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Smaller Firms Could Escape Scrutiny in CFPB Enforcement Shakeup

Oct. 22, 2020, 10:31 AM

The Consumer Financial Protection Bureau’s reorganization of its enforcement and supervision unit could mean less oversight of small firms such as payday lenders and debt collectors

The CFPB’s enforcement office has since its 2011 inception had the power to initiate its own investigations and research matters into financial companies. But a reorganization announced inside the bureau Oct. 14 means that CFPB enforcement attorneys may lose that power and would have to rely on agency supervisors to send them cases.

CFPB supervisors don’t conduct examinations of smaller nonbank firms. And that means potential violations at debt collectors, payday lenders and other nonbanks may go undetected if the enforcement office is ultimately blocked from opening its own investigations, said James Kim, Co-Head of Ballard Spahr’s Fintech Team and a former CFPB enforcement attorney.

Kim said the new structure would take “significant power” away from enforcement attorneys by requiring them to get prior approval from outside their department before opening investigations.

Awaiting Results

In the reorganization, the CFPB is now requiring its enforcement office—housed in the Supervision, Enforcement and Fair Lending Division (SEFL)—to get approval from another, new office within SEFL before opening new investigations.

The change would dramatically weaken the bureau’s enforcement office and should have been put on hold coming so close to the presidential election, said Sen. Sherrod Brown (D-Ohio).

“If you insist on going down this ill-advised path, you should at least not move forward with the SEFL reorganization until it is clear that you will continue as director,” Brown said Wednesday in a letter to CFPB Director Kathleen Kraninger.

The U.S. Supreme Court’s June decision in Seila Law LLC v. Consumer Financial Protection Bureau made the CFPB director an at-will employee of the president. That means Kraninger would likely be replaced if Democratic candidate Joe Biden wins on Nov. 3.

A CFPB internal memo obtained by Bloomberg Law shows that the planned restructuring would take about six months to complete.

The CFPB didn’t respond to a request for comment.

The SEFL division restructuring will create a new Office of SEFL Policy and Strategy, to be led by Peggy Twohig, the CFPB’s assistant director for supervision policy. Twohig will have to sign off on any new research matters or investigations the enforcement office undertakes.

Brown said that the move would eliminate the enforcement office’s independence. He also raised concerns that the enforcement office’s Policy and Strategy Team would be moved into a new office, lowering the office’s level of institutional experience and knowledge.

According to a memo written by Associate Director Bryan Schneider, the new reorganization is meant to “increase efficiency, promote role clarity, reduce friction, establish consistency in policy and strategic outcomes SEFL-wide, and leverage existing expertise across SEFL.”

The restructuring is the result of seven months of work and extensive conversations with SEFL staff, who cited communication problems between the supervision and enforcement units, according to the memo.


Former CFPB staffers echoed those same communications concerns between supervisors and enforcement staff going back to when the bureau opened its doors in 2011.

“I’ve long thought that these offices were acting at cross purposes,” said Lucy Morris, a former deputy enforcement director at the CFPB and now a partner at Hudson Cook LLP.

A new CFPB organizational chart distributed internally shows Twohig and Thomas Ward, the CFPB’s enforcement director, at the same level. But because Twohig has to sign off on all investigations, the change “probably feels like a demotion” for enforcement attorneys used to doing “their own thing,” Morris said.

The enforcement office will also no longer be included in the “clearance” process, meaning it will no longer be able to share views on and concerns over proposed rules, guidance, advisory opinions or other public communications as part of the reorganization.

To contact the reporter on this story: Evan Weinberger in New York at

To contact the editor responsible for this story: Michael Ferullo at