CFPB Under Fire: Executive Appointments and Enforcement Actions Rattle Legislators

Financial Services Law

Democratic legislators and consumer groups heavily criticized the Consumer Financial Protection Bureau (CFPB or Bureau) for a number of recent moves. We explain these developments below.

What happened

It has been another tough week for the CFPB. The key developments:

Appointment controversy. In late January, the Bureau announced the addition of five new members of its executive team, including Thomas G. Ward as assistant director for enforcement. Mr. Ward previously served as a deputy assistant attorney general under Attorney General William Barr. Mr. Ward fills a position vacant since Kristen Donoghue’s departure in May 2019. 

The proposed appointment of Mr. Ward does not sit well with some Democrats. Even before Mr. Ward was formally tapped for the job, Rep. Maxine Waters (D-Calif.) reached out to CFPB Director Kathleen L. Kraninger with concerns. The job description for the position states that it is “an excepted service position,” the lawmaker wrote in a December letter to Kraninger, which the Office of Personnel Management (OPM) has indicated requires prior approval and written authorization before appointing an individual to the job.

“The potential selection of Mr. Ward for Enforcement Director raises serious concerns about whether the Consumer Bureau has adhered to civil service laws and OPM guidance governing the hiring of political appointees into career positions,” the chair of the House Financial Services Committee wrote.

Rep. Waters requested a response from the Bureau.

Some of the remaining appointments were also controversial. For example, the CFPB appointed Susan Bernard as the assistant director for regulations. Ms. Bernard joined from the U.S. Food and Drug Administration with a background in public health. Critics contend that Ms. Bernard lacks sufficient background in financial services for the job.

We note some irony in the criticism of these appointments, given the critics’ complaints about insufficient enforcement and regulatory activity. Many qualified candidates have been deterred from applying for these positions in the current political environment, and Mr. Ward in particular is well-qualified for the job.

In other executive news, David Silberman, who served with the CFPB for nine years, most recently as Associate Director, resigned this week to assume the position of part-time senior advisor to both the Center for Responsible Lending and the Financial Solutions Lab of the Financial Health Network.  

Senators demand suspension of CFPB task force. It’s just February but one CFPB taskforce is already in trouble with legislators. Back in October 2019, the CFPB announced the creation of a taskforce to “examine ways to harmonize and modernize federal consumer financial laws.” Now, Sens. Elizabeth Warren (D-Mass.) and Sherrod Brown (D-Ohio) are accusing the CFPB of “stacking the deck,” and demanding that the Bureau suspend the taskforce because the selection process was “not fair, credible or transparent.” Among the members selected is prominent conservative law professor Todd Zywicki.

MOU with Education Department. Sen. Brown has been a constant source of criticism directed at CFPB leadership. In an apparent response to Brown’s prior criticism, the CFPB finally entered into a new memorandum of understanding (MOU) with the Department of Education (ED). As we previously reported, Sen. Brown, joined by Sen. Patty Murray (D-Wash.), previously criticized the CFPB for failing to work together with the ED on student lending abuses.

$7 civil monetary penalty. Bureau critics are attacking a consent order in which a company that provided services for a tribal lender and then purchased the loans agreed to pay just $7 in civil monetary penalties to resolve a CFPB enforcement action commenced under Director Richard Cordray in 2017. The action challenged a tribal lending arrangement based on alleged UDAAP violations arising out of the collection of loans that were allegedly void under state usury laws. However, the consent order was part of a global settlement of several class actions in which millions of dollars were paid by the company and others involved with the loans in question. The CFPB was party to that global settlement.

CARD Act enforcement action. Another recent enforcement action was far less controversial. According to the complaint, filed in Rhode Island federal court, a national bank violated the Truth in Lending Act (TILA) and Regulation Z, the Credit Card Accountability Responsibility and Disclosure (CARD) Act, and the Consumer Financial Protection Act (CFPA).

Over a period of several years beginning in 2010, bank policy required consumers to complete an affidavit to make an unauthorized use claim or notice of a billing error. Consumers who failed to file the affidavit saw their claims automatically denied, the CFPB said.

The bank also failed to consistently refund all charges—including finance charges and fees—when it resolved billing error notices or claims of unauthorized use in consumers’ favor, the Bureau alleged, and did not consistently send each consumer a written acknowledgement of his or her billing error notice within 30 days of its receipt as mandated.

Another violation of TILA alleged by the CFPB: that the bank neglected to provide credit counseling referrals to consumers who called a toll-free number designated for that purpose, instead routing calls based on the status of the consumer’s account.

The complaint requests injunctive relief as well as damages, restitution, disgorgement and civil monetary penalties.

In response to the lawsuit, the bank released a statement characterizing the allegations as “issues that impacted a very small subset of [the bank’s] credit card customers a number of years ago,” and vowing to “vigorously challenge the CFPB’s action, which is legally unwarranted and includes demands far out of line with actual customer impact.”

To read the CFPB’s complaint, click here.

To read the policy statement on compliance aids, click here.

To view the January 30, 2020, announcement of the new appointments, click here.

To read Rep. Waters’ December 17, 2019, letter to Director Kraninger, click here.

Why it matters

Democrats will continue to attack the CFPB for its pendulum swing to the center, and some of the critiques may keep the pendulum away from the right. Rep. Waters’ challenge to the appointment of Mr. Ward illustrates the continued pushback from Democratic lawmakers and the challenges facing Director Kraninger in filling positions at the CFPB. The recent MOU with the ED, long the subject of attacks when a prior version was allowed to elapse, is one example of the Bureau responding to legislative criticism. Further, recent settlements that generate little in the way of civil monetary penalties, while defensible, provide legislators with the red meat they need to stoke further anger among those who think the CFPB has veered too far from its original purposes.