CFPB News: New Innovations Office, ‘Gentler’ Consent Orders

Financial Services Law

The kinder, gentler Bureau of Consumer Financial Protection (CFPB) has created a new office focused on emerging technology, announced a pair of consent orders that include minimal financial penalties, and continued to fend off constitutional challenges in federal court.

What happened

The new approach being taken at the CFPB since Acting Director Mick Mulvaney took the helm has been evident from the beginning, from the philosophy regarding enforcement actions to structural changes within the Bureau. Most recently, a pair of consent orders and a new office demonstrate the different style.

  • In a push for new products and services in the financial services industry, Mulvaney announced the creation of the Office of Innovation, with Paul Watkins to lead it. Former CFPB Director Richard Cordray created Project Catalyst during his tenure, a program aimed at encouraging “consumer-friendly innovations,” but little came of it. Project Catalyst will be transitioned into the new office, Mulvaney said, and the new office will be focused on “creating policies to facilitate innovation, engaging with entrepreneurs and regulators and reviewing outdated or unnecessary regulations.” Watkins brings fintech regulatory experience, leaving Arizona’s Attorney General’s Office, where he managed the FinTech Regulatory Sandbox, the first program of its kind in the country. The CFPB’s new Office of Innovation “will make significant progress in creating an environment where companies can advance new products and services without being unduly restricted by red tape that belongs in the 20th century,” Mulvaney said in a statement, noting that the growth of consumer-friendly innovation “is now a key priority for the Bureau.”
  • In other personnel news, the battle over leadership at the CFPB appears to be at an end. Leandra English announced her resignation as deputy director and filed papers to terminate her lawsuit challenging Mulvaney’s appointment, indicating in a statement that her decision was motivated by the nomination of a new director for the Bureau, Kathy Kraninger. Mulvaney wasted no time filling the position, tapping Brian Johnson, the former principal policy director at the CFPB, to assume the responsibilities of acting deputy director.
  • Further documenting the shift in management style, the Bureau announced a settlement with a Kansas-based company and its former CEO and part owner that used a network of debt collection companies to collect consumer debt. Some of these companies engaged in “frequent” unlawful debt collection acts and practices that harmed consumers, the CFPB alleged, such as representing that consumers owed more than they were legally required to pay or threatening consumers and their family members with lawsuits or arrest. Despite knowledge of these illegal consumer debt collection practices by the third-party collectors, the company and CEO continued placing debt with the third parties, even selling millions to one of them with knowledge or reckless disregard of the company’s illegal practices, the Bureau charged. Pursuant to the consent order, for the violations of the Consumer Financial Protection Act and Fair Debt Collection Practices Act, a judgment of $3 million in civil money penalties was imposed both against the company and against the CEO, for a total of $6 million. However, full payment was suspended to $500,000 and $300,000, respectively.
  • In a second case, the CFPB reached a deal with a small-dollar lender that owned and operated roughly 100 retail lending outlets in Alabama, Mississippi and South Carolina that allegedly violated the Dodd-Frank Wall Street Reform and Consumer Protection Act by failing to properly disclose finance charges associated with auto title loans as well as running ads that lacked disclosures (such as the annual percentage rate) required by the Truth in Lending Act. Specifically, the lender had consumers sign a ten-month amortizing payment schedule providing for ten equal payments but presented consumers with the finance charge for a 30-day single payment and neglected to disclose the amount of the finance charge based on the ten-month schedule. While the company was prohibited from making future misrepresentations about the costs and other terms of loans, the original $1.52 million judgment in the consent order—which represented the undisclosed finance charges consumers paid on their loans—was suspended upon payment of $500,000 to affected consumers based on an inability to pay the full amount.
  • Finally, a recent decision from the U.S. Court of Appeals for the Fifth Circuit could have an impact on the CFPB after the federal appellate panel found the structure of the Federal Housing Finance Agency (FHFA) unconstitutional. The issue arose with a lawsuit filed by shareholders of two publicly held financial institutions, who challenged whether the FHFA acted within its statutory authority by adopting a dividend agreement and whether the agency itself violated the separation of powers. A district court granted summary judgment in favor of the FHFA, but the Fifth Circuit reversed in a split opinion. Considering five characteristics of the agency—the for-cause protection from removal, the single-director structure, the absence of bipartisan balance, the exemption from the appropriations process and the lack of formal executive branch control over the FHFA’s operations—a majority of the panel said the combination of the factors interfered with the president’s ability to carry out the constitutional duty of ensuring that federal laws are enforced. Therefore, Congress went too far in its effort to create the FHFA, the divided court found in Collins v. Mnuchin. While the majority attempted to distinguish its conclusion from the en banc D.C. Circuit’s ruling in PHH Corp. v. CFPB that the Bureau’s structure is constitutional, the Fifth Circuit is set to consider that very issue in a separate case in the coming months, meaning the Collins decision could influence and foreshadow the coming decision.

To read the consent order against the Kansas company and its CEO, click here.

To read the consent order against the small-dollar lender, click here.

To read the opinion in Collins v. Mnuchin, click here.

Why it matters

From reduced penalties in enforcement actions to a new push for innovation, the CFPB’s about-face under lame-duck Acting Director Mick Mulvaney continues, although the CFPB continues to pay attention to debt collection practices. How the Fifth Circuit’s opinion on the constitutionality of the FHFA will impact the federal appellate court’s coming decision on the CFPB remains to be seen.