being asked for and what the investigation is about?”

Lev said he thinks a Trump-led CFPB will make a big change in how it approaches remedies.

“You’ve seen several courts push back on broad remedy requests from the agency,” he said. “I would imagine Mulvaney would be more attuned to concerns about providing redress to consumers.”

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