Mulvaney's BCFP One Year Later: Change and Continuity

Legal Update December 4, 2018 Mulvaney’s BCFP One Year Later: Change and Continuity Just one year ago, as you were contemplating Not surprisingly, many former Bureau employees what to do with your leftover Thanksgiving have moved on, from line attorneys to senior turkey, a storm was brewing at the agency enforcement personnel, and Mulvaney brought in formerly known as the Consumer Financial a number of political appointees. He has also Protection Bureau. On November 24, 2017, then- reorganized various aspects of the Bureau, most Director Richard Cordray resigned. His last act notably in the area of Fair Lending. Mulvaney was to appoint his chief of staff, Leandra English, moved the Office of Fair Lending and Equal as the agency’s deputy director, with the Opportunity from the Division of Supervision, expectation that English would become the next Enforcement, and Fair Lending (“SEFL”), where acting director. Later that day, President Trump it had supervisory and enforcement authority, to named OMB Director Mick Mulvaney as acting the Office of the Director, where it serves as solely director, and, two days later, a legal battle ensued a policy office; fair lending supervision and in the DC Circuit. Since then, Acting Director enforcement activities remained within SEFL. Mulvaney has changed the name of the Bureau, The rationale was to have one office that handles declined operating funds from the Fed, publicly enforcement matters and one that handles decried the Bureau’s prior mission, and rolled supervision (rather than two of each). Separately, back supervisory, regulatory, and enforcement Mulvaney moved the Office for Students and activities. In this Legal Update, we take a closer Young Consumers into the Bureau’s financial look at how the Bureau of Consumer Financial education office. Protection (“BCFP” or the “Bureau”) looks one Other high-profile moves include the August year later and what to expect in the year ahead. 2018 departure of the Student Loan Ombudsman of the Bureau, Seth Frotman, who announced his Comings and Goings: Staffing Changes resignation from the Bureau in public fashion. In at the Bureau his resignation letter, he accused Acting Director For now, Mulvaney continues to serve as both the Mulvaney and President Trump of undermining acting director of the Bureau and director of the the Bureau and the Bureau’s ability to protect OMB. English resigned from the Bureau and consumers. He claimed that the “current dropped her lawsuit in July 2018 after President leadership” of the Bureau undermines the Trump nominated Kathy Kraninger to serve as agency’s independence and actively shields “bad BCFP director. Kraninger survived a narrow actors from scrutiny.” He cited leadership’s Senate committee vote in August and is awaiting decision to suppress a report about student full Senate confirmation. In the coming week, we account fees as an example of harming students. expect her to be approved as the next BCFP The Bureau did not comment on Frotman’s director. resignation. We expect more personnel changes and The RFI process provides an opportunity for potentially new political hires once Kraninger Kraninger, if she so chooses, to bring about more begins her tenure, but, for now, the personnel change in how the Bureau operates. The RFIs and shake-up and reorganization appear to have the public comments submitted in response to slowed down. them should provide her a menu of options from which to choose as she moves to put her imprint Mulvaney’s Call for Evidence: A on the agency. Reexamination of Bureau Practices Litigation and Enforcement Trends: Less One of Acting Director Mulvaney’s first initiatives of More of the Same was a “call for evidence to ensure that the Bureau is fulfilling its proper and appropriate functions In January 2018, Acting Director Mulvaney to best protect consumers.”1 Mulvaney indicated declared that the Bureau had pushed its last that the Bureau would be “critically examin[ing] envelope with respect to enforcement activities.3 its policies and practices to ensure they align with However, looking back on enforcement activities the Bureau’s statutory mandate.”2 To that end, during Mulvaney’s first year, the theme that the Bureau published a series of Requests for comes to mind is “less of more of the same”— Information (“RFIs”) seeking comments on there was less enforcement overall, but the virtually all of the Bureau’s activities—from enforcement activity that did occur was more of enforcement to supervision to its handling of the same, with similar unfair, deceptive and consumer complaints. Beginning in January abusive acts and practices (“UDAAP”) claims as 2018, the Bureau published 13 RFIs seeking the Bureau has been bringing since its inception. comments on such topics as enforcement The numbers tell the story of “less.” In the past (including civil investigative demands (“CIDs”) year, the BCFP has brought nine enforcement and associated processes), supervision, guidance, actions—eight settlements and one lawsuit—and rulemaking, market monitoring, data, consumer settled one previously filed lawsuit. In contrast, in complaints, and education activities. his last year in office, Cordray brought 47 new At the time, Mulvaney’s “call for evidence” enforcement actions, 16 of which were contested suggested the potential for sweeping changes to and 31 of which were filed as settled cases. But core Bureau functions and processes. After that is where the differences end. requesting comments on a broad range of topics, Although it is very challenging to compare however, it is unclear exactly what, if any, remedies imposed in different cases, a look at the changes the Bureau will make based on numbers suggests a rough equivalence between comments received through the RFIs. No major the Cordray and Mulvaney Bureaus. Of the 31 announcements have come out of the RFI process cases the Bureau settled in Cordray’s last year, 26 to date, but the Bureau did announce some included a civil money penalty (“CMP”), about modest alterations in response to comments half of those (14) included a penalty greater than received on the RFI on External Engagements. In $1 million, and the average penalty in those 26 June 2018, the Bureau announced that it is cases was about $1.5 million. By contrast, eight of reconstituting its advisory groups with new and the nine settlements under Mulvaney involved a smaller membership and ramping up outreach to CMP—roughly the same percentage as under external groups. The Bureau also stated that it Cordray. In almost half of those cases, the penalty plans to increase its strategic outreach through amount announced by the Bureau was deemed regional and national town halls and regular satisfied by payment of a lesser amount. national calls. Excluding from the calculation the record-setting and average-skewing penalty of $1 billion 2 Mayer Brown | BCFP Year in Review announced against a large bank, the average funds that had been lent to the consumer. The penalty amount in the six remaining penalty claim at issue could just as easily have been cast cases was about $1.5 million—in line with the as an unfairness claim. average from the prior year—and half of the cases Moreover, notwithstanding all the rhetoric about involved penalties in excess of $1 million.4 the end of regulation by enforcement, several of More surprisingly, the nature of the claims that the Bureau’s claims asserted UDAAP violations the BCFP has brought and defended has not for conduct that had not been clearly prohibited changed substantially under Mulvaney. The or whose contours are more amenable to Bureau under his leadership has filed briefs rulemaking. For example, a recent consent order supporting novel theories of abusiveness that involved claims that the failure to timely forward were first asserted under Cordray, and consumer payments to debt buyers is an unfair Mulvaney’s Bureau recently brought its first practice. What “timely” means, however, is abusiveness claim in the context of a payday entirely unclear and seems well-suited to the debt lender that also offered check cashing services.5 collection rulemaking in which the Bureau is This claim was brought in October 2018, just days currently engaged. Similarly, the Bureau has after Mulvaney announced that the Bureau would brought unfairness claims regarding debt consider engaging in rulemaking to define collection activity involving first-party collectors, abusiveness because it is not well defined in the who are not covered by the Fair Debt Collection case law. In that matter, the Bureau found an Practices Act (“FDCPA”). This issue, too, is part of abusive practice where the respondent used the the pending debt collection rulemaking. check proceeds to pay off outstanding payday More generally, the Bureau has continued to loan debts and provided only the remaining funds enforce the prohibition on UDAAP. Indeed, eight to the consumer. The consent order notes that of the nine cases brought under Mulvaney include this practice was disclosed to consumers at the UDAAP claims, and five of them were based time they took out loans with the company and solely on UDAAP. In that respect, the new BCFP that consumers, in fact, signed an is very much like the old CFPB (and the FTC) in acknowledgement in the applications that they that UDAAP claims have continued to be the had received these disclosures. The Bureau bread and butter of enforcement. Based on the nevertheless found this conduct abusive because Bureau’s enforcement actions over the past year, the disclosures sometimes occurred months or there is no reason to think that will change. years before the check cashing transaction and because the company took steps to not inform Finally, perhaps the most important recent consumers coming in for check cashing services development on the enforcement front is the fact that their check proceeds may be set off against that the Bureau seems to have opened new any outstanding debt.

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