CFPB Enforcement Actions Grind to a Halt as Supreme Court Looms

The federal consumer finance watchdog marked its slowest quarter for enforcement actions in six years, with many investigations and lawsuits on hold waiting for the US Supreme Court.

Lower courts have paused Consumer Financial Protection Bureau enforcement actions against defendants such as money transmitter MoneyGram International Inc., as well as efforts to execute civil investigative demands for documents or testimony until the Supreme Court weighs in on whether the CFPB’s funding is constitutional.

Some smaller companies cite the forthcoming decision as they refuse to cooperate with CFPB probes, agency insiders and defense attorneys say.

The one lawsuit brought in the first quarter of this year marks the slowest quarter for CFPB enforcement actions since it filed none in the first quarter of 2018, when the agency was run by Mick Mulvaney, a Trump administration appointee and a longtime CFPB opponent from his days in Congress.

The CFPB says it’s still business as usual. The agency under Director Rohit Chopra has reached landmark settlements with major companies, and is getting results using supervisory tools authorized by the 2010 Dodd-Frank Act, a spokesperson said.

The agency is also poised to ramp up its enforcement activities in the months ahead should it prevail at the Supreme Court, with a ruling expected by the end of this term.

Read More: Supreme Court Decisions Loom Over Consumer Watchdog’s 2024 Plans

Until then, however, the CFPB must pick the public actions it takes and the investigations it pushes to ensure success, said Craig Cowie, the director of the Blewett Consumer Law & Protection Program at the University of Montana and a former senior CFPB enforcement attorney.

“They’re just proceeding in ways that they’re not going to get stayed,” he said.

Slow Pace

The CFPB, along with New York and six other states, sued Strategic Financial Solutions LLC on Jan. 19, alleging the Buffalo, N.Y.,-based debt relief company scammed customers out of more than $100 million.

That’s the last the public has heard from the agency’s enforcement unit.

The busiest quarter in the CFPB’s nearly 13-year history came from July to September 2015, when the agency under its first director, Richard Cordray, announced 21 public enforcement actions.

The agency dismissed concerns about the lack of enforcement actions so far in 2024.

“The timing of individual public enforcement actions depends on several factors that are specific to each particular matter,” the CFPB said in a statement to Bloomberg Law.

But several enforcement actions remain on hold as courts weigh legal challenges.

Supreme Uncertainty

In October 2022, the US Court of Appeals for the Fifth Circuit ruled that the CFPB’s funding through the Federal Reserve, outside of yearly congressional appropriations, is unconstitutional. The Supreme Court took up the case, CFPB v. Community Financial Services Association of America, shortly thereafter, hearing oral arguments last October with a decision expected by the end of June.

Companies have tried to take advantage of the legal limbo, to varying effects.

MoneyGram got a stay in December 2022 in CFPB litigation by citing the high court’s pending review, while a case against consumer credit reporting giant TransUnion is moving forward despite the company raising concerns about the agency’s constitutionality. Judges in other cases have placed holds on civil investigative demands where the CFPB sought to force a defendant’s compliance, citing the Supreme Court still considering the agency’s future.

Those cases may be giving the CFPB pause in pursuing new investigations, at least for now, Cowie said.

The CFPB says it has continued to carry out its enforcement work and is still sending out civil investigative demands, which aren’t made public unless a recipient company chooses to share them, noting the agency is no stranger to constitutional challenges.

No Response

Some companies, however, simply aren’t responding to CFPB information requests and investigations as they wait for the Supreme Court to rule, according to multiple current CFPB enforcement staff members who aren’t authorized to discuss the probes.

Big banks and other players in the market face risks to their reputation from resisting CFPB investigations.

“In my experience, reputable companies and big banks, there’s been no slowdown in investigations or in willingness to cooperate with the bureau,” said Eric Mogilnicki, a Covington & Burling LLP partner who specializes in consumer finance issues.

The resistance comes primarily from smaller companies that have less experience with CFPB enforcement, or less to lose from ignoring it, say CFPB enforcement staff and defense attorneys not authorized to speak publicly about enforcement matters.

Failing to comply with the CFPB, assuming the Supreme Court is going to kill its funding, may not be a good long-term strategy, the agency warned.

“When a company ignores a CFPB civil investigative demand, the CFPB takes appropriate action to address that noncompliance,” the CFPB spokesman said.

During oral arguments at the high court in October, even some conservative justices appeared skeptical toward the Fifth Circuit’s ruling on the CFPB’s funding. If that doubt results in a win for the CFPB, smaller companies that didn’t cooperate are going to face an empowered CFPB enforcement apparatus.

“Many of those companies will either just fold or cooperate” if the CFPB survives, Cowie said.

‘Looking for Home Runs’

Part of the enforcement drop can be attributed to strategic shifts, as each CFPB director charts a different course.

When the CFPB first launched, Cordray wanted to show banks, payday lenders, and other companies the agency was the new sheriff in town, following what critics described as lax oversight by other banking regulatory agencies leading up to the 2008 financial crisis. That meant casting a wide net, capturing major market players such as Bank of America Corp., American Express Co., and JPMorgan Chase & Co., as well as small frauds.

The CFPB under Trump appointee Kathy Kraninger took action against some large companies such as Experian Plc and Citizens Financial Group Inc., but also brought a raft of cases against small-time scammers who couldn’t pay redress to consumers.

Instead, the agency hit them with a $1 penalty that allowed the CFPB to pay consumers back with money from its civil penalty fund, which is funded by companies and individuals charged in CFPB enforcement actions and is used to compensate victims when defendants can’t pay.

Chopra and his enforcement team have taken their own approach, targeting major companies and repeat offenders.

The agency reached a $3.7 billion settlement with Wells Fargo & Co. in December 2022, as well as deals with big banks including Citigroup Inc. and Bank of America. The agency has also taken TransUnion and other big companies to court rather than churning out the large numbers of smaller cases seen under some of his predecessors.

Read More: Big Banks Targeted in CFPB Shift to High-Profile Enforcement

“The bureau under Kathy Kraninger was happy to hit a lot of singles, and this bureau is looking for home runs,” Mogilnicki said.

Policy Alignment

The trick to successful enforcement is finding the right balance between big cases and the small ones that may have a devastating impact but a limited number of victims, Cowie said.

“It’s important to do both,” he said. “Because the CFPB has the penalty fund, it can provide relief to harmed consumers that nobody else really can.”

Bringing big cases can mean a longer buildup.

“We became accustomed in years past to investigations taking two years, and now it is not uncommon for them to take three years and sometimes more,” said Chris Willis, the co-leader of Troutman Pepper Hamilton Sanders LLP’s consumer financial services regulatory practice group.

The CFPB under Chopra has been notable for plotting out enforcement moves that match the agency’s—and in some instances, the Biden administration’s—broader policy agenda, among other possible factors contributing to such delays.

“This particular CFPB has been pretty deliberate about how it announces certain enforcement actions and how they line up with policy goals of the agency,” said Allyson Baker, a Paul Hastings LLP partner and former CFPB enforcement attorney.

Supervisory Powers

Enforcement isn’t the CFPB’s only tool for policing consumer finance markets.

The agency employs examination teams around the country that have the power to inspect the books and records of banks, debt collectors, consumer credit reporting companies, payday lenders, and other companies it oversees.

Chopra has put an increased focus on those supervisory tools, which give the agency more visibility about what’s happening inside companies without the adversarial enforcement process, according to Joann Needleman, the head of Clark Hill PLC’s financial services regulatory and compliance practice.

Examiners will often work with companies to fix issues with consumer compliance. But if those issues persist, enforcement attorneys come in and get access to most, if not all, information turned up by the examiners.

“They can rack up a lot more wins that way,” Needleman said.

Fewer Investigations

Supervision can increase the effectiveness of enforcement actions, but so far the numbers don’t show a spike in the number of cases the CFPB’s supervision teams have sent to the enforcement side.

In fiscal 2022, Chopra’s first full fiscal year as director, the CFPB sent 45 supervisory matters to its Action Review Committee, which referred nine of those cases at least in part to the enforcement division, according to a Mayer Brown LLP report last year.

The 20% referral rate is lower than the CFPB’s historical 29% rate, the report said. Overall, the CFPB only opened 25 new enforcement investigations in fiscal 2022, down from 64 in fiscal 2021 and 54 in fiscal 2020, Mayer Brown’s report found.

The slowdown in new investigations may just be a blip as the Supreme Court process and other factors work their way through the pipeline. Data for fiscal 2023 isn’t available yet.

“I don’t always put a lot of stock in the announcement of actions,” Baker, the former CFPB enforcement attorney, said. “The way investigations work, they have their own life cycle.”