Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.
Sign up for our Banking newsletter
You must correct or enter the following before you can sign up:
Thank You!
Law360 (May 6, 2021, 4:44 PM EDT) --
 |
| Quyen Truong |
Since his appointment on Jan. 20, acting Director Dave Uejio has taken decisive steps to unwind important policies and determinations by former Director Kathy Kraninger, which themselves were a rejection of the activist framework established at the CFPB following its creation under the Dodd-Frank Act.
Beyond reversing major deeds of the Kraninger leadership, the changes at the bureau pave the way for the nominee for CFPB director, Rohit Chopra, to hit the ground running in pursuing comprehensive regulatory actions.
This article focuses on how the activities over these first 100 days reclaim the CFPB's activist consumer protection mission and authority, redirect agency resources to build the foundation for forceful action, and open the door to changing the regulatory framework.
Reclaiming Its Mission and Authority
Between late January and early February, Uejio issued to CFPB staff and released to the public a series of letters that announced the reversal of the Kraninger bureau's "relaxed approach to enforcement of the laws in our care." This reversal also took concrete form in the rescission of key policy statements and guidance, particularly those concerning how the CFPB would address the effects of the COVID-19 pandemic.
For instance, on March 31, the bureau rescinded seven policy statements adopted in 2020 that had provided temporary regulatory flexibility during the COVID-19 crisis for financial institutions in various realms, including mortgages, credit and prepaid cards, and credit reporting.
The CFPB's 2020 guidance had stated that it would not cite companies for falling short on regulatory requirements such as failing to submit credit and prepaid card account information, providing required disclosures to consumers orally that must be in writing, or failing to investigate consumer disputes by the deadlines set under the Fair Credit Reporting Act.
Uejio explained that, with companies having developed more robust capabilities to deal with the pandemic, it was no longer prudent to maintain these regulatory flexibilities which could come at the expense of consumers.
Similarly, the Kraninger CFPB essentially had replaced its regular supervisory process in 2020 with prioritized assessments that inquired about the COVID-related business practices of banks, loan servicers, debt collectors, etc. Instead of identifying and citing violations of law, the exam teams were tasked "to spot and assess risks and communicate these risks" to companies for them to manage as appropriate.
The CFPB published a special edition of its supervisory highlights that summarized its prioritized assessments findings on Jan. 19, the day before Kraninger's resignation.
Within the next few weeks, Uejio had directed the supervision team to investigate the issues identified to ensure that financial institutions "systemically remediate all of those who are harmed, and change policies, procedures, and practices to address the root causes of harms," and he also instructed the enforcement office to expedite investigations while the COVID-19 pandemic is ongoing "to ensure that industry gets the message that violations of law during this time of need will not be tolerated."
These and other COVID-19 guidance and statements highlighted the CFPB's shift from relaxing regulation to help ease businesses' operational challenges — and opening the door to making those deregulatory changes permanent — to maximizing agency authority and resources to protect consumers from financial hardship and harm flowing from the pandemic.
The CFPB also reasserted its authority in key areas that Kraninger's and former acting Director Mick Mulvaney's leadership had ceded.
For example, whereas former President Donald Trump's appointees had insisted that they could not enforce the Military Lending Act, Uejio announced just over a week following his appointment that the CFPB would recommence rigorous supervision of lenders' compliance with the act.
Among other pronouncements to reinforce its regulatory impact, the CFPB rescinded a 2018 bulletin on supervisory communications and replaced it with new Bulletin 2021-21, which stated that examiners would rely on matters requiring attention to convey the bureau's expectations and discontinue use of supervisory recommendations.
Perhaps most concerning for the industry was the rescission of the Kraninger CFPB's Jan. 24, 2020, policy statement that had adopted a more restrictive reading of the "abusive" prong of the Dodd-Frank Act's prohibition of unfair, deceptive or abusive acts and practices.
The Kraninger policy statement had pledged not to challenge abusive conduct unless the consumer harm outweighed any benefit; to pursue these claims only if no other unfair, deceptive or abusive acts and practices claim was available; and to forego monetary penalties if the defendant had made a good faith effort.
Uejio's observation in reversing the 2020 abusive policy statement that the statement was inconsistent with the CFPB's purpose sounded the theme for the series of actions that the bureau undertook to reclaim the regulatory authority and activism it had exercised before the Mulvaney-Kraninger era.
Marshaling Agency Resources for Action
Over his first 100 days, Uejio also marshaled the CFPB's resources to begin the groundwork for the bureau's resurgent activism. As noted above, in an early manifestation, he directed the supervision and enforcement offices to expedite the investigation of business practices related to COVID-19 that threaten consumer harm. The staff promptly acted, for example, by sending data requests to mortgage servicers regarding their handling of forbearance programs.
Staff throughout the bureau has received other directives to gather data, pursue probes and conduct analyses, such as the complaints team's preparation of a report to identify companies with poor track records in responding to consumer disputes and complaints, especially those with racial equity overtones.
These efforts will take time to come to fruition, and the new leadership for its part has been working on undoing constraints stemming from the past three years of reorganization, redirection and attrition. For instance, returning the CFPB to full force took literal meaning in February with an attorney-hiring drive to staff offices throughout the bureau.
Perhaps the earliest, most direct impact experienced by financial institutions has come from the CFPB supervision office changing gears, with an immediate mandate to tackle COVID-19 related business practices that pose potential consumer harm.
While the CFPB has a variety of instruments in its toolbox, the supervisory process is especially effective for quick achievement of targeted changes in business behavior, relief for consumers and support for the agency's comprehensive regulatory agenda.
Examiners' probing and discussion of pandemic forbearance programs can cause companies to make virtually immediate adjustments to their business practices to address COVID-19 consumer hardships, the CFPB's most urgent priority.
The supervision process also provides the bureau with valuable, practical information about both individual companies and the industry and market as a whole to support the agency's regulatory agenda. This includes enforcement, education and rulemaking covering targeted COVID-19 activities to long-term regulatory reforms in areas including loan servicing, debt collection and credit reporting.
Paving the Way for Regulatory Change
Besides supervision, the bureau's enforcement and rulemaking activities are of course two other subjects of major interest for CFPB watchers. Because enforcement investigations and the adversarial process can take years, the public enforcement actions announced in 2021 do not indicate the bureau's current activities.
The enforcement team's labors, though already shifted to high gear, will bear visible fruits only over time. Marking the path for the CFPB's enforcement activities, however, Uejio issued in March and April a series of reports, statements and warnings to the industry to abide by the government's COVID-19 relief measures and to take all necessary steps to prevent a wave of evictions and foreclosures this fall.
Numerous CFPB blogs likewise have discussed issues of housing insecurity arising from the pandemic and also emphasized the bureau's concern with the protection of vulnerable populations, including not only racial minorities but also the elderly, servicemembers and those with limited English proficiency.
Meanwhile, the CFPB already has taken several significant rulemaking actions and paved the way for more, particularly to further the twin priorities of advancing racial and social justice and providing relief for consumers facing COVID-19 hardships.
On the pandemic front, in April the CFPB floated proposals to modify the mortgage servicing rules to establish a pre-foreclosure review period that generally would prohibit servicers from starting foreclosure until after Dec. 31, permit servicers to offer certain streamlined loan modification options based on an incomplete application, and adopt temporary requirements for communication to borrowers of their options for COVID-19 relief.
The bureau also adopted an interim final rule, effective May 3, requiring debt collectors pursuing evictions to provide clear and conspicuous written notice to tenants of their rights under the Centers for Disease Control and Prevention eviction moratorium and recognizing tenants' rights to hold debt collectors liable.
In the realm of racial and social justice, Uejio directed agency staff to "look more broadly, beyond fair lending, to identify and root out unlawful conduct that disproportionately impacts communities of color and other vulnerable populations."
On Feb. 4, he asked the Division of Research, Markets and Regulation to prepare an analysis of "the most pressing consumer finance barriers to racial equity." Further, all policy proposals henceforth will address "the racial equity impact of the policy intervention."
Reaching beyond issues of race, the CFPB also issued an interpretive rule on March 9 to clarify that Regulation B of the Equal Credit Opportunity Act extends to sexual orientation and gender identity. These activities lay the foundation for the CFPB to extend the consumer financial protection regulatory infrastructure to new grounds beyond even the fair lending focus of the CFPB under former Director Richard Cordray.
In addition, Uejio stated a goal of "assessing regulatory actions taken by the previous leadership and adjusting as necessary and appropriate those not in line with our consumer protection mission and mandate." On April 7, the bureau proposed extending the Nov. 30 effective date of the two sets of debt collection rules adopted by Kraninger CFPB in late 2020, a potential prelude to revisiting those rules.
Likewise, the CFPB's delay of the mandatory compliance date of the general qualified mortgage final rule from July 1, 2021, to Oct. 1, 2022, gives it time to reconsider that rule.
In March, Uejio also signaled possible reconsideration of the CFPB's 2020 revocation of the "ability to repay" portion of the 2017 payday rule. The acting director observed that the bureau continued to believe that ability to repay is an important underwriting standard and remained committed to using its authority to address harms in this sector, including through vigorous market monitoring, supervision, enforcement and, if appropriate, rulemaking.
He thus has declared and preserved the bureau's flexibility to fine-tune or reverse major rules adopted by the Kraninger CFPB.
Finally, the CFPB also has opened the door to other regulatory initiatives aligned with priorities identified by Chopra in his capacity as a commissioner at the Federal Trade Commission and the nominee to head the bureau.
For instance, in April the CFPB joined the prudential banking regulators in issuing a comprehensive request for information and comment on financial institutions' use of artificial intelligence, including machine learning. That request for information will help to inform the CFPB's rulemaking and other regulatory activities in this arena, consistent with Chopra's concerns about mass data collection, consumer privacy and algorithmic underwriting.
In sum, the new CFPB's first 100 days have paved the way for major alterations of the consumer financial regulatory framework and enabled the leadership to take quick, authoritative action going forward.
Quyen T. Truong is a partner at Stroock & Stroock & Lavan LLP. She served as assistant director and deputy general counsel at the CFPB from 2012 until 2016.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
For a reprint of this article, please contact reprints@law360.com.
