While the Dodd-Frank Act turns five, today marks the fourth birthday of the CFPB. Despite a controversial start between recess appointments and enforcement attorneys at examinations, the CFPB has come a long way since its inception. The Bureau has brought more than 90 enforcement actions, filed numerous complaints, and obtained countless supervisory agreements in its four short years. It has expanded its regulatory reach through the newly implemented mortgage servicing rules and nonbank supervisory program. Just recently, the CFPB issued its first agency decision in a contested administrative proceeding, resulting in a disgorgement figure nearly 17 times the amount originally recommended in the proceeding. The CFPB has fundamentally changed the consumer finance landscape through its regulatory, enforcement, and supervisory activities. Here we highlight a few ways that the CFPB has made a difference in the areas of nonbank supervision; consumer complaints; unfair, deceptive, and abusive acts and practices; and individual liability.
The Dodd-Frank Act provided the CFPB authority to supervise nonbank larger participants of markets for consumer financial products or services as defined by the Bureau. With that authority, the CFPB has issued rules to supervise larger participants in the consumer debt collection, consumer reporting, student loan servicing, international money transfer, and nonbank auto finance markets. Many of the newly covered entities are being supervised by a federal regulator for the first time, and are now subject to examination proceedings and potential adverse findings.
The CFPB has taken a data-driven approach to consumer complaints through the robust and publicly available consumer complaint database that it launched in June 2012. The CFPB has leveraged this crowd-sourcing tool in examinations and enforcement activities, drawing scrutiny and praise from across various industry and consumer groups. In June 2015, the CFPB took the database one step further when it published over 7,700 consumer complaint narratives detailing complaints in the consumers’ own words. To date, the CFPB has made over 10,700 complaint narratives public. Just last week, the CFPB launched the first of its monthly “snapshots” of consumer complaints. The monthly report will provide complaint volumes by product, state, and company and will spotlight a product and geography. The report (and associated press release) also includes a list of the “most complained-about companies.”
Unfair, Deceptive, and Abusive Acts and Practices (“UDAAP”)
The CFPB has taken full advantage of its ability to enforce the prohibition on UDAAP found in Section 1031 of the Dodd-Frank Act. In 2014 alone, the Bureau obtained over $2 billion in civil money penalties and restitution for consumers in enforcement actions involving UDAAP claims. Like the prudential regulators, the CFPB has not specifically defined acts or practices as UDAAP, but instead uses enforcement actions, examination findings, and informal guidance to signal what it considers UDAAP. In its short tenure, for example, the CFPB has brought 11 enforcement actions regarding unfair and deceptive sales, marketing, and billing practices regarding credit card add-on products. Through its supervisory efforts, the Bureau has also put the loan servicing industry on notice of potential UDAAPs in the context of loan servicing transfers, payment allocation methods, and loan modification delays.
The CFPB has also begun illuminating the contours of “abusive” acts or practices through recent enforcement actions. CFPB Director Richard Cordray has acknowledged that the term “abusive” is “a little bit of a puzzle” that will be “a fact and circumstances issue; it is not something we are likely to be able to define in the abstract.” (Testimony to the House Oversight & Government Reform Committee January 24, 2012) Cordray has made good on that statement, as recent enforcement actions do not clearly define the term. The CFPB has found abusiveness in a variety of acts and practices including loan steering, venue selection clauses in credit contracts, treatment of payment allocation requests, and debt relief programs geared toward low-income consumers.
The CFPB has authority over certain individuals through the “covered persons” provisions of the Consumer Financial Protection Act. Director Cordray signaled his interest in individual liability in 2013, noting, “I’ve always felt strongly that you can’t only go after companies. Companies run through individuals, and individuals need to know that they’re at risk when they do bad things under the umbrella of the company.” The CFPB has made good on that promise, holding individuals personally liable in over 25% of its enforcement actions. Individual defendants are typically company owners who allegedly have personal involvement in the unlawful conduct, and as such, are held jointly and severally liable for the liabilities of the company.
Despite a very active first four years, the CFPB’s work is not done. The CFPB has yet to publish a final rule on expanded Home Mortgage Disclosure Act reporting under Regulation C and has not yet proposed a rule to expand reporting requirements for credit cards or small business loans. The integrated disclosures rule has been finalized, but the rollout continues to face challenges as the implementation deadline looms over industry participants. The CFPB is still considering proposals for payday, auto title, and deposit-advance products. The next steps of the CFPB remains to be seen, but expect many more birthdays to come. Learn more about the Consumer Financial Services Group’s role in preparing for the CFPB’s next moves.