Director Kathy Kraninger is in the news, taking a hard line on civil investigative demands (CIDs), backing two new settlements and issuing a further delay of the payday loan rule. Meanwhile, consumer groups criticized the CFPB’s work to prevent discrimination in the student loan industry.
What happened
It has been an interesting first six months for new Director Kathy Kraninger, and the past week offers a microcosm of the Kraninger Era at the CFPB. (The CFPB has summarized those first six months here).
Civil Investigative Demands—In April, Kraninger’s CFPB announced changes to its policies with regard to CIDs, promising to provide more information about the potentially wrongful conduct under investigation. To that end, the Bureau said that CIDs would now specify the business activities subject to the CFPB’s authority and generally give recipients added insight about the potentially applicable provisions of law that may have been violated.
The new, more business-friendly policy was favorably received by the industry. But in recent weeks, Kraninger has largely rejected challenges to six CIDs involving products ranging from military pensions to tax debt relief products.
For example, in one original CID enforced by Kraninger, the notification of purpose stated that it had been issued “to determine whether small-dollar lenders or other persons (1) in connection with the advertising, marketing, offering, provision, servicing, documentation or collection of loan applications or loans have engaged in unfair, deceptive or abusive practices in violation of [the Consumer Financial Protection Act (CFPA)] or have violated the Equal Credit Opportunity Act or the Fair Credit Reporting Act (FCRA), or (2) in connection with maintaining records or providing information for a Bureau investigation have violated [the CFPA].”
The CID recipient objected. But Kraninger enforced the demand, writing that the CID was “subject to multiple levels of review within the Bureau … that have ensured they were issued for a proper purpose and in accordance with all applicable regulations.” The CFPB did modify the CID, however, providing more specifics in its notification, consistent with the policy change.
In modifying the CID, the Bureau explained the purpose of the investigation “is to determine whether small-dollar lenders or associated persons, in connection with extending or servicing small-dollar loans or collecting debts, have (1) made harassing debt collection calls to consumers’ workplaces in a manner that is unfair, deceptive or abusive in violation of [the CFPA]; (2) failed to maintain and preserve records in a manner that violates [Regulation B]; (3) failed to follow the requirements for providing disclosures to consumers in a manner that violates the [FCRA]; or (4) failed to maintain records or failed to provide information to the Bureau in connection with a Bureau examination in a manner that violates [the CFPA].”
In other orders, Kraninger refused to set aside challenged CIDs based on an argument that the CFPB is unconstitutional. The “Bureau has consistently maintained that its statutory structure is constitutional under controlling Supreme Court precedents,” she wrote.
Although Kraninger broke from prior Bureau practice by making significant modifications to a CID last month, she plainly has no intention of opening the floodgates. Our read is that she will listen to CID challenges but generally defer to the judgment of her enforcement lawyers on these matters.
New Settlements—The CFPB also announced two settlements. The first involves a Texas-based mortgage servicer that allegedly violated both the CFPA and the Real Estate Settlement Procedures Act. The servicer handled mortgage servicing transfers with incomplete or inaccurate loss mitigation information, according to the CFPB, resulting in failures to recognize transferred mortgage loans with pending loss mitigation applications, in-process loan modifications and permanent loan modifications.
The company also allegedly engaged in inadequate oversight of service providers, causing untimely escrow disbursements to pay borrowers’ taxes and homeowners’ insurance premiums, the Bureau said, and failed to promptly enter interest rate adjustment loan data for adjustable rate mortgage loans, so that consumers received monthly statements seeking to collect inaccurate principal and interest payments.
Pursuant to the consent order, the mortgage servicer must pay a civil money penalty of $200,000 and restitution estimated at $36,500. In addition, the servicer must establish and maintain a comprehensive data integrity program to ensure the accuracy, integrity and completeness of the data for the loans that it services, as well as implement an information technology plan to make sure its systems are appropriate in light of the nature, size, complexity and scope of its operations.
In the second settlement, a mortgage lender agreed to pay a $1.75 million penalty and take steps to improve its compliance management after the Bureau alleged it violated the Home Mortgage Disclosure Act (HMDA) and Regulation C by submitting for a three-year period mortgage loan data that contained intentional inaccuracies about race and ethnicity.
Between 2013 and 2016, the New Jersey-based mortgage lender—one of the ten largest HMDA reporters nationwide—originated more than 50,000 home-purchase loans, including refinancings. Although the lender is required to collect, record and report data on HMDA-covered transactions, the CFPB alleged that certain loan officers were told by managers or other loan officers that when applicants did not provide their race or ethnicity, the loan officers should select non-Hispanic white regardless of whether that was accurate.
Payday Rule Delayed (Again)—One area where the Bureau won’t be directing its enforcement efforts, at least not yet: the Payday, Vehicle Title and Certain High-Cost Installment Loans rule. Not only did the Texas federal court’s hearing the challenge to the rule filed by two trade groups extend the stay of the compliance date, but the CFPB itself issued a rule to delay implementation of certain provisions.
The final rule pushes the compliance deadline for the mandatory underwriting provisions of the rule to Nov. 19, 2020. However, the rule did not extend the mandatory compliance date for the “payments” provisions of the rule, which remains August 19, 2019. But the entire rule, including the payments provisions, remains subject to the Texas federal court stay unless and until that is lifted.
Student Lending Oversight—Lastly, civil rights groups wrote to the CFPB, complaining about its lack of oversight of student lending. The Student Borrower Protection Center, joined by the NAACP and the Lawyers’ Committee for Civil Rights Under the Law, among other groups, urged Kraninger to prevent discrimination by the student loan industry.
Student loan borrowers of color “disproportionately bear the brunt” of America’s student debt crisis, according to the letter, “and sadly, the extraordinary levels of delinquency and default across these communities is preventable.”
The servicers of student loans are failing African American and Latino student loan borrowers, the groups said, but the Bureau has repeatedly shirked its responsibility to provide industry oversight, instead deferring to the Department of Education (DOE).
“Nowhere in Title X of Dodd-Frank exists any requirement from Congress that the Bureau receive a permission slip from [DOE] Secretary Betsy DeVos to ensure that the nation’s civil rights laws are being followed,” the groups wrote. “The Bureau is an independent agency, with a mandate from Congress to oversee student loan servicers for compliance with the nation’s consumer financial laws, including the Equal Credit Opportunity Act. That is what it must do.”
To read the order on the CIDs, click here.
To read the consent order with the Texas mortgage servicer, click here.
To read the consent order with the New Jersey mortgage lender, click here.
To read the final rule extending the payday loan rule, click here.
To read the letter about student borrowers, click here.
Why it matters
The Bureau has had a busy few weeks, particularly with regard to enforcement efforts. Kraninger’s near-wholesale enforcement of the CIDs—while providing additional information about the potential violations the Bureau is looking into—maintains her position on the spectrum between consumer-friendly Director Richard Cordray on one end and Acting Director Mick Mulvaney on the other. Her first six months have brought a more establishment perspective to the CFPB, and probably a renewed sense that the director is serious about enforcing the laws, but fairly.