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On October 17, the Bureau of Consumer Financial Protection issued its Fall Rulemaking Agenda.  The CFPB releases regulatory agendas twice a year in conjunction with a broader initiative led by the Office of Management and Budget to publish a Unified Agenda of Regulatory and Deregulatory actions across all agencies of the federal government.

Of particular note, by March 2019, the CFPB plans to formulate a Notice of Proposed Rulemaking addressing the applicability of the Fair Debt Collection Practices Act to modern debt collection practices.  The CFPB plans to address issues such as communication practices and consumer disclosures, which continue to be leading sources of complaints.

Under interim leadership of Acting Director Mick Mulvaney, the CFPB’s forthcoming regulatory priorities include meeting specific statutory responsibilities, continuing selected rulemakings that were underway, and reconsidering two regulations issued under the prior leadership (the Home Mortgage Disclosure Act and rule for payday, vehicle title, and certain high-cost installment loans).  A prior blog post further addressing the Fall 2018 rulemaking agenda can be found here.

Troutman Sanders will continue to monitor important developments involving the CFPB and the FDCPA and will provide further updates as they are available.

On September 12, the Consumer Financial Protection Bureau issued an interim final rule which provided a model Summary of Rights form, a form that both consumer reporting agencies (CRAs) and employers doing background checks use for compliance with the Fair Credit Reporting Act. CRAs and employers are required to implement revisions to the form by September 21, 2018.   

In May of this year, Congress passed the Economic Growth, Regulatory Relief and Consumer Protection Act, which, among other changes, amended the Fair Credit Reporting Act to require new language to be added to the FCRA Summary of Rights form, published as Appendix K to Regulation V, regarding a consumer’s right to obtain a security freeze. As we previously reported, both consumer reporting agencies and users of consumer reports should take action to update their Summary of Rights forms prior to the September 21 effective date.  

Users of consumer reports are required to provide the FCRA Summary of Rights form prior to taking any employment adverse action based upon the use of a consumer report. Consumer reporting agencies are required to provide the form at various times, including, for example, to consumers when making a file disclosure pursuant to 15 U.S.C. § 1681g(c)(2).   

The CFPB has stated that it will deem users of consumer reports and CRAs as being in compliance by using the new form by the September 21 effective date, or by providing a separate statement along with the prior version of the official form that includes the new security freeze disclosure. 

The CFPB will accept comments on the interim final rule for a period of 60 days after the date the rule is published in the Federal Register. 

Troutman Sanders will continue to monitor important developments involving the CFPB and FCRA and will provide updates accordingly.

A Fifth Circuit panel has rejected an administrative subpoena from the Consumer Financial Protection Bureau that sought documents and other information from a Texas-based public records search company, marking only the second time that an appeals court has declined to enforce one of the consumer watchdog agency’s so-called civil investigative demands.

In six-page decision filed Thursday, the three-judge panel said the CID issued to The Source for Public Data LP had failed to give adequate notice of what conduct the CFPB was investigating and what law the agency thought might have been broken.

Click here to read more on Law360

On July 19, the Trump Administration’s nominee for director of the Consumer Financial Protection Bureau, Kathy Kraninger, faced harsh scrutiny from Democrats on the Senate Committee on Banking, Housing and Urban Affairs regarding her qualifications for the position, reflecting the heated partisan divide since the Bureau’s inception in 2010.  

Kraninger is currently an associate director with the Office of Management and Budget, where she oversees budget development and execution for several executive branch agencies and manages roughly $250 billion in federal government programs, including the Department of Homeland Security. The Committee questioned Kraninger’s intentions to continue the governing approach taken by acting Director Mick Mulvaney, who is also Kraninger’s current boss as Director of the OMB. 

Mulvaney’s Influence on Kraninger 

Mulvaney took over as acting Director of the CFPB in November 2017 following the exit of Richard Cordray, who is now running as the Democratic candidate for governor of Ohio. Mulvaney, who has called for increased transparency and accountability of the Bureau and even called for its abolition, immediately began implementing foundational reforms, including requesting a zero-dollar budget for the second quarter of 2018 and putting a 30-day freeze on new regulations. 

When pressed, Kraninger would not clearly state whether she would follow Mulvaney’s approach toward governing the Bureau, including whether she would re-institute a rule limiting payday lenders, which Mulvaney rolled back. However, it seems more than likely that Kraninger will follow Mulvaney’s attitude toward the CFPB and the changes he feels are needed to alter the agency’s course.  

Kraninger explained that she would strive for transparency and fairness in leading the agency, including limiting and reviewing the Bureau’s prior “regulation by enforcement” approach. “[I]t is critical to have clear rules so that the lenders and creditors and consumers themselves know what the rules are and that they are not somehow told after the fact that they broke a rule that they weren’t even aware of or that it had somehow changed,” Kraninger said before the Senate.  

Stressing that the Bureau should “empower consumers to make good choices and provide certainty for market participants,” Kraninger seemed focused on making use of cost–benefit analysis “to facilitate competition and provide clear rules of the road.”  Kraninger maintained that while the rules of the game should be clearer for lenders, “the Bureau will take aggressive action against bad actors who break the rules by engaging in fraud and other illegal activity.” 

Political Divide 

The Committee appears to be split down party lines in evaluating Kraninger.  Many on the right believe the CFPB requires extreme overhaul (or complete elimination) due to its unusual structure led by a single, autonomous director who is difficult to remove, has no oversight from Congress, and isn’t held accountable to the companies the CFPB fines or the public it is entrusted to protect.  Conversely, those on the left side of the aisle generally view the CFPB’s current structure as necessary to protect consumers from predatory lending practices. 

Sen. Thom Tillis (R-N.C.) has been among the most vocal critics of the CFPB, calling it “the first agency of its kind that is not accountable to anybody.”  Expressing similar concerns, Kraninger stated during her hearing that “ … Congress, through [the] Dodd-Frank Act gave the Bureau incredible powers and incredible independence from both the president and the Congress in its structure. I’ve noted that my focus is on running the agency as Congress established it but … I am very open to changes in that structure that will make the agency more accountable and more transparent.” 

Banking Committee Chairman Mike Crapo (R-Idaho) has also praised Kraninger, stating that he has the “utmost confidence” that her experience budgeting for various agencies at the OMB has given her the ability to run the CFPB.  However, not all senators are as convinced. 

Sen. Elizabeth Warren (D-Mass.), who was a key player in the Bureau’s creation, accused Kraninger of dodging Democrats’ pointed questions that her experience creating budgets was insufficient to lead the CFPB. “The one thing you’ve done in your career that is related to the CFPB is to come up with the budget number and the budget number simply does not add up. It does not reflect and acknowledge the CFPB or a commitment to the CFPB’s central mission of trying to protect consumers and level the playing field,” Sen. Warren said. 

Sen. Sherrod Brown (D-Ohio) also criticized Kraninger based on the expectation that she will follow Mulvaney’s lead, who many Democrats feel has made the agency too friendly to the financial industry. 

Committee members from both parties recognize that the next director of the Bureau will usher in a new environment of consumer finance regulatory enforcement that will last for years to come. Accordingly, the debate over Kraninger and her qualifications is likely to continue. 

Confirmation 

Despite the partisan debate, it is likely that Kraninger will be confirmed and that drastic budgetary and regulatory cutbacks could be in store for the CFPB. 

Prior to the Senate’s vote, Mulvaney will continue as the CFPB’s acting director, triggering a provision in the Federal Vacancies Reform Act.  Mulvaney may stay at the CFPB for 210 days or until the Senate votes on Kraninger’s confirmation.  If Kraninger is rejected or she withdraws, Mulvaney would be able to serve for an additional 210-day term.

On June 6, the Consumer Advisory Board’s twenty-two members were informed that they would no longer serve on the CAB and could not reapply for their former positions.

Through June 5, the Consumer Financial Protection Bureau had four advisory bodies: the Academic Research Council, the Community Bank Advisory Council, the Credit Union Advisory Council, and the Consumer Advisory Board. By law, the CFPB must meet twice a year with the CAB to discuss trends in the financial industry, regulations, and the impact of financial products and practices on consumers. Tellingly, the CFPB’s acting director, Mick Mulvaney, has canceled several meetings between the CFPB and its advisory groups during his short tenure.

For the CAB’s former members, the coup de grace came on June 6 when, in an afternoon call, Anthony Welcher, the Bureau’s recently hired Policy Associate Director for External Affairs, informed them that they were terminated. This move came after several members criticized Mulvaney’s leadership and implored him to keep this week’s scheduled—and just cancelled—meeting on the books.

“We’re going to start the advisory groups with sort of a new membership, to bring in these new perspectives for these new dialogues,” Welcher said on the call. “We’re going to be using the current application cycle to populate these memberships in the new groups. So we’re going to be transitioning these current advisory groups over the next few months.”

In the memo announcing the members’ terminations, the CFPB defended this “[r]evamping” as necessary to “increase high quality feedback” and mentioned plans to hold more town halls and roundtable discussions and reduce the new CAB’s ranks. As a later released statement argued, “[b]y both right-sizing its advisory councils and ramping up outreach to external groups, the Bureau will enhance its ability to hear from consumer, civil rights, and industry groups on a more regular basis.” In response to press queries, a CFPB spokesman not only denied the members’ characterization of the agency’s action—“The Bureau has not fired anyone”—but also accused these “outspoken” officials of “seem[ing] more concerned about protecting their taxpayer funded junkets to Washington, D.C., and being wined and dined by the Bureau than protecting consumers.”

President Donald Trump announced this morning that he plans to nominate Kathy Kraninger, associate director of the Office of Management and Budget (“OMB”), to become the new director of the Consumer Financial Protection Bureau (“CFPB”), replacing Mick Mulvaney.

The announcement came as a surprise to many because Kraninger’s name was not among those that had been circulated as possible candidates to head the CFPB and her previous experience did not center on consumer protection and financial regulatory issues. Kraninger, 43, is a Pittsburgh native and graduate of Marquette University and Georgetown Law School. Her primary experience includes serving as the Clerk for the Senate Appropriations subcommittee on Homeland Security, including overseeing the Department of Homeland Security (“DHS”) budget (and the budgets for four other agencies) while at OMB. Kraninger also served as deputy assistant for policy at DHS.

Based on the law that permitted Mulvaney to serve as interim Director, Mulvaney would have otherwise been required to leave his post at the CFPB on or before June 22, 2018, if a permanent director had not been nominated. Kraninger’s nomination, however, triggers a provision in the Federal Vacancies Reform Act that allows Mulvaney to serve until the Senate confirms or rejects the pick. That process is expected to be lengthy, taking months.

The CFPB post has been subject to significant drama since former democratic Director Richard Cordray departed, with Cordray appointing Deputy Director Leandra English to fill his seat. Within hours of Cordray’s resignation announcement, however, Trump appointed Mulvaney under the Federal Vacancies Act to succeed Cordray. English then sued, but the federal district court denied her request for a temporary restraining order and preliminary injunction. The matter remains tied up in litigation on appeal.

A White House spokesperson said Kraninger was selected because “[s]he will bring a fresh perspective and much-needed management experience” to the CFPB, “which has been plagued by excessive spending, dysfunctional operations, and politicized agendas.”

The selection of Kraninger is likely to trigger the latest rounds of fights over the leadership of the CFPB, with trade groups for financial services companies lining up in support while opponents are focusing on her lack of experience in consumer financial protection matters. Troutman Sanders LLP will continue to monitor these developments.

In mid-May 2018, per multiple reports, John Michael “Mick” Mulvaney, the acting director of the Consumer Financial Protection Bureau, announced plans to fold the CFPB’s Office of Students and Young Consumers into its preexisting Office of Financial Education, itself a part of this agency’s Consumer Education and Engagement Division. During this reorganization, the Office of Financial Education will also subsume the Student Loan Ombudsman, a position created by the Dodd-Frank Act. Because of this rejiggering, to be effectuated concurrently with the hiring of more political appointees and the creation of an office of cost-benefit analysis set to report to Mulvaney alone, the current staff of the Office of Students and Young Consumers will be reassigned to yet unknown positions.

Critics have pounced on and decried this development. As some noted, this proposal would end the Office of Students and Young Consumers’ participation in all investigations that could potentially result in supervisory or enforcement actions against student loan lenders and servicers. The CFPB may still pursue such investigations, many promptly acknowledged. Nonetheless, many fear that Mulvaney’s change may muzzle one of the CFPB’s most aggressive units – the only one exclusively focused on purported misdeeds within the student loan field and solely dedicated to protecting student loan borrowers. Giving voice to these concerns, Senator Patty Murray (D-Wash.), the ranking Democrat on the Senate Health, Education, Labor and Pensions Committee, thundered on May 9: “President Trump is giving student loan corporations the green light to take advantage of students without fear of repercussion and sending a clear message to students that this administration is not interested in their best interests when it gets in the way of corporate profits.”

To close observers, this latest decision was neither unusual nor surprising. Rather, it fit the general pattern of regulatory retreat characteristic of the CFPB since Mulvaney’s still-unconfirmed appointment as director, as two other recent examples aptly show:

  • In February 2018, Mulvaney transferred the CFPB’s Office of Fair Lending from the Supervision, Enforcement, and Fair Lending Division (“SEFL”) to the Director’s Office, thereby making it a part of the Office of Equal Opportunity and Fairness and stripping it of its enforcement powers. “The Fair Lending Office will continue to focus on advocacy, coordination, and education, while its current supervision and enforcement functions will remain in SEFL,” Mulvaney explained in an internal memo. In response, Senator Elizabeth Warren (D-Mass.) accused Mulvaney of “putting the Office of Fair Lending under his control so that he can weaken it” and, as a result, “leaving neighborhoods and consumers across the country more vulnerable to bias.”
  • In the spring of 2018, Mulvaney revealed, via a request for information published in The Federal Register on April 17, that he is mulling ending the public availability of the CFPB’s consumer complaint reporting database. In a frank baring of his position, Mulvaney mused at a banking industry conference, with a copy of the 2010 Dodd-Frank legislation that established the CFPB in hand: “I don’t see anything in here that says I have to run a Yelp for financial services sponsored by the federal government.” For now, the period for comment is scheduled to close on July 16, 2018.

On May 8, the U.S. House of Representatives passed a resolution officially disapproving Bulletin 2013-02, issued by the Consumer Financial Protection Bureau in early 2013.  The Senate passed a similar measure on April 18, meaning the resolution moves to President Trump’s desk for signature.  Though the Senate resolution passed narrowly in a party-line vote, the bill found bipartisan support in the House, passing 234 to 175.  The bill is the latest in a line of agency guidance invalidated under the Congressional Review Act (“CRA”).

The bill was initially introduced by Senator Jerry Moran (R-Kan.) in an effort to overturn Bulletin 2013-02, which set forth the CFPB’s interpretation of the Equal Credit Opportunity Act (“ECOA”) as applied to pricing in indirect automobile lending.  The Bulletin targeted dealer markups, a practice whereby an automobile dealer charges a consumer a higher interest rate than the rate at which an indirect lender is willing to purchase the consumer’s retail installment contract.  The Bureau expressed concern that indirect lenders afforded too much pricing discretion to dealers, potentially opening the door to discrimination against protected groups, including women, African-Americans, and Hispanics.  Further, the Bureau also announced in the Bulletin its intent to use a disparate treatment or disparate impact theory to hold an indirect auto lender liable for allowing prohibited pricing differences created by a dealer’s conduct.

The resolution’s passage marks the likely end of the Bulletin’s checkered history.  In March 2017, Senator Pat Toomey (R-Pa.) asked the Government Accountability Office, Congress’ investigative wing, to determine whether the Bulletin qualified as a “rule.” The GAO concluded that the guidance did qualify as a rule, even though Bulletin 2013-02 is not legally binding. Specifically, the GAO found that:

The Bulletin provides information on the manner in which the CFPB plans to exercise its discretionary enforcement power. It expresses the agency’s views that certain indirect auto lending activities may trigger liability under ECOA. For example, it states that an indirect auto lender’s own markup and compensation policies may trigger liability under ECOA if they result in credit pricing disparities on a prohibited basis, such as race or national origin. It also informs indirect auto lenders that they may be liable under ECOA if a dealer’s practices result in unexplained pricing disparities on prohibited bases where the lender may have known or had reasonable notice of a dealer’s discriminatory conduct. In sum, the Bulletin advised the public prospectively of the manner in which the CFPB proposes to exercise its discretionary enforcement power and fits squarely within the Supreme Court’s definition of a statement of policy.

In conclusion, the GAO found that the Bulletin was subject to the requirements of the CRA because it served as “a general statement of policy designed to assist indirect auto lenders to ensure that they are operating in compliance with ECOA and Regulation B, as applied to dealer markup and compensation policies.”  Because the CFPB did not present the Bulletin for Congressional review, it was, effectively, a nullity.

President Trump is almost certain to sign the bill into law when it reaches his desk, putting the final nail into the coffin of Bulletin 2013-02.

Troutman Sanders routinely advises clients on the compliance risks posed by direct and indirect auto lending. We will continue to monitor these regulatory developments.

In a 51-47 vote on April 18, the U.S. Senate voted in favor of invalidating 2013 guidance from the Consumer Financial Protection Bureau that targeted purported discrimination in the automobile finance market.  The resolution passed on party lines, with Senator Joe Manchin (D-W.Va.) the lone Democrat to join Republicans in voting to overturn the guidance. 

As we reported here, Senator Jerry Moran (R-Kan.) introduced a resolution in March to overturn the CFPB’s highly controversial Bulletin 2013-02, which set forth the CFPB’s interpretation of the Equal Credit Opportunity Act (“ECOA”) as applied to pricing in indirect automobile lending.  The Bulletin targeted dealer markups, a practice whereby an automobile dealer charges a consumer a higher interest rate than the rate at which an indirect lender is willing to purchase the consumer’s retail installment contract.  The Bureau expressed concern that indirect lenders afforded too much pricing discretion to dealers, potentially opening the door to discrimination against protected groups, including women, African–Americans, and Hispanics.  Further, the Bureau also announced in the Bulletin its intent to use a disparate treatment or disparate impact theory to hold an indirect auto lender liable for allowing prohibited pricing differences created by a dealer’s conduct. 

In March 2017, Senator Pat Toomey (R-Penn.) asked the Government Accountability Office whether the Bulletin qualified as a rule subject to Congressional review.  The GAO concluded that the Bulletin was indeed a rule and, as a result, should have been subject to Congressional review.  Based on the decision, Toomey co-sponsored with Moran the resolution to kill the guidance. 

The resolution moves now to the House of Representatives for a vote.

Under prior director Richard Cordray, the Consumer Financial Protection Bureau earned a reputation as an extremely aggressive regulator. However, since acting director Mick Mulvaney took office more than four months ago, the agency has not brought a single enforcement action.

Mulvaney has said that, in general, the CFPB will only go after egregious cases of consumer abuses. “Good cases are being brought. The bad cases are not,” he said at an event in Washington this month.

To that end, Reuters is reporting that the CFPB has decided not to file a lawsuit against a collection agency that collects on payday loans, despite the agency apparently getting the green light to move forward from former director Richard Cordray before he resigned. Cases against three other payday lending operations for engaging in illegal collection activities are also reportedly on the chopping block.

The CFPB’s new direction regarding enforcement actions was foreshadowed in January when Mulvaney, in a letter to Fed Chairwoman Janet Yellen, requested no funding for the CFPB’s second fiscal quarter budget. Mulvaney noted that the agency already had $177.1 million in its coffers — more than enough funds to cover the agency’s expenses. “Simply put, I have been assured that the funds currently in the bureau fund are sufficient for the bureau to carry out its statutory mandates for the next fiscal quarter while striving to be efficient, effective and accountable,” Mulvaney wrote in the letter. The excess funds were part of a “reserve fund” formerly maintained by Cordray. Mulvaney said he did not see a reason for the fund since the Federal Reserve has regularly supplied the money the agency needs.

Troutman Sanders LLP will continue to monitor developments regarding CFPB funding and enforcement activity.