Mick Mulvaney’s year-long tenure atop the Consumer Financial Protection Bureau has resulted in stark changes both inside the watchdog agency and how it polices the industries it oversees.
Mulvaney’s term as acting CFPB director is expected to end with Senate confirmation of his formal replacement in the coming weeks. And he is leaving an agency whose most visible tool—an aggressive enforcement unit—has in many ways been reined in.
“I think overall I would view him as a breath of fresh air for the bureau in that he restored a level playing field between consumer interests and the industry,” according to Alan Kaplinsky, the co-practice leader of Ballard Spahr LLP’s Consumer Financial Services Group.
Mulvaney, who also serves as White House budget director, entered the CFPB just after Thanksgiving last year promising to bring a more humble approach to bureau enforcement actions following former CFPB Director Richard Cordray’s more swashbuckling tenure.
Cordray often tested the limit of the agency’s enforcement powers. He brought actions against cell phone networks for cramming charges on customer bills and boosted a proposed administration penalty against mortgage servicer PHH from $6.2 million to $109 million over alleged violations of the Real Estate Settlement Procedures Act.
Mulvaney reviewed all pending enforcement cases when he took over from Cordray. Notably, he dropped a few cases against payday lenders while letting other enforcement actions continue to work their way through the courts.
As enforcement activity resumed, penalties often were much smaller than what the bureau under Cordray would have collected. In some cases, the penalties were shaved down because firms claimed they could only afford to pay a smaller settlement amount, although the CFPB never provided evidence of this in its consent agreements.
A Bloomberg Law review found that the CFPB had only three public enforcement actions in the third quarter of 2018 compared to eight in the same period of 2017. Those three enforcement actions resulted in $1.6 million in penalties compared to $7.3 million in penalties for the third quarter of 2017.
The slowdown in enforcement, and the smaller penalties, have raised alarms among consumer advocates.
“The CFPB was created to make sure regular people were not mistreated by big financial firms,” Christine Hines, the National Association of Consumer Advocates’ legislative director, said in a Nov. 15 phone interview.
Just how drastic the CFPB’s enforcement drop under Mulvaney ends up being remains to be seen.
The CFPB expects to wrap up enforcement actions within two years, several sources told Bloomberg Law.
So companies that are subject to new investigations may not yet have been notified, according to Stephanie Robinson, a partner with Mayer Brown LLP who counsels companies on CFPB matters.
What is known is that civil investigative demands, the information requests that the CFPB sends to companies signaling that an investigation is underway, are getting slimmer and more focused.
“Demand is definitely down for assistance on investigations because there’s clearly not as much happening as there was under Cordray,” Robinson said in a Nov. 16 phone interview.
Mulvaney has made several other moves that could limit the number of penalties financial firms face.
The acting director defanged the CFPB’s Office of Fair Lending and Equal Opportunity by taking away its enforcement powers and moving it into the director’s office. The political appointee Mulvaney appointed to oversee fair lending enforcement, Eric Blankenstein, is facing internal opposition over racist blog posts he made more than a decade ago.
The CFPB also no longer supervises banks and other firms for compliance with the Military Lending Act after Mulvaney determined that the Dodd-Frank Act did not give the bureau the authority to do so. Mulvaney’s view of the CFPB’s authority is not widely held.
A less headline-grabbing difference at the CFPB is that supervisors are more likely to quietly work with companies to fix problems, Kaplinsky said.
“They seem to be much more willing to resolve it in the supervision area without referring the matter to enforcement,” he said.
Some of those changes resulted in high-profile departures from the CFPB, including former Student Loan Ombudsman Seth Frotman, as well as other less-publicized personnel moves and decreased morale, according to people with knowledge of the situation.
On the flip side, Mulvaney has encouraged state attorneys general to get more heavily involved in enforcement.
Many Democratic attorneys general have done so, Lucy Morris, a former CFPB deputy enforcement director, told Bloomberg Law.
“In cases of multi-state investigations of the same entity, this can be just as burdensome, or even more so, than a CFPB investigation under the previous administration,” Morris, now a Hudson Cook LLP partner, said in a Nov. 16 email.
Bark Worse Than Bite?
Beyond the enforcement changes, much has stayed the same at the CFPB under Mulvaney—aside from an official change of name to the Bureau of Consumer Financial Protection.
On the regulatory front, the CFPB has largely kept existing rules in place, although it is in the process of reviewing its mortgage rules.
The one exception to the regulatory stasis is the bureau’s payday lending rule, which is being reviewed and is expected to be significantly watered down.
In addition, the CFPB’s consumer complaint database, which Mulvaney has criticized, remains up on the CFPB’s website.
“He made many dramatic pronouncements, but few substantive changes of lasting effect,” To-Quyen Truong, a partner at Stroock & Stroock & Levan LLP and a former top CFPB lawyer, told Bloomberg Law in a Nov. 14 phone interview.
Kathy Kraninger, one of Mulvaney’s top deputies at the White House Office of Management and Budget, is expected to win Senate confirmation as the permanent CFPB director. Senate Majority Leader Mitch McConnell (R-Ky.) moved Nov. 15 to begin debate on her nomination and a cloture vote is expected the week of Nov. 26.
Because Kraninger would be able to serve a five-year term, many of the Mulvaney’s changes to the CFPB could be in place well into the next administration, even if a Democrat wins the White House in 2020.
And that has consumer advocates worried about the future of the CFPB, even though a director has the power to alter what Mulvaney did with a finger snap.
“Even with the things as simple as a name change, or an official with a history of making racist statements leading its fair lending work, the bureau is not in a good place right now,” Hines said.
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(Clarifies comments from Robinson in the 12th paragraph. )