Consumer Law & Policy Blog

In Times Op-Ed, CFPB Advisory Board Asks: Why Did the Consumer Financial Protection Bureau Fire Us?

Here, by Ann Baddour, director of the Fair Financial Services Project at Texas Appleseed. Excerpt:

When Mick Mulvaney and his leadership team took control of the bureau in November, we on the advisory board tried in good faith to engage with them. We have been sidelined every step of the way. The bureau canceled our scheduled meetings this year, despite requirements in the law for those meetings. We sent two letters to the bureau leadership to object, and received no meaningful response.

On Wednesday, when we were supposed to have our first meeting with Mr. Mulvaney, we were instead summoned for a 30-minute conference call with Anthony Welcher, policy associate director for external affairs. He told us that the bureau wanted new people without “preconceived notions” about the bureau.

When I asked him where we had fallen short, or how the leadership of the bureau could know, without ever meeting us, that we have preconceived notions, he had no answer. What I took from his comments is that the bureau is looking for people willing to rubber-stamp bureau officials’ decisions, not for people who will give them independent and honest advice.

It Wasn't Just Wells Fargo, Says OCC

by Jeff Sovern

I have long wondered whether Wells Fargo was alone in opening unauthorized accounts or if it other banks did the same.  A student reported to me that his bank--not Wells--opened an unauthorized account in his name, and I have heard isolated reports of similar behavior elsewhere.  Now Kevin Wack reports in the American Banker in an article headlined Wells Fargo not alone: OCC finds sales abuses at other banks the following: 

Federal regulators have quietly ended a review of large and midsize banks’ sales practices that found several systemic issues — and hundreds of problems at individual institutions — and have no plans to make the results public.

The Office of the Comptroller of the Currency began a broad examination of more than 40 banks after it was revealed that employees at Wells Fargo employees had opened millions of fake accounts in an effort to meet aggressive sales goals.

The review uncovered specific examples of other banks opening accounts without proof of customers’ consent, an OCC spokesman acknowledged Tuesday. * * * 

A few comments: first, why won't the OCC release a report?  It released a report about its failures to stop Wells Fargo; surely this latest exercise sheds light on whether the OCC is now doing better.  

Second, this story refers to hundreds of problems at a variety of banks. The Wells scandal involved millions of unauthorized accounts at one bank. It thus appears that the problem was much more common at Wells--unless the OCC report missed many incidences of the problem. If the OCC issues a public report, it might shed light on that.

Third, House Financial Services Chair Jeb Hensarling and others have criticized the CFPB for not acting sooner on the Wells scandal accusing it of being asleep at the switch. Will Mr. Hensarling accuse the Bureau of being asleep at the switch for not bringing an enforcement action against the other banks on this matter?  According to the American Banker article, the OCC presented its conclusions to senior management in December of 2017--which would have been only shortly after Cordray left the CFPB and Mulvaney took over--but Mr. Mulvaney has had plenty of time to begin an enforcement action since then.  And yet the Bureau has begun only one case in its half-year under Mulvaney, which was, of course, against Wells Fargo, the target of a Trump tweet.

 

Does Mulvaney Want to Protect the CFPB from Consumers?

by Jeff Sovern

More and more, the CFPB's acting director, Mick Mulvaney, has made clear that he is not interested in hearing from consumers or their advocates. As Allison reported earlier today, the CFPB has kicked off all the members of its advisory committees, which included industry folks as well as consumer advocates and professors. The Bureau used to hold frequent field hearings during which it arranged for industry officials, consumer advocates, and academics to speak, and members of the public were also invited to weigh in.  Not under Mr. Mulvaney.  As we reported in December, the Bureau cancelled a survey to learn more about how consumers understand debt collection notices.  Mr. Mulvaney has also raised the possibility of concealing complaints in the complaint database from the public, which would deprive consumers of a way to express themselves publicly as well as reducing the incentive to complain to the Bureau, because financial institutions would have less incentive to heed complaints to the Bureau (after all, it's not as if the Bureau is bringing cases based on those complaints any more). Perhaps all this is because consumers haven't given Mr. Mulvaney campaign contributions, and he prefers to hear from those who have.  It is hard to protect consumers if you cut yourself off from them, but then, Mr. Mulvaney doesn't seem inclined to protect consumers.  Rather, he seems to want to be protected from them.

To make matters even worse, Mr. Mulvaney's spokesperson has taken an unfortunate shot at the people who volunteered to serve on the Consumer Advisory Board without pay to advise the Bureau.  According to Kate Berry in the American Banker:

"The outspoken members of the Consumer Advisory Board seem more concerned about protecting their taxpayer funded junkets to Washington, DC and being wined and dined by the Bureau than protecting consumers," [CFPB spokesman John] Czwartacki said in an emailed statement.

I wonder if anyone who see that comment believes it or if Mr. Czwartacki is just damaging his own credibility.

It's a shame that the media isn't reporting more about what's going on at the Bureau, because consumers have lost a key protector.

UPDATE: The CFPB held a town hall meeting on fighting elder financial exploitation in Topeka, Kan on June 8. It's not described as a field hearing, but perhaps it offers some of the same features.  I will listen to the recording with interest when it becomes available.

 

Is the CFPB Making it Easier for Financial Institutions to Discriminate in Lending?

by Jeff Sovern

Allison blogged earlier about Kate Berry's American Banker article, CFPB signals pullback on discrimination cases. I wanted to say a bit more about this area.

Depending on how you count, there are basically three ways to prove credit discrimination cases. One, that is theoretically possible, but that you virtually never see in practice, is what I call the smoking gun type of case, when, for example, the lender says it discriminates.  A rare example is Moore v. United States Dep't of Agric., 55 F.3d 991 (5th Cir. 1995) (no whites can qualify).  Because that kind of case is so unusual, some people don't count it and say there are only two ways to prove credit discrimination. The second way to prove discrimination is called disparate treatment. That requires the plaintiff to show that the defendant discriminated deliberately.  As you might imagine, it is difficult to show such deliberate discrimination, so successful disparate treatment cases are also rare.  On top of that, the Seventh Circuit bars its use in credit discrimination cases. See Latimore v. Citibank Federal Savings Bank, 151 F.3d 712 (1998).

That leaves the disparate effects test, also called the disparate impact test.  That test doesn't require the plaintiff to show that the defendant intentionally discriminated, but only that the lender's credit practices have a discriminatory effect, in the sense that they affect some groups more than others. Even if the plaintiff succeeds in showing that, the lender can still continue with its practice if it can show that the challenged practice is legitimate.  It is this disparate effects type of proof that the CFPB is reconsidering. Berry reports that HUD is also reconsidering use of the disparate effects test in its own enforcement actions. As Berry notes, the Supreme Court has upheld the use of disparate impact analysis in at least some circumstances in FHA cases.  Lenders are obviously hoping that Mulvaney will limit the disparate impact test as much as possible.

Problems already exist with use of the disparate effects test. For one thing, its use typically entails expensive statistical analysis, and anything that increases the cost of consumer litigation makes such litigation less likely. That's one reason why it's important that public agencies like the CFPB bring such cases, because they have the resources to do so.  Another problem is that the Supreme Court, in the Twombly and Iqbal cases, has made it harder to get past the motion to dismiss stage and on to discovery than was once the case.  It is a challenge for plaintiffs to satisfy the Twiqbal standards in disparate impact cases before they get access to the defendant's files, and yet they can't see those files until they satisfy the standard. It's like a catch-22: you can't get discovery until you can show the defendant's conduct had a discriminatory effect, and you can't show the defendant's conduct had a discriminatory effect until you can see their files.  

So all in all, it will be easier for lenders to discriminate and get away with it.  

 

My Latest Op-ed: The Consumer Financial Protection Bureau, leaving the public high and dry

Here, in the Daily News. Excerpt: 

Mulvaney once called the bureau a "sad, sick joke" and co-sponsored a bill to eliminate it. The solution he has adopted to run an agency he thinks should not exist is to "be a good bureaucrat," and do what the law requires — but no more. Mulvaney even extends this strict-construction approach to congressional testimony: He explained that he did not have to answer questions from the members of Congress because the statute said he had to "appear" before them but said nothing about responding to their queries — though he did so.

A problem with this grudging approach is that no legislature can write statutes to prohibit all the ways businesses devise to take advantage of consumers. When the bureau, then led by Obama appointee Richard Cordray, fined Wells Fargo $100 million for opening millions of unauthorized accounts, it did not rely on a statute that said banks cannot open sham accounts, because there is no such statute. Instead, the bureau used the more general authority Congress had given it to punish banks for unfair and abusive practices.

But a Consumer Financial Protection Bureau that interprets those powers as applying only to Wells Fargo will not provide consumers needed protection against other financial institutions. And not even Wells Fargo would have to worry if the Republican-controlled House of Representatives gets its way on a bill it passed to do away with the bureau's power to sue financial institutions for unfair and abusive practices.

CORRECTION: As Jonathan Joshua has pointed out to me, 15 USC § 1642 prohibits the issuance of credit cards in the absence of a "request or application."  While Wells Fargo issued unauthorized credit cards, I'm not sure how many unauthorized credit cards it issued, and how many ordinary bank accounts it opened, though I have the impression that it opened many more bank accounts.  

Jeb Hensarling, the Financial Choice Act, and Wells Fargo

by Jeff Sovern

When the Bureau fined Wells Fargo $1 billion, it did so using its power to prohibit unfair practices in 12 USC 5531(c), 5536(a)(1)(B). (see pages 9 and 12 of the consent order). House Financial Services Committee Chair Jeb Hensarling's Financial Choice Act, passed by the House, would eliminate that power.  But don't take my word for it: the bill's Executive Summary says it would "Remove the [CFPB's] opaque and ill-defined 'unfair, deceptive, or abusive acts and practices' (UDAAP) authority (emphasis added)." The relevant section of the statute is 736, which provides that the bill would repeal section 5531 altogether and would also repeal subsection 5536(a)(1)(B), the two provisions under which the Bureau proceeded. So I was mystified when Congressman Hensarling praised the $1 billion fine--which would have been impossible under the power the Bureau used if he had gotten his way--as "well-deserved." 

During a recent interview, Politico's Ben "Morning Money" White asked Hensarling about the conflict. Hensarling first asked why the Bureau would not have had the power to assess the fine under his bill, and then said it would have. Certainly that would not be true under the powers the Bureau actually used. 

Mr. Hensarling also complained during the interview that the Bureau's use of its power to bar financial institutions from engaging in abusive practices is itself abusive.  His bill would also eliminate that power.  While the Bureau did not use its "abusive" power in connection with the billion dollar fine, it did use it, along with its unfairness power, when it fined Wells $100 million for opening unauthorized accounts. When discussing the unauthorized accounts scandal, Mr. Hensarling mentioned the Truth in Savings Act and Truth in Lending Act and seemed to suggest that the Bureau could have taken the same actions under those statutes.  As for the billion dollar fine, given that Interim Director Mulvaney's party thinks that the Bureau should not have the power to punish financial institutions for behaving unfairly, it is odd that Mr. Mulvaney would have used it if he had alternatives, especially given Mr. Mulvaney's view that he will do only what the law requires of him, and the use of the unfairness power necessarily requires some discretion.

CORRECTION: As Jonathan Joshua has pointed out to me, 15 USC § 1642 prohibits the issuance of credit cards in the absence of a "request or application."  So Wells did violate the Truth in Lending Act when it issued credit cards without such a request or application.  While Wells Fargo issued unauthorized credit cards, I'm not sure how many unauthorized credit cards it issued, and how many ordinary bank accounts it opened, though I have the impression that it opened many more bank accounts. I'm still not sure what Mr. Hensarling thinks in the Truth in Savings Act bears on the opening of bank accounts.  

Van Loo Article: Regulatory Police

Rory Van Loo of BU has written Regulatory Police, forthcoming in the Columbia Law Review.  Here is the abstract:

The front line for business regulation — Environmental Protection Agency (EPA) engineers, Consumer Financial Protection Bureau (CFPB) examiners, and Nuclear Regulatory Commission (NRC) inspectors, among others — guard against toxic air, financial ruin, and deadly explosions. Like police officers patrolling the streets for crime, this federal regulatory front line decides when and how to enforce the law. Yet whereas scholars devote considerable attention to the role of police officers in law enforcement, they have paid limited attention to regulatory police. This Article is the first to chronicle their statutory rise and to situate them empirically at the core of modern administrative power. Since the Civil War, in response to various crises the largest federal regulators have steadily accrued authority to collect documents and enter private space without any suspicion of wrongdoing. Those exercising this monitoring authority within agencies, regulatory police, administer the law at least as much as the groups that are the focus of legal scholarship: enforcement lawyers and rule writers. Regulatory police wield sanctions, influence rulemaking, and create quasi-common law. Yet unlike lawsuits and legal rules, monitoring-based decisions are less observable by the public, largely unreviewable by courts, and explicitly excluded by the Administrative Procedures Act (APA). The regulatory police function can thus be more easily ramped up or deconstructed by the President, interest groups, and other actors. A better understanding of regulatory police is vital to designing democratic accountability not only during times of political transition, but as long as they remain a central pillar of the administrative state.

Will Trump Replace a Part-Time CFPB Director with One Who is Never at the CFPB?

by Jeff Sovern

Acting CFPB Director Mick Mulvaney doubles as OMB director, meaning that he is doing two full-time jobs, and that therefore the CFPB does not have a full-time director. But the next director may be at the Bureau even less often than Mulvaney.  As Allison has noted, reports indicate that the president intends to nominate J. Mark McWatters as the next CFPB director.  Though McWatters is currently the chairman of the National Credit Union Administration, the Washington Post reports that he chairs the Alexandria, Virginia-based agency from his home--in Dallas, Texas. I don't see how a federal agency can be run by someone who is seldom present. If the president does nominate Mr. McWatters, this seems likely to come up at his confirmation hearings.  Perhaps Mr. McWatters will move.

More on Congress's Disapproval of the CFPB's Indirect Auto Guidance

by Jeff Sovern

Alan Kaplinsky and Chris Willis, on the one hand, and Adam Levitin, on the other, have been dueling over the impact of Congress’s use of the Congressional Review Act to disapprove of the CFPB’s Indirect Auto Lending Guidance.  Those of us interested in consumer financial law are lucky to have these titans lay out the arguments for their respective positions.  Regular readers of this blog will not be surprised to learn I agree with Adam, but I wanted to add a couple of minor observations to what Adam said (though if you haven’t read what Adam has said, you would be better off reading that than what I have to say). In brief, Alan and Chris argue that a result of Congress’s action (assuming, as seems inevitable, that the president signs the resolution) is that the CFPB would no longer be able to use its enforcement powers against a lender that gave dealers discretion to mark up the rates on the lender's loans if the result of the dealer discretion was to charge protected groups higher rates.

Here’s a thought experiment: suppose Mick Mulvaney issued a guidance saying that the CFPB was going to enforce consumer financial law (I did say it’s only a thought experiment) and Congress then invalidated that guidance using the CRA.  Would we then say that the CFPB could not enforce consumer law? Of course not; the statutes giving the CFPB the power to do so would still be in effect and Congress cannot use the CRA to repeal statutes giving the CFPB power to enforce the laws Congress has enacted.  So it is here (as Adam points out); at most, the CFPB can’t issue a new guidance or rule or one that is substantially the same as the Indirect Auto Guidance, and even that is in question for the reasons Adam notes.  The CRA says nothing about enforcement of existing statutes and regulations that have not been disapproved.

One thing that illustrates the problem with the CRA as applied to the Guidance is that the Guidance says many things.  I’m going to insert a quote from the Guidance and as you read it, ask yourself which of these things Congress disapproved of in its resolution:

In our most recent Supervisory Highlights, we set out the following features of a strong fair lending compliance program, which are applicable in the indirect auto lending context:

• an up-to-date fair lending policy statement;
• regular fair lending training for all employees involved with any aspect of the institution’s credit transactions, as well as all officers and Board members;
• ongoing monitoring for compliance with fair lending policies and procedures;
• ongoing monitoring for compliance with other policies and procedures that are intended to reduce fair lending risk (such as controls on dealer discretion);
• review of lending policies for potential fair lending violations, including potential disparate impact;
• depending on the size and complexity of the financial institution, regular analysis of loan data in all product areas for potential disparities on a prohibited basis in pricing, underwriting, or other aspects of the credit transaction;
• regular assessment of the marketing of loan products; and
• meaningful oversight of fair lending compliance by management and, where appropriate, the financial institution’s board of directors.

Is the answer all of them?  CRA resolutions don’t permit Congress to pick and choose among parts of the regulation, so it appears that Congress disapproved of all of those items, and more. If so, if the CFPB has lost its enforcement power with respect to the Guidance, does that mean the CFPB can no longer require lenders to do anything on that list? Does that make sense?  The CFPB can no longer oblige lenders to maintain an up-to-date fair lending policy? Alan and Chris try to deal with this particular paradox (those who like to think about paradoxes might also speculate about what would happen if Congress used the CRA to disapprove the GAO’s determination that the Indirect Auto Guidance is a rule subject to the CRA—but I digress) by limiting application of the resolution to what they call the “substantive centerpiece” of the Bulletin. But the CRA says nothing about centerpieces, substantive or otherwise. What it says is that the disapproved rule “shall have no force or effect.” What would give the CFPB the power to enforce some of the Bulletin but not the rest of it?  And if that result strikes you as absurd, doesn’t it mean that the CRA resolution has no impact on enforcement but only on what it says it has an impact on: the ability of the Bureau to fashion rules?

Is Mulvaney Changing the CFPB's Structure to Downgrade Student Loan Enforcement?

by Jeff Sovern

Glen Thrush has an article in the Times headlined Mulvaney Demotes Unit That Polices Student Loans in Consumer Bureau Reshuffle. Excerpt:

The change comes at a critical moment in the agency’s effort to rein in abuses in the student loan industry. The program, started under the Obama administration, has clawed back about $750 million from lenders since 2011. At the center of the bureau’s effort is its case against Navient, a spinoff of Sallie Mae, which the agency accused in 2017 of steering low-income borrowers into higher payments than they needed to make, misallocating payments and failing to provide customers with clear information about cost-saving options.

* * *

Navient has denied wrongdoing and deployed a team of Washington-based lobbyists to fight what they believe is an unfair investigation.

 “The size of the student loan portfolio is massive, and it’s growing — second only to home mortgages — and now we are gutting oversight,” said Chris Peterson, a University of Utah law professor who was a top staff member at the bureau.

 

“It’s appalling,” he said. “They are trying to take the teeth out of enforcement, and it’s going to have a big impact on the most vulnerable student borrowers, who are being misled and bankrupted.”