President-elect Joe Biden has said his administration’s primary focus in its early days will be combating the Covid-19 pandemic, and that is likely to hold true at the Consumer Financial Protection Bureau as well.
A Biden CFPB is expected to be far more aggressive monitoring banks and financial companies for compliance with mortgage and student loan forbearance, credit reporting, and other protections included in pandemic relief legislation.
That could give the CFPB’s new management cover from Republican and industry critics, at least in its opening months, said Michael Gordon, a partner at Bradley Arent Boult Cummings LLP.
“People are hurting, and efforts to help consumers weather this downturn will be hard for the agency’s critics to argue against,” Gordon, a former top CFPB attorney, said.
Consumer advocates have chided the CFPB under Director Kathleen Kraninger for not taking a more forceful posture in enforcing the consumer protection provisions included in the CARES Act. The law requires lenders to provide payment forbearance to mortgage and student loan borrowers facing economic hardships, and it also bars negative credit reporting due to Covid-19.
The bureau issued industry guidance after the law passed in April that said banks and others wouldn’t face enforcement actions for CARES Act violations as long as they made “good-faith” compliance efforts.
An April white paper from former CFPB Director Richard Cordray, a Democrat, and two other former senior bureau staffers called for tougher supervision for and enforcement of CARES Act provisions. The white paper could provide an outline for the next CFPB director.
Cordray is reportedly being considered for a return to the job. He declined to comment for this story.
Even if the CFPB doesn’t follow Cordray’s blueprint, Covid-19 is likely to be a driving force in the new team’s early days, said Allison Schoenthal, the head of Hogan Lovells LLP’s consumer finance litigation group.
“It’s just too important an issue to not have focus on it,” she said.
No More Small Ball
Beyond Covid-19, the CFPB is likely to reconsider recently completed debt collection rules and may reinstate payday loan underwriting standards that the Trump administration rolled back. Bank overdraft programs are also likely to get renewed scrutiny under a Biden-led CFPB, along with potential supervision of large nonbank installment lenders.
The most prominent changes are expected on the enforcement front. The bureau under Biden will likely target a broader range of financial firms and the size of penalties will increase dramatically, said Lucy Morris, a former CFPB deputy enforcement director.
“A lot of the cases under Kraninger and [former acting Director Mick] Mulvaney, the few that there were, tended to be smaller actions, smaller dollars,” Morris, now a Hudson Cook LLP partner, told Bloomberg Law.
The CFPB under the Trump administration has targeted some large banks, but most of the bureau’s enforcment actions have been against smaller payday lenders, debt collectors, and other companies. In many cases, the bureau has suspended penalties because of a company’s inability to pay.
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.
A Bloomberg Law analysis showed that the CFPB collected a combined $860 million in penalties and redress between December 2018, when Kraninger took over as director, and July 2020. The CFPB has filed another 19 enforcement actions since, totaling around $481 million in penalties and consumer redress. Most of that came in two settlements.
There’s likely to be a renewed focus on fair lending issues under the Biden administration, said Mike Calhoun, the president of the Center for Responsible Lending. He noted that the CFPB has brought just one fair lending case since Kraninger’s tenure began in December 2018.
A Biden pick to lead the CFPB is also likely to have a dramatic shift on the bureau’s internal structure, reversing changes put in place by Trump’s two CFPB directors.
Mulvaney took the CFPB’s fair lending unit out of the bureau’s Supervision, Enforcement and Fair Lending Unit, placing it inside and under the control of the director’s office. Look for a Biden-appointed CFPB director to reverse that change, Gordon said.
“That’s not hard to achieve organizationally, but symbolically it gives the administration a win and it gives fair lending a seat at the table,” he said.
A more recent organizational reshuffling under Kraninger resulted in the CFPB’s enforcement division losing its ability to independently launch investigations. That change is also unlikely to survive new management, Gordon added.
The Trump administration under Mulvaney also added a number of political appointees to the bureau’s structure. Whether a Biden administration would fill those positions or remove them altogether is unclear at this point.
The CFPB under both Kraninger and Mulvaney spent far below what they were allowed under the bureau’s independent budget authority. The CFPB is funded through the Federal Reserve, and its transfers for each year are capped.
The CFPB projected a budget of $580.1 million for fiscal 2020 and $595.2 million for fiscal 2021, far below the $695.9 million transfer cap for fiscal 2020, and $717.5 million for fiscal 2021.
That leaves the Biden administration plenty of room to boost its enforcement and supervisory ranks, Gordon said.
“They left $100 million on the table, and I expect the new team to utilize much more of the available funds—– including to bulk up on staffing,” he said.
The Biden transition team Tuesday announced its CFPB landing team. It is led by Leandra English, the former CFPB deputy director who Cordray named acting director when he left.
English eventually lost that position to Mulvaney in a court battle that went up to the U.S. Court of Appeals for the D.C. Circuit. English, now at the New York Department of Financial Services, is working on a volunteer basis.
Also on the eight-member team are Manny Alvarez, the newly-confirmed commissioner of the California Department of Financial Protection and Innovation, and Diane Thompson, a former deputy assistant director in the CFPB’s office of regulations and a fierce critic of the Trump-era CFPB. Thompson is currently an Open Society Foundation fellow.