On April 4, at the Practicing Law Institute’s (“PLI”) 21st Annual Consumer Financial Services Institute in Manhattan, Alan Kaplinsky (a co-chair of the institute) moderated a panel entitled “The CFPB Speaks,” where CFPB officials shared their own insights on industry trends on their radar, priorities for the coming years, and views on certain hot-button issues. On the panel from the CFPB were Anthony (“Tony”) Alexis (Assistant Director for Enforcement), Jeffrey Langer (Assistant Director for Installment Lending and Collections Markets), Diane Thompson (Managing Counsel, Office of Regulations), and Peggy Twohig (Assistant Director for Supervision Policy).
During the discussion, the CFPB panelists gave us their hopes on the timetables for new rules that the CFPB is promulgating. They indicated that debt collection rules may be forthcoming in late spring, that the payday lending rules will “hopefully” come out before summer, that the arbitration rules may come out in late spring or early summer, that overdraft rules should be issued in late summer, and that prepaid card rules will be promulgated in “early summer.”
Peggy Twohig first shared the CFPB’s supervision priorities for the coming year, which include: (i) arbitration, (ii) consumer reporting by both CRAs and furnishers, (iii) debt collection both by first and third parties, (iv) demand-side consumer behavior, which she indicated was an initiative to create tools to allow consumers to make better financial decisions, (v)household balance sheets, (vi) mortgages, (vii) open use credit, which she defined as credit like payday, installment, credit card, and other lending not tied to a specific purchase, (viii) small business lending, and (ix) student lending. In addition, she pointed out that the CFPB would continue to pursue past priorities, such as auto finance ECOA cases based on dealer finance charge participation.
Tony Alexis commented on several areas of interest to industry in response to questions posed by Alan and others:
- Civil Money Penalties: He defended the CFPB’s case-by-case approach to assessing civil money penalties in enforcement actions and declined an invitation by another panelist to establish set parameters for the size of a civil money penalty relative to restitution.
- Precedential Value of Consent Orders: In response to Alan’s question on whether CFPB consent orders have precedential value, he confirmed that the CFPB’s consent orders, while not binding on other industry participants, are nevertheless indicative of the types of conduct that the CFPB believes to constitute violations of law. Recently, Director Cordray gave a speech in which he said that consent orders are precedential and that the Bureau will expect industry to comply with orders issued to others who are engaged in practices similar to those engaged in by parties to consent orders. Chris Willis also opined that, in advising clients, he treats consent orders as precedential.
Chris Willis also asked Mr. Alexis about a trend he referred to as “reverse vendor oversight,” where the CFPB has lately been holding service providers liable for the conduct of financial institutions to which they provide services, citing as examples the recent CFPB actions against lead generators, payment processors, and debt collection law firms. Mr. Alexis indicated that reverse vendor oversight is contemplated by Dodd-Frank and consistent with the CFPB’s enforcement modus operandi. This confirms that service providers to entities under the CFPB’s (ever expanding) jurisdiction must themselves take steps to ensure they are not assisting in violations of law, or risk prosecution themselves.
Jeffrey Langer reiterated the strong priority that the CFPB places on student lending. His remarks also highlighted the divergence between the CFPB and the Department of Education. He stated that, while the two agencies cooperate, they each have their own statutory mandates and that they set priorities independently. He also touched upon the types of alleged abuses and violations that the CFPB is taking great pains to correct in the marketplace, including issues related to the availability of loss mitigation options, the transfer of servicing from one entity to another, misallocation of partial payments, failure to credit payments appropriately, the lack of transparency around student loan refinancing, and student loan debt relief fraud.
Diane Thompson responded to Alan’s question about whether it is a foregone conclusion that the CFPB will be banning consumer arbitration. She pushed back on the notion that the CFPB has already decided to ban arbitration or class action waivers. She said that the CFPB is taking great pains to carefully analyze the impact of arbitration and to reach a decision that is good for consumers and industry alike.
Overall, the CFPB’s remarks were not surprising, but they provide useful insight on the CFPB’s views on these and other important topics.