CFPB: New CID Policy, Kraninger FFIEC Slot, Other Musings

Financial Services Law

In Consumer Financial Protection Bureau (CFPB or Bureau) news, the Bureau announced a major change regarding civil investigative demands (CIDs) and Director Kathy Kraninger became the first CFPB director to serve as chairperson of the interagency Federal Financial Institutions Examination Council (FFIEC), while a recent policy speech provides the first solid guidance on the new Director’s governing philosophy.

The CFPB also released its Consumer Response Annual Report and reached a $4 million deal with an online lead aggregator.

What happened

  • New CID Policy—On April 23, the CFPB announced changes to policies regarding civil investigative demands (CIDs) to ensure they provide more information about the potentially wrongful conduct under investigation. Consistent with the updated policy, CIDs will now provide more information about the potentially applicable provisions of law that may have been violated. Moreover, CIDs will typically specify the business activities subject to the Bureau’s authority. In the interest of further transparency, in investigations in which determining the extent of the Bureau’s authority over the relevant activity is one of the significant purposes of the investigation, staff may now specifically include that issue in the CID.

    The new policy takes into account recent court decisions about notifications of purpose, and is consistent with a September 2017 report by the CFPB’s Office of Inspector General that emphasized the importance of updating Office of Enforcement policies to reflect such developments. The CFPB claims that its new policy is also consistent with comments it received in response to the Requests for Information it issued in 2018, seeking feedback about various aspects of its operations, including its use of CIDs in enforcement investigations.
  • Kraninger Speech to the Bipartisan Policy Center—In an important statement of her goals, aspirations and global agency view, Director Kraninger spoke April 17, 2019, to a Washington, D.C., think tank. Of particular note, Kraninger largely defended the meaningful role the CFPB plays, stating that the Bureau’s “mission and the agency itself” are “critical to our economy and are not going away.” She also agreed that, because bad actors “harm consumers and undermine the integrity of markets,” they should be “held accountable.”

    While focusing on consumer education, Kraninger echoed the comments of her predecessor, Acting Director and current White House Chief of Staff Mick Mulvaney, telling her audience that “[w]here Congress directs the CFPB to promulgate rules or address specific issues through rulemaking, we will comply with the law. Where the Bureau has discretion, we will focus on preventing consumer harm by maximizing informed consumer choice, and prohibiting acts or practices which undermine the ability of consumers to choose the products and services that are best for them.”

    “To develop the best possible rules,” she continued, “the CFPB must use the best possible process. Because rules are general standards, they are not best articulated on a case-by-case basis through enforcement actions. Rather, they should be developed through a rulemaking process that is transparent; that allows stakeholders to submit comments; that reflects rigorous economic and market analysis; and that provides for judicial review. Ultimately, I don’t believe anyone benefits from rules that are rushed out the door after having gone through a flawed process. Under my leadership, the CFPB will proceed deliberately and transparently in its rulemakings.”

    Kraninger also made clear that, where the rulemaking and laws are clear, bad actors will be held accountable for their actions. “Let me state emphatically my view that enforcement is an essential tool Congress gave the Bureau – particularly because education, rulemaking, and supervision will not prevent every violation. There will always be bad actors who don’t comply with the law. Ensuring that justice is served in the public interest – that is our goal in using the enforcement tool. Further, a purposeful enforcement regime can foster compliance, help prevent consumer harm, and right wrongs.”

    That said, Kraninger emphasized that she is committed to ensuring (1) “that enforcement investigations proceed carefully and purposefully to ensure a fair and thorough evaluation of the facts and law”, and (2) “that [the Bureau] move as expeditiously as possible to resolve enforcement matters, whether through public action or a determination that a particular investigation should be closed.”
  • FFIEC Council—Kraninger began a two-year term as chairperson of the FFIEC on April 1. The term will end on March 31, 2021.

    Established in 1979, the council consists of six voting members: a member of the Board of Governors of the Federal Reserve System, the Chair of the Federal Deposit Insurance Corporation (FDIC), the Director of the CFPB, the Comptroller of the Currency, the Chair of the National Credit Union Administration (NCUA) and the Chair of the State Liaison Committee.

    A formal interagency body, the FFIEC prescribes uniform principles, standards and report forms for the federal examination of financial institutions supervised by its members, with the goal of promoting uniformity in the supervision of financial institutions. Perhaps the most recent example is the FFIEC’s revised interagency examination procedures for compliance with the federal Home Mortgage Disclosure Act, issued April 10, 2019, adding (among other changes) the partial exemptions created by recent legislation (Pub. L. 115-174, 132 Stat. 1296 (2018), Section 104(a) (codified at 12 U.S.C. § 2803).

    Leadership of the Council rotates among the federal agencies. Kraninger succeeds FDIC Chair Jelena McWilliams and will be followed by NCUA Chair J. Mark McWatters, who currently occupies the role of vice chair of the FFIEC.

    “I look forward to engaging with my colleagues and remain committed to finding effective ways to collaborate on supervisory matters, including the use of appropriate technology,” Kraninger said in a statement. “Under my leadership, I plan to focus on building a culture of compliance that prevents consumer harm in the first place. This prevention of harm is one of my primary goals, and using all available tools will better protect consumers, taxpayers and the financial system.”
  • Annual report—The CFPB published its Consumer Response Annual Report, providing details on the complaints received from consumers between January 1 and December 31, 2018. Credit or consumer reporting nabbed the top spot, followed by debt collection, mortgages, credit card, and checking or savings complaints.

    In total, the Bureau handled approximately 329,800 consumer complaints, with the majority of consumers indicating that they first tried to resolve their problem with the company at issue. About 80 percent of the complaints were submitted by the CFPB to companies for review and response, with 14 percent referred to other regulatory agencies and 4 percent deemed incomplete.

    For the most part, companies who were the subject of these complaints did a great job at responding. The CFPB reports that just five percent of the complaints were still being reviewed by the company for action. For those companies that complained—nearly three-quarters (about 74 percent)—the matters were resolved by addressing the consumer’s issue or the company addressed why no further action needed to be taken. An additional 16 percent of complaints were addressed by providing either monetary relief (about a quarter of that group) or other meaningful relief, such as halting unwanted debt collection calls or correcting credit reporting data.

    So where was the biggest change from the prior year? Student loan complaints, which dropped 48 percent. On the other hand, credit repair (up 33 percent) and the combined category of virtual currency/money transfers (up 31 percent) saw the two largest increases.

    On a per capita basis, the Bureau received more complaints from consumers in Washington, D.C., than from anywhere else in the United States, followed by Georgia, Florida, Nevada and Delaware. Consumers in South Dakota submitted the fewest complaints of any state per capita.
  • Settlement—A federal judge in California signed off on a stipulated final judgment and order resolving the CFPB’s allegations that an online lead aggregator bought and sold personal information from payday and installment loan applications without properly vetting the parties it worked with.

    The Bureau alleged, the company purchased consumer loan applications from lead generators containing data such as consumers’ names, telephone numbers, home and email addresses, references, and employer information. After it received the applications, it sold them to purchasers—including online small-dollar lenders, data managers, data brokers and remarketing companies, and payday or installment lenders—without regard to the representations made by the lead generators to consumers or how the information of consumers would be used, the Bureau alleged.

    Some of the buyers included lenders that skirted state laws or denied the jurisdiction of United States courts, the CFPB said.

    The defendants (the company and its co-owners) violated the Dodd-Frank Wall Street Reform and Consumer Protection Act in three ways, the Bureau told the court: They ignored the statements made about lenders to the consumers who provided their information, they failed to vet or monitor purchasers of the leads, and they steered consumers toward unfavorable loans.

    To settle the charges, the online aggregator agreed to pay $1 million in consumer redress and $3 million in civil money penalties. The defendants (who neither admitted nor denied the allegations) are also prohibited from acting as a lead generator, lead aggregator or data broker in connection with the offering of certain loans.

To see the CFPB press release concerning the CID policy change, click here.

To read Kraninger’s speech, click here.

To read the Consumer Response report, click here.

To read the stipulated final judgment and order, click here.

Why it matters

The CID change is a major development for regulated entities and the law firms that represent them in enforcement matters. The CFPB has long been faulted in its failure to use notifications of purpose that adequately informed recipients of the investigation’s nature.

As the first CFPB director to take the helm at the FFIEC, Kraninger steps into an important leadership position and can help set the tone for the Council’s efforts to promote uniformity in the supervision of financial institutions. In her think tank speech, Kraninger made clear that while she will be an acolyte of her old boss, Mick Mulvaney, she offers a kinder, friendlier view of the CFPB’s relationship to all stakeholders and staff.

The Bureau’s annual complaint report didn’t contain any big surprises, but regulated entities should continue to study the complaint data for hints of where the next enforcement activity may occur. And, speaking of enforcement, it remains down dramatically from the Cordray that the$4 million settlement in California federal court puts to bed an action originally filed before Kraninger took the helm.