Savior or Saboteur? The CFPB’s Kraninger Maintains Her Independent Streak

Financial Services Law

Or perhaps savant? As the Consumer Financial Protection Bureau (CFPB or Bureau) prepares for the most significant challenge to its existence, Director Kathy Kraninger maintained her independent streak this past week, refusing to set aside a civil investigative demand (CID), pursuing tough enforcement action, issuing a key no-action letter (NAL) and pushing out new guidance. Read the details here.

What happened

What’s new at the CFPB? See below for recent highlights.

Framing the “abusiveness” standard. The CFPB has long promised to promulgate regulations better addressing and defining the “abusiveness” prong created by the Dodd-Frank Act, which prohibits not just unfair and deceptive acts, but abusive ones as well. Back in late 2018, then-acting Director Mick Mulvaney promised to provide a clearer definition. As we detailed in a recent alert, we still lack those formal rules, but the CFPB has now at least issued a policy statement addressing this all-important provision in the law. In brief, when it comes to abusive practices, the CFPB now says it will:

  • Focus on citing or challenging conduct as abusive only when the conduct’s harm to consumers outweighs the benefit;
  • Generally avoid “dual pleading” of abusiveness and unfairness or deception violations arising from the same facts, and alleging “stand alone” abusive acts or practices violations that demonstrate clearly the nexus between cited facts and the Bureau’s legal analysis; and
  • Seek monetary relief for abusiveness only when there has been a lack of a good-faith effort to comply with the law, except the Bureau will continue to seek restitution for injured consumers regardless of whether a company acted in good faith or bad faith.

Refusal to set aside CID. Continuing a pattern that has marked her independent streak as director, Kraninger refused to set aside or stay a CID pending the outcome of the upcoming Supreme Court oral argument on the Bureau’s constitutionality.

In October, the CFPB issued a CID to a student loan relief company in a case asserting violations of the Truth in Lending Act and the Telemarketing Sales Rule (TSR). The company objected, petitioning the Bureau for an order to set aside or modify the CID until the Supreme Court issues its decision in Seila Law v. CFPB. You’ll recall that it is Kraninger herself who has placed CFPB viability at greater risk by siding with Seila Law on the issue of constitutionality.

But here, Kraninger was not persuaded.

“The Bureau has consistently taken the position that the administrative process set out in the Bureau’s statute and regulations for petitioning to modify or set aside a CID is not the proper forum for raising and adjudicating challenges to the constitutionality of the Bureau’s statute,” the director concluded. “In the event that the Bureau determines at a later date that it is necessary to seek a court order compelling [the company’s] compliance with this CID … the company can raise its constitutional objection as a defense to that proceeding in district court.”

Kraninger was likewise unpersuaded by the alternate argument that the CID was overly burdensome because the company “has not established here that it engaged meaningfully with Enforcement staff in an effort to resolve any disagreements about the burden imposed by the CID.” For example, the company failed to offer specific modifications to the substance of the requests in the CID.

Action against debt relief companies. Unlike her predecessor Mulvaney, who often sided with debt collectors, Kraninger has plainly been more willing to address perceived debt collection abuses. The Bureau’s new lawsuit targets several companies and individuals involved in offering student loan debt relief services for allegedly obtaining consumer reports illegally, charging unlawful advance fees, and engaging in deceptive conduct between 2015 and 2017 in violation of the Fair Credit Reporting Act (FCRA), Consumer Financial Protection Act (CFPA) and the TSR.

According to the California federal court complaint, a mortgage lender and an allegedly sham mortgage brokerage violated the FCRA by telling a major credit bureau that they planned to use consumer report information to offer mortgage loans to consumers. In reality, the mortgage lender and brokerage provided the reports to the six student loan debt relief companies and eight individuals to use in marketing their services to millions of consumers with student loan debt, the CFPB alleged.

In addition, certain defendants ran afoul of the CFPA and the TSR, the Bureau told the court, by making deceptive representations about the companies’ services, with promises that consumers would have their interest rates reduced and credit scores improved, and that the U.S. Department of Education would become their servicer.

Some of the defendants also unlawfully charged and collected fees—at least $15 million—before consumers received any adjustment to their student loans and made any payment toward their adjusted loans, the CFPB alleged.

The complaint seeks injunctive relief as well as monetary damages, redress for consumers, disgorgement and the imposition of civil money penalties.

No-action letter for mortgage lender. In the entire tenure of the first CFPB director, Rich Cordray, the CFPB declined to issue a single NAL in connection with an enforcement investigation. But, following up on the CFPB’s development of a NAL policy as well as its issuance of the very first NAL in late 2019, the Bureau issued a second NAL to a bank in its capacity as a mortgage lender.

The new policy, launched last year, offers a more streamlined review process and reassurance that the CFPB will not bring a supervisory or enforcement action against the company under the covered facts and circumstances.

In its first NAL, the Bureau responded to a request from the Department of Housing and Urban Development (HUD) on behalf of more than 1,600 housing counseling agencies (HCAs) wondering about the application of the Real Estate Settlement Procedures Act (RESPA) to their counseling services.

According to the NAL, the CFPB will not take supervisory or enforcement action under RESPA against HUD-certified HCAs that have entered into certain fee-for-service arrangements with lenders for pre-purchase housing counseling services, providing a template for lenders to request an NAL for such arrangements.

Basing its application on the template approved by the Bureau in response to HUD’s request, the bank requested an NAL to facilitate funding arrangements with HCAs. The CFPB granted the application, agreeing not to make supervisory findings or bring a supervisory or enforcement action against the bank under Section 8 of RESPA or its authority to prevent unfair, deceptive or abusive acts or practices.

New HMDA Small Entity Guidance. On January 24, the Bureau published an updated HMDA Small Entity Compliance Guide that incorporates content from the HMDA Final Rule issued on October 10, 2019. We discussed the final rule in a past newsletter.

Joint office hours scheduled. Finally, the Bureau announced the first joint “office hours” as part of the American Consumer Financial Innovation Network, a partnership with state regulatory bodies aimed at facilitating financial innovation nationwide.

The office hours—being held in conjunction with the Utah attorney general in Salt Lake City on January 30—will “provide innovators with the opportunity to discuss issues such as financial technology, innovative products or services, regulatory sandboxes, no action letters and other matters related to financial innovation” with officials from the CFPB and state partners, the CFPB said.

To read the enforcement action complaint, click here.

To read the decision and order, click here.

To read the NAL, click here.

To view the updated HMDA guide, click here.

Why it matters

It’s been another big week for the CFPB, and Kraninger is still holding those director power cards close to her vest. Is she building support within the CFPB among the civil service? Are her actions satisfying no one on either side of the divide? With all eyes on the upcoming Supreme Court oral argument, the CFPB has continued to promulgate rules (and, now, an important policy statement) and pursue enforcement actions (albeit at a reduced pace), while its director continues to stake out the middle ground. Seila Law oral arguments will be another litmus test. So, once again, stay tuned.



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