The Consumer Financial Protection Bureau’s penalties against companies have significantly decreased in recent months as the agency has pivoted its focus to small-time violators.
The bureau’s enforcement actions, under Director Kathy Kraninger, have slowed down compared to former Director Richard Cordray’s tenure. Monetary penalties and consumer redress amounts have also declined under Kraninger, in part because the CFPB has targeted smaller companies that in many instances are unable to pay.
“When you’re doing the cleanup around the edges, the relief that you get for consumers is not going to be meaningful,” said Diane Thompson, an Open Society Foundation fellow and former top CFPB regulatory official.
The CFPB didn’t respond to a request for comment. But Kraninger has told lawmakers that it’s more cost effective to settle some smaller cases than carrying on extended litigation.
Let’s Make a Deal
The CFPB has filed a total of 11 enforcement actions since mid-March, when the coronavirus pandemic fully took hold in the U.S.
Nine of them were either administrative settlements, consent orders and proposed judgments filed with U.S. district courts. The CFPB assessed around $22.8 million in civil money penalties and redress orders in those nine cases.
But the total amount actually collected in those cases was closer to $5.6 million. In three of the cases, the CFPB determined that the defendant company could not pay the assessed penalty and knocked the total judgment down by millions of dollars.
The CFPB on July 13 assessed an $11.8 million monetary judgment against GST Factoring Inc. and four attorneys for violating the Telemarketing Sales Rule. The penalty was reduced to $25,000 based on the defendants’ inability to repay the judgment, and the company and lawyers were ordered to pay an unspecified amount of redress to harmed consumers.
A nearly $3.8 million civil money penalty issued against Timemark Inc., a student loan debt relief company, on July 7 got knocked down to $22,000.
The CFPB also settled with Harbour Portfolio Advisors LLC, a contracts for deeds real estate firm, for only $35,000 in June despite the company being subject to several lawsuits and years-long investigation by the bureau.
Creating a Pattern
Since Kraninger became CFPB director in December 2018, the CFPB has collected around $860 million in civil penalties and redress, but after the suspension of several judgments that total comes out at closer to $800 million.
The CFPB under Cordray collected $12 billion in fines and consumer redress during his roughly six years on the job until November 2017. That included hundreds of millions of dollars in fines against big banks like Wells Fargo & Co., JPMorgan Chase & Co., Discover, Bank of America Corp. and mobile phone company Sprint.
While the bureau under Kraninger has targeted large firms--most notably a $575 million data breach settlement with Equifax that also involved the Federal Trade Commission and 50 state attorneys general-- most of the CFPB’s penalties have been against smaller payday lenders, debt collectors and other companies.
Many of those enforcement actions began as investigations under Cordray.
A significant portion of the 39 enforcement actions under Kraninger have seen companies pay much less than the headline amounts on CFPB press releases, Sen. Catherine Cortez Masto (D-Nev.) at a July 29 Senate Banking Committee hearing.
Kraninger defended the reduced judgments by saying that career staff made those judgments based on a number of factors.
“It’s the estimation of how much time we want to spend continuing to litigate, which of course is our resources, and how much effort there would need to be to go after an entity that does not have the funds to pay,” Kraninger told senators.
Even in an instance where the CFPB assesses a $1 civil money penalty, the CFPB can provide redress to consumers through its civil penalty fund, Kraninger added.
“You’re bailing [companies] out with this civil monetary penalty fund,” Cortez Masto said.
The CFPB has compelled some larger companies to pay fines. Kraninger’s first enforcement action in January 2019 was a $15.5 million settlement with USAA Federal Savings Bank to settle allegations the bank didn’t halt automatic debit card payments at customer requests and reopened closed accounts without their consent. The bureau also sued Citizens Bank in January for alleged credit card billing errors and Fifth Third Bank in February for allegedly opening unauthorized customer accounts.
Kraninger has also allowed a Cordray-era investigation into potential false account generation against Bank of America Corp. to proceed, rejecting a motion to modify or set aside a civil investigative demand against the bank.
But by and large, the CFPB has been focused on smaller companies.
“There’s a much higher proportion of, basically, scammers” rather than a focus on big, systemic problems at large financial institutions, said Craig Cowie, a professor at the University of Montana School of Law and a former top CFPB enforcement attorney.
Anthony Alexis, a CFPB enforcement director under Cordray, said that he tended to shift attorneys away from the smaller cases during his tenure.
But he also defended the focus on somewhat smaller operations.
“A lot of those companies can impose a lot of harm to the types of people that the CFPB would champion, and that is consumers. In a lot of cases, struggling consumers,” he said.
In many instances, the smaller cases involve the companies the CFPB doesn’t directly supervise because they are too small.
The CFPB may be using other tools besides enforcement actions, like the supervisory process, to address problems at larger financial institutions, said Stephanie Robinson, a partner at Mayer Brown LLP.
“It looks like the CFPB is pursuing what they really view as the really bad actors, and in many cases are driving these companies out of business entirely,” she said.
Pursuing actions against smaller bad actors has its place, but quietly resolving cases against the bigger players takes away one of the CFPB’s most powerful tools: shaming bad actors, Thompson said.
“If you don’t have consequences for bad actions, there’s no reason not to play fast and loose,” she said.