Enforcement, Innovation, Consumer Data and Unconstitutionality

Director Kraninger and the Consumer Financial Protection Bureau have been busy this month. Summer is over, and back to school it is.

In addition to convening a symposium and two Director speeches, the Bureau released ten plus statements this month spanning enforcement activity, no action letter policy, innovation, and consumer data enhancements. Not to be overlooked, the Director also announced her position that the Bureau’s structure is unconstitutional. In this relatively short article, we cannot dive deeply into the specifics of each new development, but we can offer some highlights to help keep you abreast of Bureau changes. Definitely, more to come.

Enforcement: Two actions. One stipulated judgment. The Bureau’s actions assert (a) violations of Consumer Financial Protection Act of 2010 and Reg O in connection with allegedly deceptive and abusive mortgage assistance services and (b) violations of the Fair Credit Reporting Act, Regulation V and the CFPA in connection with allegedly improper debt collection practices. The former included a proposed stipulated judgment, which if entered, would resolve the matter by imposing civil money penalty and other relief. See September 6 and September 25 case announcements here.

Symposium:Behavioral Economics and Consumer Financial Services Policy.” On September 19, the Bureau conducted a symposium with two panels including a number of academics, the Assistant Director of the Federal Trade Commission Bureau of Economics, and the Principal Economist for the Federal Reserve. Topics included (a) the “methodological foundations of behavioral economics” and (b) “behavior law and economic and consumer financial protection.” The Bureau billed the symposium as “aimed at stimulating a proactive and transparent dialogue to assist the Bureau in its policy development process, including future rulemakings.” Director Kraninger reiterated in her welcome the Bureaus’ principles regarding consumer protection policy. She emphasized the Bureau seeks “to articulate clear rules of the road for regulated entities that promote competition, increase transparency, and preserve fair markets for consumer financial products and services.” Kraninger continued that where the Bureau has discretion in new rulemaking spaces, the Bureau must guard against unintended consequences. The Bureau should “articulate good reasons for what [it does], and those reasons should rest on solid evidence.” The Director underscored: “Indeed, to formulate good policy a substantive analysis and estimation of costs and benefits – both direct and indirect – must be conducted.”

Consumer Complaint Database: Enhancements. On September 18, the Bureau announced it will continue to publish consumer complaints including data fields and narratives. To address in part criticisms about the information shared, the Bureau will implement enhancements including: (a) modifying disclaimers to provide context, (b) changing the consumer complaint submissions process to provide additional information before the complaint is submitted, and (c) enhanced information contacts at financial institutions who can provide specific answers to certain consumer questions. In connection with these changes, the Bureau also will develop “dynamic visualization tools including geospatial and trend views” and emphasize features for “aggregation and analysis” of the underlying data fields. Finally, the Bureau is evaluating tools that will allow financial institutions to “respond publicly” to individual complaints in the database. In a published speech at the National Consumer Empowerment Conference, the Director acknowledged that she has met with “more than 700 consumer groups, consumers, state and local government officials, military personnel, academics, non-profits, faith leaders, financial institutions, and former and current Bureau official and staff” as part of her listening tour. In her view, enhancements to the database will address a variety of concerns from a variety of constituents (Kraninger “did not see this as a binary choice” to publish data or not). One important note, the Director offered: “It is imperative that we make it know the Consumer Complaint Database is not a statistical sample of consumers’ experiences in the marketplace.” (Music to my ears as a financial services class action defense lawyer). Published speech available here.

New Innovation Policies & American Consumer Financial Innovation Network. The Bureau announced collaboration with seven state regulators to launch the ACFIN (not to be confused with FinCEN). The stated shared goals of ACFIN are fostering “competition, consumer access, and financial inclusion” in addition to “promot[ing] regulatory certainty for innovators.” The Bureau released two innovation related policies envisioned to protect those fostering change in the industry. The Compliance Assistance Sandbox (CAS) Policy “enables testing of a financial product or service where there is regulatory uncertainty” and will provide “safe harbor” during for “specified conduct during the testing period” under TILA, EFTA, and ECOA. The Trial Disclosure Program (TDP) policy protects entities trying to improve consumer disclosures by conducting “in-market testing of alternative disclosures for the limited time upon permission by the Bureau.” The TDP is authorized under the Dodd-Frank Act.

No Action Letter: HUD Housing Counseling Agency. On September 10, Paul Watkins, Assistant Director, Office of Innovation, announced that no action would be taken against HUD’s Housing Counseling Program participants assuming they are in compliance with specific conditions. The conditions include entering into Memorandum of Understanding reflecting the terms of the Housing Counseling Funding Agreement and compliance with applicable HUD requirements set forth in 24 CFR § 214.313 and the HUD Handbook. The no-action letter is limited to UDAAP claims and violations of RESPA section 8 (referrals) and Regulation X, section 1024.14 (prohibitions against kickbacks and unearned fees), provided that fee is commensurate with the level of services provided and is reasonable and customary for the area.

Unconstitutionality. And last, but certainly not least, in letters to Senate Majority Leader Mitch McConnell (R-KY) and House Speaker Nancy Pelosi (D-CA) sent on Constitution Day (September 17), Director Kraninger advised that the CFPB “has determined that the for-cause removal provision of the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. § 5491(c)(3), is unconstitutional.” Not surprising, but this is an unequivocal official reversal of the position taken by predecessor Director Cordray which impacts pending cases. The Director added: “It is in the Bureau’s interests to obtain a final resolution of this issue as soon as possible,” noting the Bureau supports SCOTUS review of the conflict manifested in Circuit rulings between Congressional enactment provisions and the Bureau’s current position. The Director makes clear in the letter that she and the Bureau will keep doing the job while SCOTUS decides if it should intervene.

P.S. Am I the only one who sees irony in Kraninger’s letter closing? “Please let me know if I can be of any further assistance in this matter.” More to come.