CFPB Enforcement: How the Latest Changes Impact Covered Entities

Financial Services Law

The Consumer Financial Protection Bureau (CFPB, or the Bureau) has announced major changes to its organizational structure, placing enforcement operations under the effective control of supervision. If finalized, this will be a significant reformation of the lines of authority within the CFPB, and might diminish the role of the Bureau in enforcement against non-supervised entities. We briefly explain its impact here.

What Happened

When the CFPB opened its doors in 2011, the Bureau established separate units (or offices) for  Enforcement and Supervision Policy (OSP), each housed (with Fair Lending) in a division appropriately named “Supervision, Enforcement & Fair Lending” (SEFL). In the current Bureau, the assistant director in charge of SEFL is Bryan Schneider, who formerly served as secretary of the Illinois Department of Financial and Professional Regulation (IDFPR).

In 2018, then-acting Director Mick Mulvaney moved the Office of Fair Lending and Equal Opportunity out of SEFL and under his direct control. We earlier reported on this development. At the time, we noted the consumer advocates’ concern that the downgrade rendered Fair Lending “toothless.” While the CFPB denied the attacks, the CFPB has been far less conspicuous in fair lending enforcement since the departure of former CFPB director Richard Cordray.

Later, after President Trump selected former Mulvaney protege Kathy Kraninger as the new director of the CFPB, Ms. Kraninger made a number of public pronouncements about the direction she wished the Bureau to take. For example, back in January 2019, we reported on an internal memo from the director in which she wrote, “We must do our work with an open mind and without presumptions of guilt, and to always carefully weigh the costs and benefits to consumers of our enforcement activities and regulatory rulemakings.”

Now, taking matters a significant step further, the Bureau has internally announced that it will create the Office of SEFL Policy & Strategy (OSPS), disband the Office of Supervision Policy (OSP), rename the Office of Supervision Examinations (OSE) to the Office of Supervision (SUP), and establish a SEFL Operations Section (SEFL OPS) to deliver operations services SEFL-wide.

To support the changes, Associate Director Schneider asserted that the “reorganization allows for more effective and consistent delivery of policy, strategic planning, tool choice and operational/administrative functions SEFL-wide. The centralization of these functions will increase efficiency, promote role clarity, reduce friction, establish consistency in policy and strategic outcomes SEFL-wide, and leverage existing expertise across SEFL.”

Current CFPB assistant director (and current OSP chief) Peggy Twohig would lead the division. Alice Hrdy would be reassigned from her role as principal deputy assistant director of OSP to be the principal deputy assistant director of SEFL. There will no longer be two deputies in the Office of Supervision (Paul Sanford, one of the current deputies, is retiring). Thomas Ward would remain head of enforcement and, while nominally remaining at the same organizational level as Ms. Twohig, would now effectively report to her.

Read together, the changes may initially look to the naked eye like the mere movement of chess pieces on the same board. Positions themselves largely remain in place, albeit with slightly different reporting obligations. Administrative functions are combined for greater efficiency. Most employees remain in their same offices, reporting to the same people and performing the same functions.

The core change is in leadership, but placing supervision in charge of enforcement is critical. That means that enforcement determinations at every stage of the process will be coordinated by and directed through, and as part of, the supervisory and examination process.

Of greater importance, the CFPB is not just a regulator but a sheriff. The Bureau has enforcement duties that extend well beyond the entities it supervises. The question now is whether any entities will slip under the radar if supervision, which might be more be focused on managing its own regulated entities, is making the final decision on opening research matters or investigations. Only time will tell.

Why It Matters

This move is just a natural step in a progression away from the early, hyperaggressive years of the CFPB in which financial institutions and other regulated entities were caught up in draconian enforcement actions concerning practices that, whether or not proper, were nowhere expressly prohibited by federal consumer financial laws.

During its early years, the Richard Cordray-led CFPB zealously used enforcement as a cudgel to halt practices deemed unfair, deceptive or abusive, but which were not addressed by any statute or rulemaking. The current CFPB has largely refocused the CFPB on effective supervision and rulemaking.

Under current Director Kraninger (and likewise under acting Director Mulvaney), the CFPB expressly disavowed these ambush practices.

The changes, while announced, would—if President Trump were denied a second term—doubtless be reconsidered if not annulled, as would other structural changes at the CFPB undertaken during the combined Mulvaney and Kraninger leadership periods. Fair lending comes immediately to mind. But for the moment, the change is a significant one as it makes enforcement an element of supervision and, of equal importance, supervision policy.

Current CFPB leadership is making the change, and the change in thinking, in plain sight. For example, trade publication American Banker reports that Associate Director Schneider made a telling remark to his staff on October 14: “To be candid, we spend too much time in [Supervision, Enforcement, and Fair Lending] arguing over which institutions to examine or investigate and, over the years, this has deteriorated morale.”

Further, the choice of Ms. Twohig likewise tells industry a great deal. She is widely regarded and respected by both consumer advocates and industry, and is known to all of us who have worked closely with her over the past 25 or more years, dating back to her days with the Federal Trade Commission. She was on the initial team that created the Bureau’s current structure, and has been with the CFPB since before its formal establishment.

However one views the changes, the choice of Ms. Twohig is an excellent one, and there is a decent chance she would survive an administration change because of her experience in both the enforcement and supervisory aspects of the Bureau. Stay tuned.



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