Over the years, we have followed the actions of the Consumer Financial Protection Bureau (CFPB). Now that the 10th anniversary of the opening of the CFPB has passed, let’s take a look back at its beginnings and where it may be headed. Title X of the Consumer Financial Protection Act of 2010 (the Dodd-Frank Act) created the CFPB as an independent agency within the Board of Governors of the Federal Reserve. The stated purpose of the CFPB was to regulate the offering and provision of financial products and services to consumers under federal consumer finance laws. As part of its creation, several functions left to other regulators, such as the FTC, OCC, and the Federal Reserve, were transferred to the CFPB, such as overseeing several consumer financial lending laws.
One of the most controversial aspects of CFPB is that it is run by a single director. In the original structure, the director could only be removed by the president “for cause”, which gave him strong power and control. The director was required to establish the Office of Fair Loans and Equal Opportunity, the Office of Financial Education, the Office of Service Membership Affairs, and the Office for Financial Protection of Older Americans. The Director was also required to establish a Consumer Advisory Board to advise the CFPB.
Under the Dodd-Frank Act, the CFPB has broad powers to administer, enforce and otherwise enforce federal consumer finance laws, including the power to make rules, issue orders, issuing directions, issuing civil inquiries, holding hearings and arbitration proceedings, and bringing proceedings in Federal Court. The CFPB also has an exclusive federal consumer law supervisory authority and a primary enforcement authority over insured deposit-taking institutions with more than $ 10 billion in assets. In addition, it has specific jurisdiction over certain industries and may involve other industries through the use of broader rules of participation.
Despite this broad supervisory authority, it appeared that the CFPB – in its early years – often used its executing authority, rather than its supervisory authority, to achieve its objectives. The CFPB has spoken out against the industry in the name of consumer protection with the issuance of numerous civil inquiries, investigative teams of lawyers, disturbing press releases and very heavy fines against companies. He definitely made his voice heard, and the industry was quick to try and meet the expectations, guidelines and standards of the new agency. In 2017, when Richard Cordray stepped down as Director of CFPB, CFPB began to take a more cooperative approach to working with industry to improve disclosures and innovation with marked changes in his Office of the innovation which were well received by both sides. There also appeared to be a more balanced use of its supervisory and enforcement authorities.
The CFPB constitutionality challenge
The first notable decision regarding the constitutionality of the CFPB’s structure came in 2016 after a company argued that the only CFPB director, who can only be removed for one reason, violated the separation of powers by limiting the power of appointment. Of the president. Ultimately, in 2018, the DC Circuit concluded in a bench ruling that the CFPB was constitutional and no appeal was filed. Around the same time, the CFPB began to investigate Seila Law LLC, and as part of its investigation, the CFPB issued a civil investigation request. When Seila Law refused to comply, the CFPB filed a petition with the district court to enforce compliance. The district court granted the petition and Seila Law appealed. On appeal, Seila Law challenged the constitutionality of the CFPB structure. Seila Law took the case and the constitutionality challenge to the Supreme Court, where the court found that the restrictions on the removal of the CFPB director violated the separation of powers under the Constitution. Rather than annul all of Title X of the Dodd-Frank Act, the Supreme Court only annulled the employment clause “for cause”, causing the director of the CFPB to now sit at the will of the government. President. The result of the decision was the apparent end of constitutional challenges to the one-director structure of the CFPB, the ratification of previous CFPB actions by the then current director and a CFPB which in all likelihood will align more closely with the presiding presidential administration. . Whether this will be seen by the industry as a good thing in the long run remains to be seen. However, as we have already seen in the first half of 2021, administration changes will likely affect the stability of previously released guidance and CFPB’s long-term planning, making it harder for the industry to follow.
The evolution of the abusive standard
Section 1031 (a) of the Dodd-Frank Act states that the CFPB may use its authority to prevent a covered person or service provider from committing or engaging in an “unfair, deceptive or abusive act or practice. ”(UDAAP). This authority uses the language of the Federal Trade Commission definitions and adds the term “abusive”. However, unlike the terms “unfair” and “misleading”, “abusive” is broadly defined in law and often duly invoked by the CFPB, leading to ambiguity over the scope of the definition.
At first, the CFPB used the ambiguity of the term “abusive” in several of its enforcement measures. The concept of “abusive” implies that a financial institution does not prioritize the best interests of the consumer, considering the activities from a consumer’s point of view.
On June 25, 2019, the CFPB hosted a forum to discuss the subject of the abuse standard in consumer financial products and services. Following this forum, the CFPB issued a much needed policy statement on January 24, 2020, clarifying the application of “abusive acts or practices”. The policy statement sets out three provisions to help financial institutions assess their own compliance with the UDAAP abuse standard:
The CFPB would apply a cost-benefit analysis and challenge the conduct as abusive “only when the harm to consumers outweighs the benefit”.
The CFPB would generally avoid the double pleading of one “abusive” claim with another based on alleged injustice and deception.
The CFPB would only seek civil sanctions when “there has been a lack of good faith efforts to comply with the law”, but would continue to seek redress whether or not a company acted in good faith.
However, on March 11, 2021, the CFPB repealed the abuse policy statement, announcing that it was “contrary to the CFPB’s mission to protect consumers” and that it “would distort the financial market of consumers, to the detriment of market players who do not act abusively. Unfortunately, this appears to be a political showdown, and the ambiguity will only make it harder for the industry to comply.
The current CFPB program
In the current administration, the winds are blowing on the side of the Democratic Party and we expect a more aggressive return to the CFPB. This means that more reliance should be placed on his executive power as a means of achieving his goals, especially if Rohit Chopra is confirmed as the next CFPB director. The CFPB’s priorities will likely focus on COVID-19 and related issues such as abstentions, foreclosures, credit reporting and income protection, with racial equity and economic justice as additional top priorities. Some of the issues of particular concern to us include:
Potentially appoint CEOs, CFOs, etc. in order to resolve coercive actions, which appears to be a tactic supported by people within the CFPB
ECOA concerns including increased use of artificial intelligence in underwriting and whether this will create racial profiling and reverse the red line
Marketing and Advertising
One thing is certain, although we hope to continue our outreach and collaboration activities, the CFPB will continue to keep the industry on its guard.
© 2021 Bradley Arant Boult Cummings LLPNational Law Review, Volume XI, Number 230