Consumer Finance Lawyers Prep Wish Lists as CFPB Retools

By Chris Bruce and Lydia Beyoud

Financial services attorneys are preparing their wish lists of potential changes at the Consumer Financial Protection Bureau now that the agency is under new management.

Among other things, attorneys would like to see less of a “gotcha” approach from the CFPB on enforcement and more guidance on what constitutes unfair, deceptive, and abusive acts.

Acting Director Mick Mulvaney has ordered reviews of agency rules, litigation, and enforcement since taking over Nov. 27 while adding political appointees to the CFPB’s ranks. For lawyers representing the financial services industry, it’s an opportunity to reshape their relationship with an agency with which they’ve often been at odds.

“There’s going to be as much change coming in with the new administration as when CFPB was created,” Eric J. Mogilnicki, a partner at Covington & Burling LLP’s Washington office, said during a Jan. 7 meeting of the American Bar Association in Park City, Utah. “We should be finding ways to contribute to the bureau’s priorities.”

Here are some of the changes financial services attorneys say they’d like to see:

Less `Gotcha’

One theme is whether the CFPB adopts what attorney Joseph P. Lynyak III called a more balanced approach between the needs of consumers and the financial services industry — a stance he said the Federal Reserve Board took before responsibility for key consumer protection statutes was transferred to the CFPB by the 2010 Dodd-Frank Act.

The CFPB should resurrect that approach, said Lynyak, who cheered Mulvaney’s recent decision to reopen integrated rules under the Truth in Lending Act and the Real Estate Settlement Procedures Act to consider the use of safe harbors for technical errors when computing mortgage disclosures.

“When viewed in this light, many possible changes could be viewed as being `back to the future,’ and welcome changes to the CFPB consumer oversight obligations,” said Lynyak, a partner in the Washington and Los Angeles offices of Dorsey & Whitney.

Enforcement Changes

Enforcement is getting plenty of attention, in part because of the CFPB’s recent about-face in a case involving Nationwide Biweekly Administration Inc., an Ohio-based mortgage payment company. In November, the CFPB initially opposed Nationwide’s request to stay execution of a $7.9 million judgment in favor of the CFPB, but quickly withdrew its objection and said it’s not taking a position on the question.

Lynyak said the CFPB’s move might signal that Mulvaney has different priorities and may be rethinking CFPB policies that seek “extreme penalties” for specified types of conduct.

Some attorneys have noted the full review of open enforcement actions Mulvaney ordered during his first month at the CFPB has finally trickled down to the staff level.

That review is beginning to slow things down, leaving some companies involved in such cases in limbo, Aaron C. Mahler, a partner at Buckley Sandler LLP in Washington, said during the Jan. 7 American Bar Association meeting.

Guidance on Unfairness, Deception

Lynyak also is looking for possible help on how the agency understands and applies prohibitions on unfair, deceptive, or abusive acts or practices (UDAAP).

“A useful starting point would be for the CFPB to provide reliable guidance as to what it believes constitutes a UDAAP violation, as well as how degrees of behavior would affect decisions regarding a range of enforcement penalties that the CFPB might request,” he said.

No Bright Lines?

In theory, a change of direction in CFPB enforcement actions should be good news. However, Jennifer Monty Rieker, counsel with Ulmer & Berne in Cleveland, said even more questions could arise because the enforcement regime has itself been a source of guidance.

“Even if the CFPB changes its position in these cases, I’m not sure that will give us a bright line,” Monty Rieker said. “We’ve been basing policies and procedures on enforcement actions for so long that it’s not entirely clear what we do when those actions are dismissed.”

Debt Collection Rulemaking

Elizabeth A. Khalil, a member in the Chicago and Washington offices of Dykema, said she’s keeping an eye on possible rulemaking under the Fair Debt Collection Practices Act (FDCPA). The agency released a blueprint for potential rules in 2016. If the CFPB moves forward with rulemaking, that could help clarify some questions that arise in private litigation, according to Khalil.

For example, some terms in the statute might be clarified. One is the phrase “in default,” an important term in debt collection matters that isn’t defined in the FDCPA. She said the question isn’t as pressing now that the U.S. Supreme Court has decided Henson v. Santander Consumer USA, (U.S., No. 16-cv-00349, 6/12/17), a June decision that said companies that buy debt in default aren’t debt collectors under the FDCPA.

Despite the ruling, Khalil said, the CFPB might add more clarity on what the phrase means in practice. She also said rulemaking could address how the FDCPA affects attorneys who collect debts or enforce obligations for their clients. “There are numerous cases addressing various aspects of this issue, but it would be helpful to have it addressed in a regulation implementing the statute,” Khalil told Bloomberg Law.

A move by the CFPB to simply drop debt collection rules would be akin to “throwing the baby out with the bathwater,” Jeffrey I. Langer, a counsel with Faegre Baker Daniels LLP in Washington, said during the ABA meeting.

He said the CFPB has indicated some willingness to look at some of the items that the industry wanted. Langer served as the CFPB’s assistant director of Installment and Liquidity Lending Markets from 2014 to 2016.

Briefing Shift

Quyen T. Truong, a partner in the Washington offices of Stroock & Stroock & Lavan and a former CFPB assistant director and deputy general counsel, said the agency may shift its amicus program, in which it files friend-of-the-court briefs in cases that raise questions important to the CFPB.

Among other points, it’s possible that the agency could file briefs in support of the financial services industry, she said. “The industry has been hesitant to involve the Bureau’s amicus program in their cases in the past, but that pattern might change in the future,” Truong told Bloomberg Law.

To contact the reporters on this story: Chris Bruce in Washington at cbruce@bloomberglaw.com; Lydia Beyoud at lbeyoud@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.