The Consumer Financial Protection Bureau has quietly de-emphasized potential unfair, deceptive, and abusive acts and practices in its supervision of banks and other financial firms under acting Director Mick Mulvaney, financial services attorneys told Bloomberg Law.
The supervisory process has been moving along at its usual pace, but there has been a shift in what the CFPB’s examiners have been looking for when they review the books at financial institutions, according to multiple attorneys whose clients have faced exams since President Donald Trump installed Mulvaney in November.
Examiners are “focusing on strict compliance with the laws on the books rather than industry practices that might be legal as far as the specific requirements are concerned but could raise” UDAAP issues, Benjamin Olson, a partner at Buckley Sandler LLP and a former top CFPB regulatory official, told Bloomberg Law.
Supervision is one of the critical tools the CFPB has to determine whether the financial institutions it oversees follow consumer financial protection laws, and has in the past been a key driver of the bureau’s enforcement efforts.
The Dodd-Frank Act directed the CFPB to supervise all banks and credit unions with $10 billion in total assets, as well as payday lenders, independent mortgage lenders, and private student lenders. Congress also gave the CFPB discretion to supervise other consumer finance markets, and the bureau has set out rules for examining the largest debt collectors, consumer credit reporting bureaus, private student loan servicers, international money transfer businesses, and auto financing companies.
After an examination cycle is complete, supervisors write up a report that can be reviewed by other state and federal regulators and can be used as the basis to demand changes of company practices, including issuing official “matters requiring attention,” or MRAs.
The annual examination processes haven’t seen much change so far under Mulvaney.
“I understand that they’re continuing full-force. Even now, as we speak, I understand that MRAs are being issued and examinations are ongoing,” Jenny Lee, a partner at Dorsey & Whitney LLP and a former CFPB enforcement attorney, said in a phone interview.
Just what those examiners are looking for may be changing, however.
The CFPB under former Director Richard Cordray was criticized for examiners looking at broader trends at companies that could show discrimination or potentially abusive practices, even if they were not technical violations of the law, Olson said.
Those examination practices would frequently trip up businesses that were not necessarily violating existing law, he said.
That is changing now, with examiners looking much more at technical compliance issues, Olson said.
“It’s an important difference. It’s one thing to be stringent about applying the law as written, and it’s another thing to push the law forward without advance notice,” he told Bloomberg Law.
The CFPB said there have been no changes to its supervisory process.
“The bureau’s exam calendar and processes remain consistent with the calendar and processes that were in place before the leadership transition,” the CFPB said in a statement to Bloomberg Law. “The bureau continues to issue supervisory letters and exam reports in the ordinary course, and examines institutions for compliance with all the consumer financial laws within its purview, including UDAAP.”
Because the supervisory process is confidential — unless a matter turns into an official enforcement action — it will be next to impossible to know whether changes are afoot in the CFPB’s examination process, said Christopher Peterson, a professor at the University of Utah Law School and a former top CFPB official.
The CFPB under Cordray sent out periodic “supervisory highlights” reports that would provide information to the public about broader trends bureau examiners found in their work. The bureau has yet to issue one of those reports since Mulvaney took over, Peterson said.
The CFPB did not respond to a request about whether those reports will resume.
Even if CFPB examiners are conducting UDAAP reviews under Mulvaney that are similar to those under Cordray, they won’t matter if the enforcement staff is not taking up cases, Peterson said.
“The senior political staff are going to have choices to make about whether or not some practices that are on the borderline of things, whether or not UDAAP actions should be found,” he said in a phone interview.
Those changes will only become known in time, but for now it appears that CFPB supervision is one area where Mulvaney has kept the most consistency from his predecessor.
“What I’ve seen in exams is they are enforcing the law,” Olson said.
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