Mulvaney and the CFPB
The Consumer Financial Protection Bureau (CFPB) has undertaken a shift in focus during President Trump’s administration. So far, the CFPB under President Trump has been led by former CFPB Director Richard Cordray, who was the first CFPB director and appointed by President Obama; CFPB Acting Director Mick Mulvaney; and Kathy Kraninger, who became director in mid-December after her nomination passed the Senate in a 50-49 vote on December 6, 2018. Due to the change in priorities from CFPB leaders appointed by President Obama to those appointed by President Trump, states have been adapting their approach to consumer protection regulation, oftentimes taking more aggressive stances in regards to enforcement and regulatory actions.
Mulvaney’s leadership of the CFPB began effectively on November 25, 2017 following his appointment by President Trump and the resignation of former CFPB Director Richard Cordray. Mulvaney, who had previously been critical of CFPB enforcement actions while in Congress, issued a letter on January 23, 2018 detailing why his administration of the CFPB would differ from that of Cordray’s. Mulvaney felt Cordray had encouraged and led overzealous enforcement actions by the CFPB that went beyond the agency’s statutory mandate in the Dodd-Frank Act. Mulvaney stated that the CFPB would implement increased review of all of its actions, focus its enforcement on “quantifiable and unavoidable harm to the consumer” while not “looking for excuses to bring lawsuits,” and rely on more formal rulemaking to provide notice to financial institutions of impending regulations.
Mulvaney’s appointment and subsequent direction of the CFPB garnered criticism from a number of federal and state elected officials, most of whom are not surprisingly Democrats. For instance, former New York Attorney General Eric Schneiderman, wrote a letter to President Trump on December 12, 2017 on behalf of Democratic attorneys general of 16 states and the District of Columbia, detailing their initial concerns with Mulvaney’s appointment to and administration of the CFPB. In the letter, the attorneys general criticized statements Mulvaney had made about the CFPB and expressed concern that the CFPB would no longer be as effective a partner with the states in enforcing consumer protection laws. Notably, the attorneys general stated that they would redouble efforts at the state level to engage in consumer protection by pursuing consumer abuse and financial misconduct.
Even prior to Mulvaney’s appointment to the CFPB as acting director, certain states prepared to more actively enforce consumer protection laws in anticipation of any pullback by the CFPB under President Trump’s administration. In fact, Mulvaney encouraged state attorneys general and state regulators to be more involved in leading financial regulatory enforcement in a speech to the National Association of Attorneys General in February, 2018. Mulvaney has proved true to his word, as the CFPB significantly scaled back announcing new consumer protection enforcement actions.
States are able to fill this void because state attorneys general are empowered to enforce various federal consumer protection statutes, including the Truth in Lending Act, the Fair Credit Reporting Act, prohibitions on unfair, deceptive or abusive acts or practices under 12 U.S.C. § 5531, and regulations issued by the CFPB under 12 U.S.C. § 5552 of the Dodd-Frank Act. As such, states have been utilizing and creating “mini-CFPBs” to enforce consumer protection laws.
States as Mini-CFPBs: Laws and Lawsuits
The effectiveness of enforcement of consumer protection statutes and regulations by the states during President Trump’s administration remains to be seen. As discussed below, however, a number of states have strengthened or created agencies and commissions to protect consumers from alleged abuses by financial institutions.
In April 2017, the Maryland legislature created the Maryland Financial Consumer Protection Commission to “monitor and assess the impact of potential changes to federal financial industry laws and regulations and to provide recommendations for federal and State action that will protect the residents of the State in financial transactions and when receiving financial services.” Maryland also passed the Financial Consumer Protection Act of 2018 that took effect on October 1, 2018 and which implemented a series of changes to the regulation of its financial services industry. For instance, the Act increased the maximum amount for civil penalties to $10,000 for a first-time violation and to $25,000 for each subsequent violation of laws, rules, or orders over which the Maryland Commissioner of Financial Regulation maintains jurisdiction. Maryland’s Act also instituted a student loan ombudsman with which student loan servicers would be required to work and communicate. Additionally, and among other items, Maryland’s Act added the term “abusive” so that “unfair, abusive, or deceptive trade practices” are prohibited, which aligns with the CFPB’s authority under the Dodd-Frank Act.
In announcing the nomination of Paul Rodriguez as the now acting director of the New Jersey Division of Consumer Affairs to lead the state’s primary consumer protection agency, New Jersey Attorney General Gubir Gerwal noted that Rodriguez was selected to “fill the void left by the Trump Administration’s pullback of the [CFPB]” and to fulfill Governor Phil Murphy’s promise to create a state-level CFPB. Since Rodriguez’s appointment last March, the New Jersey Attorney General’s Office and the New Jersey Division of Consumer Affairs have announced legal enforcement and consumer protection actions, including a $200,000 settlement from a now-defunct Georgia company responsible for a security lapse on patient records that violated the federal Health Insurance Portability and Accountability Act, as well as state consumer protection laws such as the New Jersey Consumer Fraud Act. Thus, Rodriguez’s appointment to the Jersey Division of Consumer Affairs indicates the state will make a serious push for zealous enforcement of federal and state consumer protection laws.
On July 20, 2017, months before Mulvaney began serving as the CFPB’s acting director, Pennsylvania Attorney General Josh Shapiro announced the creation of a Consumer Financial Protection unit that would be led by Nicholas Smyth, who helped create the CFPB, as assistant director of the Office of Attorney General’s Bureau of Consumer Protection. The press release noted that Pennsylvania’s Bureau of Consumer Protection would have a dedicated focus on financial initiatives, such as “lenders that prey on seniors, families with students, and military service members, including for-profit colleges and mortgage and student loan servicers.” The press release also stated that the agency handled 19,727 consumer complaints that returned $8,570,395.15 in 2016.
Recently, Shapiro has shown that his office would attempt to act as a state-level CFPB by initiating a number of consumer protection actions against financial services institutions. For instance, on October 18, 2018, Shapiro’s office announced that Navient Corporation, the largest federal and private student loan servicer in the United States, would be required to turn over student loan records in a lawsuit filed in the U.S. District Court for the Middle District of Pennsylvania last year over alleged unfair and deceptive lending practices. Additionally, on October 31, 2018, Shapiro announced that a lawsuit in the Philadelphia Court of Common Pleas had been filed against a vehicle title lender based in Delaware for allegedly violating state usury and racketeering laws.
State Attorneys General Pushback against the CFPB
Besides ramping up enforcement of consumer protection laws, a number of predominantly Democratic state attorneys general have issued public letters to the CFPB detailing their concerns with policy decisions made by the agency under Mulvaney. For instance, on April 25, 2018, California Attorney General Xavier Becerra issued a letter on behalf of 17 state attorneys general detailing why they opposed any effort to curtail the CFPB’s civil investigative demand authority. In a similar vein, on June 4, 2018, New York Attorney General Barbara Underwood issued a letter on behalf of 15 state attorneys general in response to the CFBP’s Request for Information on consumer complaint reporting and comments by Mulvaney suggesting that the CFPB may no longer maintain its consumer complaint database. According to the letter, the CFPB should maintain its consumer complaint database for reasons including its use by the state attorneys general offices for consumer protection investigations, its benefit to the public for educational purposes, to incentivize corporate transparency to consumers, and as a tool to hold bad actors accountable in the financial services marketplace.
Similarly, North Carolina Attorney General Josh Stein issued a letter on September 5, 2018 on behalf of 14 state attorneys general criticizing statements Mulvaney had made regarding the CFPB’s reexamination of the requirements of the Equal Credit Opportunity Act (ECOA) and its prohibition against disparate impact discrimination in auto-lending. On May 21, 2018 Mulvaney had issued a statement supporting a Congressional resolution signed by President Trump that disproved the CFPB’s March 21, 2013 bulletin titled “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act,” as a correction for past overreach by the CFPB in acting outside of its statutory authority under Cordray. According to the letter, reexamining the requirements of ECOA and abandoning its provision for anti-discrimination disparate impact liability would be contrary to more than 40 years of the federal government’s interpretation of that statute, the Administrative Procedures Act and U.S. Supreme Court decisions. Nonetheless, in its Fall 2018 Rulemaking Agenda released on October 17, 2018, the CFPB announced that it was considering future activity in regards to reexamining the requirements of the ECOA as it pertains to the disparate impact doctrine on indirect auto-lender compliance.
While a number of these letters that have been critical of the CFPB under Mulvaney’s leadership have come from Democratic officials, there have also been instances of recent bi-partisan criticisms of CFPB actions from state attorneys general. For instance, in a letter on October 23, 2018, a bipartisan group of state attorneys general wrote Mulvaney to express concern about reports that the CFPB would no longer ensure that lenders are complying with the Military Lending Act (MLA) as part of its supervisory examinations. The letter, citing a series of statutes, states that the CFPB would “fail to abide by its statutorily mandated authority by restrictively interpreting its examination authority to preclude lenders’ compliance with the MLA.” The letter also criticized this decision on the MLA as being inconsistent with Mulvaney’s prior statements regarding cost-benefit analysis decision making and the departure of a “regulation by enforcement” approach at the CFPB.
The CFPB is currently undergoing another change in leadership as Kraninger, who was serving as the associate director of general government at the Office of Management and Budget, takes over the agency from Mulvaney. The selection of Kraninger as the new CFPB director was praised by Republicans for her management experience and those in the financial services industry as a good choice, while Democrats criticized her as being inexperienced with consumer finance and for being too close with influential financial services groups. Kraninger has stated that she would pursue bad actors in the financial services industry, though her leadership of the CFPB is not expected to be a significant departure from Mulvaney’s in its scaled back approach to aggressive enforcement actions and big rule-making. However, with Democrats taking over the House of Representatives next year, Kraninger and Mulvaney could come under investigation for their administration of the CFPB by Democrats including California Representative Maxine Waters, who is the incoming chairwoman of the House Financial Services Committee.
The long-term effectiveness of states taking the lead on the enforcement of consumer protection laws and cooperation with the CFPB remains to be seen given that Mulvaney served as the CFPB’s acting director for a little over a year and his successor to serve as the director of the CFPB, Kathy Kraninger, has only recently become the leader of the agency. Nonetheless, during President Trump’s administration certain states have created their own “mini-CFPBs,” enhanced consumer protection laws, or increased the enforcement of state and federal consumer protection laws through state attorneys general. Additionally, state attorneys general have been issuing public letters criticizing and questioning statements and policy decisions by the CFPB. Going forward, both consumers and financial services providers should be increasingly cognizant of the stances taken by their state attorneys general offices towards the enforcement of consumer protection statutes as well as the CFPB’s positions on the regulations within its charge.
David Elliott is a partner in the Birmingham office of Burr & Forman where he serves as chair of the firm’s Financial Services Litigation Practice Group. He routinely defends lenders in all types of litigation, including individual actions, mass actions, and class actions ranging from common law lender liability lawsuits to statutory actions under state and federal statutes. He also has extensive experience defending lawsuits under TILA, HOEPA, FCRA, RESPA, FDCPA, FCCPA and the TCPA. He can be reached at email@example.com.
Charles (“Chad”) Davis is an associate in the Tampa office of Burr & Forman where he practices in the firm’s Financial Services group. Chad’s practice focuses primarily on assisting corporate clients and financial institutions with compliance and litigation. He can be reached at firstname.lastname@example.org.