CFPB’s Increased Regulations And Stronger Enforcement Actions Bring New Compliance Challenges To Financial Services Institutions

As additional rules and regulations continue to be put in place by the Consumer Financial Protection Bureau (CFPB), and the agency’s enforcement approach becomes more aggressive, in-house attorneys at financial institutions throughout the country can help their institutions maintain compliance by understanding new regulations, changes to existing rules that call for increased compliance and proposed new rules. Since the Biden Administration moved into the White House, the CFPB has once again become a federal government priority. In the Administration’s first year alone, the CFPB approved 18 final and interim rules. This number stands in stark contrast to the Trump presidency when 22 final and interim rules were approved during that administration’s first three years in office.  

Increasing CFPB Regulations And Enforcement Are Not Surprising

The increasing regulations and enforcement by the CFPB are not surprising. The Biden Administration indicated from the beginning that it would act aggressively to “ensure that regulated companies follow the law and meet their obligations to assist consumers during the COVID-19 pandemic.” As part of doing so, the Administration reversed specific policies implemented by the CFPB during the Trump years and said it would remedy racial inequity in practices and policies of the financial services industry. 

Current CFPB director, Rohit Chopra, is leading the charge to increase rules and enforcement actions. He has said the agency will aggressively make and enforce rules to keep financial institutions in check and appears to be carrying out that commitment.  The agency has significantly increased its focus on enforcing rules related to fair lending laws as well as violations committed against consumers by payday lenders and debt collectors. Chopra is also seeking to increase access to capital and credit for consumers of all races who have experienced limited access.

Additionally, last year, the agency extended its interpretative rule prohibiting sex discrimination in the Equal Credit Opportunity Act to its implementation of Regulation B to encompass sexual orientation-based discrimination and gender identity discrimination in relation to any part of a credit transaction. This broadening includes discrimination based on actual or perceived nonconformity with sex-based or gender-based stereotypes. 

Final Rules For Consumers Impacted By The Pandemic

Several rules have been finalised that are meant to help consumers financially impacted by the effects of the pandemic. Earlier in 2021, the CFPB issued a final rule that extends the mandatory compliance date for the Qualified Mortgage Definition rule under the Truth in Lending Act: General QM Loan Definition to October 2022. This delay was an attempt to help consumers by assuring access to affordable mortgage credit and by preserving flexibility.  

The CFPB also finalised a rule that establishes temporary procedural safeguards to ensure mortgage borrowers have the opportunity to be considered for loss mitigation before foreclosure is initiated by loan servicers. 

Other rules that have been finalised include adjusting thresholds for various exemptions including consumer leases, consumer credit transactions and appraisals for higher-priced mortgage loans. Early this year, the CFPB also adjusted civil monetary penalties based on inflation. This adjustment was done to comply with current law and help ensure the deterrent effect of these penalties. 

In addition to its rulemaking and rule finalising over the past year-and-a-half, the agency issued an advisory opinion about name-only matching procedures. The opinion said that name-only matching when preparing consumer reports does not meet the Fair Credit Reporting Act’s requirement of using reasonable procedures to assure maximum possible accuracy. 

More Rules On The Horizon

To date, in addition to the approval of several final and interim new rules, we have seen the CFPB institute numerous enforcement actions against lenders, banks and other financial services providers. And additional proposed rulemaking on a variety of issues is expected to continue in the year ahead. The CFPB is actively soliciting public comments for new rules on the horizon in the following areas:

• The use of artificial intelligence by financial institutions in assessing loan risk in lending.
• The collection and reporting of lending data for small businesses owned by women and minorities. 
• The offering of buy-now-pay-later products.
• How financial companies use big-tech payment platforms.

Over the past year, the CFPB has been focused on gathering comments for rules in these areas. What will result from the proposal of regulations in these areas is yet to be seen.  

Background Of The CFPB

Understanding the history of the CFPB and how and why its regulatory actions have evolved and increased may help to understand the agency’s impact and reach going forward. 

As indicated by its name, the mission of the Consumer Financial Protection Bureau is to ensure fair treatment of consumers by banks and other financial institutions through the enforcement of laws. The CFPB was established in response to the 2008 financial crisis. It was created by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. 

The CFPB is an independent agency with a single director. It had a challenging start with pushback from Republican senators who refused to support a Director for the agency. It also withstood a Supreme Court decision in which the Court determined that certain appointments were unconstitutional because of their timing. Despite the early upheaval, it instituted 56 enforcement actions in 2015, which was its most active year since being established. That year, it returned approximately $6 billion to consumers through settlements.

When the Trump Administration came into power, CFPB enforcement actions, fines against violators and money returned to consumers fell greatly. Mick Mulvaney was that administration’s first CFPB director. While in Congress he had sponsored bills to eliminate the CFPB altogether, and, as its director, he submitted a 2018 budget request of $0 for the agency. Under Mulvaney’s leadership, hiring for the CFPB was frozen, investigations and fine collections against suspected violators stopped and the making of new rules was suspended. It was no longer allowed to enforce discrimination in lending cases. Mulvaney’s successor Kathy Kraninger increased enforcement actions, but only returned $783 million to consumers in her most active year, which was far below the billions of dollars returned just a few years earlier. 

Kraninger increased the CFPB’s focus on educating consumers so they could safeguard their own interests. Toward this end, spending on consumer engagement and education increased to $77.8 million in 2018. This was nearly double the money spent in this area during the Obama Administration. Education programs included educating people about financial scams, debt collection tactics and financial elder abuse. 

Staying Compliant With CFPB Rules And Regulations

What can financial service businesses do to avoid fines and enforcement actions and stay compliant with CFPB rules? Financial sector businesses can educate themselves about rules that have been finalised and how these rules may affect them. They can avoid being caught off guard and being deemed non-compliant by making themselves aware of the multitude of rule changes that may be instituted and the intricacies within these rules. The role of in-house attorneys going forward will be to understand and interpret these rule changes in relation to their financial institutions and the offerings of their institutions. 

About the authors:

Bonnie Hochman Rothell is a Partner in Morris, Manning & Martin’s Litigation Practice. Ms Hochman Rothell has first-chaired hundreds of litigation matters throughout the U.S. and has prosecuted and defended appeals to the United States Supreme Court. Her clients include banks and institutional lenders, developers, holding companies, government agencies, public housing authorities, government contractors, entrepreneurs, commercial enterprises, foreign corporations and individuals. She can be reached at bhrothell@mmmlaw.com.  

Jessica Rodriguez is a Senior Associate in Morris, Manning & Martin’s Litigation practice. She focuses her practice on helping clients understand and successfully navigate issues surrounding complex commercial litigation, as well as risk management and regulatory compliance. She can be reached at 202-216-4106 or jrodriguez@mmmlaw.com.