The CFPB’s enforcement action against Fifth Third Bank for allegedly creating fake accounts is generating grumbling from the financial industry that expected a lighter touch under Director Kathleen Kraninger.
The Fifth Third enforcement action announced March 9 comes two months after the Consumer Financial Protection Bureau filed suit against Citizens Bank NA for alleged failures in handling credit card disputes.
Making matters worse, in the eyes of banks and their lobbyists, is the fact that the Fifth Third action relied on the bureau’s much-maligned power to rein in abusive acts or practices.
“My belief is that, from an industry perspective, the current level of enforcement activity at the CFPB doesn’t square with the industry’s expectations of how a Republican-appointed director would be running the agency,” said Christopher Willis, a partner at Ballard Spahr LLP.
The CFPB didn’t respond to a request for comment for this story.
‘Difficult to Understand’
The enforcement actions against Cincinnati-based Fifth Third and Providence, R.I.-based Citizens appeared to catch the financial services industry off guard.
“It is difficult to understand how such a matter, which has been remediated, could be an enforcement priority for an agency with so many other important duties,” Greg Baer, the president and CEO of the Bank Policy Institute, said in response to the CFPB’s case against Fifth Third.
Fifth Third, which has vowed a vigorous defense to the CFPB’s allegations, distributed Baer’s statement to journalists.
Other trade groups and analysts also expressed varying levels of outrage at the Fifth Third action.
A similar pattern happened after the Citizens lawsuit, which came after the bank reported problems to the CFPB on its own.
Consumer Bankers Association President and CEO Richard Hunt criticized the enforcement action at the time, saying that regulators should “encourage” banks to self-report violations.
“The CFPB’s action is inconsistent with that belief and counterproductive to furthering a well-regulated, consumer-focused banking system,” Hunt said in a January statement.
The financial industry expected a significantly lighter enforcement touch when the Trump administration took office in 2017.
But unlike other financial regulatory agencies, the CFPB retained its Obama-era director, Richard Cordray, until late November 2017.
In the first few months of 2017, enforcement actions kept up at a relatively brisk pace, with 17 in the first three months of that year, according to a Bloomberg Law CFPB Enforcement Tracker.
From then, enforcement slowed, with only 20 actions in the final three quarters of 2017, 11 in all of 2018 and 22 in all of 2019, according to the enforcement tracker.
Part of that can be explained by Cordray trying to lay low during his final months overlapping with Trump, and his replacement, Mick Mulvaney, bringing many of the CFPB’s operations to a halt during his year-long tenure as acting director.
Kraninger reviewed CFPB operations after her December 2018 confirmation as director, bringing yet another enforcement pause.
The enforcement actions against Citizens and Fifth Third, where the CFPB opted not to enter into a settlement, may be Kraninger getting her “sea legs,” said Hogan Lovells LLP partner Allison Schoenthal.
Kraninger “might be showing true colors that she’s not the person the financial industry thought she was,” Schoenthal said.
There is a great deal of skepticism among consumer advocates and even some industry lawyers both of Kraninger’s enforcement posture and the banking industry’s complaints.
“I think there might be a little bit of ‘the lady doth protest too much’ with the indignation,” said Hudson Cook LLP partner Catherine Brennan.
The requests for civil money penalties are far lower in the Kraninger era than during Cordray’s tenure, she said.
Overall enforcement remains down, said Christine Hines, the legislative director at the National Association of Consumer Advocates.
The CFPB is still not doing the job of protecting consumers Congress intended under Kraninger, with both the drop in enforcement and the rollback of key rules, she said.
Consumer advocates are worried that banks’ complaints may have an impact on the CFPB’s leadership.
“My concern about the industry whining is limited to the extent that the CFPB may be influenced by it, and lets up,” Hines said.