Financial institutions should prepare for significant changes in consumer financial protection enforcement and regulation at the federal and state level over the short and medium term under a Biden administration.
Though a closely divided or Republican-controlled Senate means that sweeping legislative changes are unlikely, we expect to see a personnel shift at the chief federal consumer protection watchdog agency, the Consumer Financial Protection Bureau (CFPB), leading to more consumer-friendly rules and aggressive enforcement.
The Consumer Protection Watchdog Unleashed
Changes at the CFPB will start at the top. The U.S. Supreme Court’s June decision in Seila Law LLC v. CFPB, which held that congressional limitations on the power of the president to remove the CFPB director were unconstitutional, opens the door for President-elect Biden immediately to put his stamp on the bureau by removing Director Kathy Kraninger.
Under the Federal Vacancies Reform Act (FVRA), Biden could replace Kraninger with an acting director who would push a more active enforcement and rulemaking agenda. Candidates who could immediately step in under the FVRA include Rohit Chopra, who currently serves in a Senate-confirmed position as a commissioner for the Federal Trade Commission, or a senior employee of the bureau, such as Patrice Ficklin, who is the current assistant director of fair lending.
With new leadership, the CFPB’ enforcement and rulemaking activity is expected to focus on the following areas.
Biden made clear in his campaign that fair lending would be at the top of his consumer protection agenda. As such, the bureau is expected to continue its development of rules under the Equal Credit Opportunity Act (ECOA) to ensure nondiscriminatory access to credit.
The change in administration likely also would affect the scope and focus of the small business lending data collection rule pursuant to section 1071 of the Dodd-Frank Wall Street Reform Act of 2010 currently under development.
Expansion of Supervisory Authority
The CFPB likely would pursue an expansion of its supervisory authority by promulgating new “larger participants” rules, which bring unsupervised nonbank consumer financial services companies operating in certain markets under the bureau’s supervisory jurisdiction.
For example, on former Director Richard Cordray’s agenda was a nonbank “larger participants” in the market for personal loans, including consumer installment loans.
Consumer Access to Financial Records Rulemaking
In early November, the CFPB issued an advanced notice of proposed rulemaking to implement section 1033 of the Dodd-Frank Act, which established a consumer’s right to access financial records. Under Biden, the bureau is expected to take up the rulemaking, but push for greater access.
Student Loan Servicing
While campaigning, Biden made clear that he would focus his administration’s attention on “profiteering” in the student loan servicing market. Prior to Cordray’s resignation, the bureau had identified student loan servicing practices as an item for its long-term rulemaking agenda, but the Trump administration removed it.
CARES Act Enforcement
The CFPB also will likely become more aggressive in policing the borrower relief portions of the Coronavirus Aid, Relief and Economic Security Act. Specifically, it will focus on forbearance relief and credit reporting relief.
Additionally, the bureau is supervising banks that made small business loans through the Paycheck Protection Program for compliance with ECOA and Regulation B.
A Hampered Legislative Agenda
Several consumer protection items on Biden’s agenda will likely require congressional action, prospects for which will depend on control of the Senate.
Specifically, Biden has shown support for establishing a postal banking system, an item that has long been on progressive Democrats’ wish list and was included as a recommendation by the Biden-Sanders Unity Task Force.
He also has shown support for a Public Credit Reporting Agency within the CFPB, which would provide a “government option that seeks to minimize racial disparities, for example by ensuring the algorithms used for credit scoring don’t have a discriminatory impact, and by accepting non-traditional sources of data like rental history and utility bills to establish credit.”
Another item that may be on Biden’s legislative agenda is revisiting the CFPB’s rule limiting the use of arbitration clauses in contracts for consumer financial services. In 2017, the arbitration rule was disapproved by Congress and President Trump under the Congressional Review Act. Fully resurrecting the previously invalidated rule would require an act of Congress.
More State-Level Consumer Protection Activity
Ramped up consumer protection at the federal level provides an opportunity for state attorneys general and state-level financial regulatory agencies to focus their efforts on traditional state enforcement priorities, while also supporting federal actions and filling in gaps that might be created where federal regulation meets opposition in the courts.
Of note is California’s new California Consumer Financial Protection Law, which goes into effect Jan. 1, 2021. The law renames the Department of Business Oversight to the Department of Financial Protection and Innovation, and expands the agency’s powers to include the ability to enforce federal consumer protection laws, such that it has been dubbed a “mini-CFPB.”
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
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Rachel Rodman is a partner in Cadwalader’s White Collar Defense and Investigations Group and is based in the firm’s Washington, D.C., office. She is a former senior counsel and enforcement attorney for the CFPB.
Keith M. Gerver, a former Department of Defense intelligence analyst, is an associate in Cadwalader’s White Collar Defense and Investigations Group and is based in the firm’s Washington, D.C., office.
Kendra L. Wharton, a former legislative aide in the Senate, is an associate in Cadwalader’s Washington, D.C., office, and a member of the Global Litigation Group and the White Collar Defense and Investigations practice.