The CFPBs Leadership in a Biden Administration: What Do We Expect?
Welcome to the consumer finance monitor. Podcast where we're spor important new developments in the world of consumer financial services. And what they mean for your business your customers and the industry. Our topic today is going to focus on enforcement at the consumer financial protection bureau. The agency was created by the enactment of the dodd. Frank act back in two thousand ten because stood up in two thousand eleven july two thousand eleven and it's almost been operational for ten years and during that period of time There have been a number of acting directors and and a couple of actual Senate confirmed director and so largely started Richard cordray being director and then with the change in the trump trump becoming president And after some litigation that transpired It mick mulvaney Became the acting or was the acting director and then ultimately a cran. Anger became the director and now with the Election having occurred and With a change to a biden administration in the offing On january twenty to be precise Were a witness change again at the agency. And what we're gonna try to do. Today is to really drill down on The changes that we anticipate Are going to happen. Come january twentieth an end thereafter. And i can't think of two people more qualified to address that subject than my colleagues chris willis and james kim so let me first introduce of a both of them I hardly apt to introduce chris wallace because chris is involved in moderating a of the podcast While today he'll be on the guest side and will be responding to the difficult questions that i'm going to pose to him so chris is the deputy practice leader of the consumer financial services group And he Is a key part of his practice. sense he joined Our firm Many years ago has been focused on the cfp of focus on especially everything that goes on there from a regulatory supervisory or enforcement standpoint but particularly in the fourth area. He probably has handled more cfp be enforcement cases than any lawyer in the country. literally handled dozens of them going back to the very beginning of the agency all the way up to the president. Let me also on now introduced james. Kim james joined us several years ago. after having served for several years in a senior enforcement position at these cfp And james when james was there it was under the directorship of Richard cordray The agency was very very active at time and james was involved in a number of Cutting edge investigations that ultimately resulted in consent orders. Some people James probably calls them calling judge other. People may say pushing the envelope james. But we'll give you the the benefit of the doubt cutting edge so before we begin today. I want to warmly. Welcome Chris and james. Thanks allen we're glad to be here likewise okay okay. Well now we're going to get into the question. And i want to talk about Ah what i perceive to be a widely perpetuated mantra that you hear throng Senators and congress. Pete persons on the hill Usually on the democrat side And what you hear from consumer advocacy groups all the time. Then during the caffeine manager era Not a hell of allow when on that. She was a. She was captive to the consumer finance industry. The big banks and and she did virtually nothing particularly in the area of enforcement and that out Our clients have been able to take maximum advantage of that Add to the detriment of consumer. So that's what you hear all the time. Chris what do you say to that. Yeah what i say is just not true. You know i mean we of course experienced the workings of this agency on a daily basis. Both in enforcement matters that may eventually become public and in supervisory matters that stay confidential because of confidential supervisory information and the demand which those are handled but the statement this cfp be is sort of in the lap of industry and is doing nothing to protect consumers is completely inconsistent with the reality of what the bureau has been doing over the last several years on the enforcement side. There's been a significant uptick in enforcement activity over the last two years and not just in terms of number of cases but the cfpb has brought some very innovative cases. That are pushing the envelope. I think so. For example you saw the cfpb come out with a brand new theory extending the concept of mortgage redlining to a non bank mortgage lender that was an affiliate of real estate brokerage. That had never been done. The cordray cfpb never did that. The civil rights division of the doj under obama never did that. That was something this cfp did. We also saw the very first instance of a litigated enforcement. Action being filed against a large bank. Which was a fair credit billing. Act matter f- Filed against a large bank earlier in two thousand and twenty so to say that this is a bureau that is not doing any enforcement is just not so but then there's a lot of activity also going on and supervision where it's not that readily visible to the public is it's visible to us. Because of our work with clients the industry but examinations have proceeded with zero change from the way that they existed under the cordray administration. And the examiners find just as many violations require remediation required changes in policies documents and communications. The only difference is that they frequently frequently will resolve matters through supervision and not escalate them to enforcement then was the case under director cordray. There were lots of referrals from supervision to enforcement under cordray and less so was that the case under director chronicler but the thing is consumers are still being protected. Practices are still being changed. Remediation are still being made. All of that activity is still going on. And so i don't think it's fair at all or accurate at all to say that this is a sea of that is in the throes of a relationship with the industry in is doing nothing to protect. Consumers are experience exactly the opposite. Well and. I've got to get your reaction james in a minute but The other thing you hear a lot is that Because of the fact that there's more activity in the supervisory area less reversals. To enforcement that you don't see Many civil money penalties as you use to When cordray was director The civil money pound as often were disproportionately high compared to the actual mind terry harm to consumers and That seems to have been tempered somewhat would. Would you agree with app breath for sure. And i think that reflects an understanding on the part of the bureau's leadership that civil monetary penalties are not an end in and of themselves. They are necessary in some instances to achieve the goal of consumer protection. But in other instances they are not necessary and in fact you know having participated in lots of supervisory exams myself. And my colleagues have as well including james. We see the effectiveness of the supervisory process in changing industry behavior and securing remediation for customers even when there is no civil monetary penalty involved so to say that monetary penalties are barometer of consumer protection. I think is also misguided assumption. Yeah so james What do you think. I mean you had a bird's eye view To what went on in the enforcement. Division When Richard cordray was director And you've been involved in handling multiple Cfp investigations under. Kathy graninger. what you're going to ask you the same question well. I agree with everything that chris is said. And i would add that. The threat of enforcement or the involvement of enforcement has always remained. Do they continue to support in the background. Examinations the threat of enforcement upon receiving par letter very much still exists and has existed. So i think you know. All we're seeing is recognized manager just having different but entirely reasonable and i would say bearer kind of view of regulatory tool choice again. We don't have to sit here. Judge want director against the other. But i think it's it's very fair to say that of you have to directors that had i think you know reasonable views about how they wanted to achieve their missions and how they wanted to allocate resources and select various regulatory tools primarily supervision versus enforcement. Both of which are i think. Completely justified in reasonable reflect just policy views that that's what it is but it certainly entirely necker to say that the bureau has done nothing. Were not enough to give you an example. The threat of enforcement and the preferred choice of using supervision enforcement has some positive results for consumers of chris. And i deal with these kinds of matters meeting exams in worse than it all the time. It's common for a companies in our clients to offer a more expansive remediation to benefit consumers in exchange for avoiding enforcement and not paying civil money penalties. So so to chris's point just tagging somebody or company with the civil money penalty doesn't necessarily benefit the market or consumers. You might actually take money away from remediation and at the end of the day. A lot of companies ultimately indirectly pass along the cost to consumers. Anyway so i think there's plenty of examples where you could impurity say that consumers may have benefited from the increased use of supervisory tool the final point. I want to make is a. I think it's also worth pointing out that. The cfp under cranny has continued to coordinate albeit in a different way probably with state authorities. And so that that in itself in and of itself is noteworthy again another example of how she's continuing to perform her job and i do it well. by selectively coordinating with other agencies such as the federal trade commission in the banking regulators at the federal level but also at state authorities and there are plenty of examples of that of including a with new york attorney. General's office you know in contrast that with the last four years of whether or not you disagree with any of this. There are all been disputes war of words and lawsuits between a certain state agencies and federal agencies open hostility where they are actively working against each other again regardless of who grew with or not. But you don't see that conflict at least not publicly between the states. You know there might be some criticism or difference of opinion about over a for example. The efficacy of sandboxes right in a state like new york doesn't think they're worthwhile but this yet he does. But you don't see the open hostility and you certainly don't see the litigation between the states like you do some other agents and you know James because i recall when you were to see. Pb one of your responsibilities was You were a liaison to state attorneys general. And the fact that you know it's still continuing under chronic juror. I think berry significant. I don't think people would have predicted that at the beginning of her return. So let's now turn the page right under the us supreme court opinion in the ceelo law case it's now Absolutely clear that the president whoever the president by be It could be president trump right now or come. January twentieth will be president. Biden can remove the director. Kathy kranjcar without costs Even though the language of the dodd frank act Basically says that the president can only remove the director of for cost but in order to preserve the constitutionality of the language at language in dodd-frank the supreme court redlined the four clause language and now the president Again appoint a new of again can fire the existing director and once that happens the president can of course nominate a new director and that new director will have to be confirmed by the senate only requires a majority vote. One time For this kind of an appointment it needed a number to avoid a filibuster. He you needed sixty votes. but y'all you need a majority And there's a lot of confusion right now as to what party is going to control the senate not clear The it's all really gonna come down to some san arrays in your state growth Where if the democrats win both races which is a pretty tall order. I would think Than the democrats will have control of the senate at that point. It should be fairly routine For them president biden to nominate is director. Who ever he thinks is appropriate and it will get confirmation. And then the meantime who's gonna happen as somebody in there in an acting director capacity Once kranjcar is removed. And there're issue as to hot become the acting director. Can the president appoint an acting director Until there has been confirmed senate director Or under dodd frank the language in dodd-frank. The a that dumb if the director is no longer available to serve the deputy director. In this case. I think it would be Paul would automatically become acting direct but anyway Let let's get into that. And i want to turn to you james and a focus verse on a the appointment of a new director by President biden come january twenty What do you think. How's it going to make that determination or do you think he may have already made it. I think the public indicators are that he's assembled a team right a dedicated to the pb. So he's got. His larger transition team is different members of the transition team focusing on different agencies into the bureau it's being led by leandra english. Who if you recall was. He's the one that had the dispute litigation involving mick mulvaney over who would be the acting director at the time. So she's the head and she was coordinating holdover in someone that Director cordray handpicked to be acting understanding that she would likely of at least for some short period of time assumed the helm of agency. So i think that's important to note rioting that that's that's news that everyone seems to be aware of but i think it's an leandra english. His hands along with the team that she's assembled which includes many alvarez who is the current head of the california department of business oversight and a former enforcement attorney along with myself we. We actually were on the same team and of course. Richard cordray is consulting as well. So i think that that's the group of people so the short answer is i don't think biden has has has someone in mind but he's put a team in place that will make the decision so press Like to get your a reaction. I don't honestly. I'm not sure i agree. Do james that that Half for our transition team is gonna make the decision. I think a particular senator Is might have more influence than the transition team when it comes to who will be appointed. What do you think rose. I do think we should expect a lot of influence on the director selection from senator warren. She's historically been very attached to the cfp be. It was kind of her idea in the first place in the law review article that she had written with oren bar gil low these many years ago describing the blueprint for the cfp and so we do expect her to have a significant role. I think in influencing the choice of a of a nominee for the director and of course if that is in fact the case she has made no secret of her desire that the director be very aggressive in terms of enforcement of the consumer protection laws. And so that would be a blueprint for having a nominee. That's similar in quality to richard cordray. The first director of the cfpb being so what about This issue that. I mentioned about the fact that we don't know who's in control of the senate In republicans or democrats. And we i think. The election is early in january I guess we'll pretty quickly after the election but might this The next director really depend on whether the republicans retained control of the senate. What do you think possibly So if their first of all i agree with you that tall order for the democrats to take both those senate seats in georgia and if that in fact is borne out and the republicans hold at least one of them then any nominee has to garner at least one vote from a republican in order to be confirmed and so the thought is that that would exhibit a moderating influence on the choice of director for the cfp be and probably other nominations that have to be confirmed by the senate as well and so that could act as a check on the desire of the more progressive parts of the democratic party to have someone installed as the director who would be you know very visibly aggressive at least at the outset or through the confirmation process so there could be a moderating influence they are. We'll have to see. What are you think james. You have any further reaction to You know buddha director is gonna be and how quickly This is all gonna happen then. I wanna get into the issue of acting director is. We've all learned that an acting director for likely period of time And can a really have a a big impact. I mean you look at mulvaney He became acting director. I know i don't recall the exact period of time but it seemed to me was somewhere around nine months. Maybe longer does anybody remember. Is that the actual duration. It was many months that's mattie monse and and during that period adama guess it's fair to say there was not a lot going on in the enforcement area very very very little if anything because he was spending all the time looking at Reviewing the inventory of cases than trying to determine what to do. But what do you think james Do you have any further comment that Or should we move to the next issue of. How does the acting director gut selected. Yeah no i don't have much to add. I think the this amplifies the stakes of the senate runoffs in georgia because It could affect not only be a profile of the appointed director whether that director could be a more progressive or must be someone who will garner. Bipartisan support estates also include I think how long acting director stays in place. Because obviously if chris through the nominee the acting director stays in place for a lot longer and so the final point at is. I think because it's likely the democrats won't get fifty. I think that's one of the reasons why An influence that senator. Warren may have will be one moderated into has to stay more behind the scenes because she's a polarizing figure and so i think the perception that she's driving the selection may help. I'm sorry may harm the ability to push that nominee through. Let's turn to the acting director. Has that work. One of you You walk us through that. I know i had a discussion yesterday with a reporter. Who said that. She heard that under the federal vacancies. Reform act that that would not be applicable. Because it's done. I want to get that language If i can find it here. Yeah because under the vacancies reform act. It says that if somebody resigns from an office and capping crandon or may not resign. I mean she might but it probably would be under pressure or she could have fired Under the seal of law opinion And and that certainly is not a resignation as such And that goes on to say if you're other even if you didn't resign otherwise unable to perform I'm quoting here. The language the functions and duties of the offices Under the reformat Then at that point and acting director can be appointed by the president. But the argument is a firing. Doesn't make isn't something. I guess does theoretically technically make you unable to perform but doesn't really fit within That language or do you go back to the default language in dodd-frank that says In the director is unable to Continue to act as director. The deputy director becomes the acting director and my understanding. Is that tom. paul Would become the acting director so Like to get I guess i'll go to chris bursts thoughts on now. I mean. this is a complicated question. That i don't know that there's a super clear answer to but i would think that it would be the default provision in dodd-frank that would govern Biden terminated kathy cranberries director of the agency. And of course tom. Paul is someone who was appointed to the agency during the trump administration. He's not a holdover from the original. Directorship of of richard cordray. And so that wouldn't really do the democrats that much good if they want one of their own To be leading the agency so and that would result in it could result in the debt and the republicans dragging their feet in the senate About approving any nominee joe biden. Because they've already got somebody there. They like correct right and so that that doesn't play out super well. I don't think for the idea of the best way to to get into director in place. What do you think james. Yeah you know it's funny There's been some speculation or just kind of all on bureau along ny about something similar to what you guys are saying. Which is the gamesmanship to to to keep the acting director. Who is someone appointed under the current administration to try to keep that person in place in in in in and therefore tie up. Were delay a full senate confirmation You know for different reasons. But i think we saw that You know with the prior director. It took years for director cordray to get full senate. Vote one way he other well Let me throw into the mix Something that which i think could be. It doesn't it's not necessarily The correct answer but the there is an opinion letter Of the office of legal counsel. Which i think is powered of the justice department dated november fourteenth of two thousand eighteen and adult with what happened when jeff sessions was forced to resign as attorney general and booed them become the acting attorney. General until a new attorney general was confirmed by the senate and of course there was some period of time before that happened before bill barr a gut confirmed and there is a footnote to this opinion where they office of legal counsel concludes that of the president would be able to act under the vacancies reform. Act about it would have to jump through all the hoops of that act and one of the hoops. I believe is that the person that gets appointed with either have been confirmed by the senate persona other position or had served in various senior role at the Cfp be per. I think a sixty day period of time The other thing. I think we all have to recognize. Is that while the three of us probably think one of the most important issues in the world right now is who's gonna succeed kathy chronicler. You know because that's very important to our clients then Who thirsting for that information There's a lot of other things that the new senate is gonna to have to deal with early on including Will there be another stimulus package. Will there be. An infrastructure at bill is given A immediate consideration and so in the greater scheme of things. It's hard to make the case that this is going to be a top priority of the bureau. You agree with that yeah okay. Let's talk about really the final thing. I want to get your your opinion on are the expectations of for new director Who how do we think things are going to change. And i know. Chris and james you already talked about how really under prancer there were changes but not as impactful as we all thought and And i recognize now. We don't know who's going to control the senate and therefore we don't know who is gonna get confirmed as the next director but a weekend. I guess look at a couple of different scenarios. The democrats get their dream candidate in there A progressive candidate zone. Similar to richard cordray. Or they get a more moderate democrat in there. So who wants to take a shot at dabble. Yeah there's a lot of back and forth. I'm sure that we could cover. No particular order a one area where i think we saw dramatic difference in the bureau under the leadership is making so i think under the scenario that you laid out allen I think the biggest most dramatic change would be on the rulemaking front right. So i think he. You know the small dollar heyday rule of could yet again chain tried to include the ability to repay and the other provisions that had been initially proposed in taken off. The table could be put back on the table. Some four and then. I think that's the most obvious one right a radio. There's there may be changes to the debt collection. Rule that everybody's focusing on right now. What item that had been on the making agenda regularly and it was kind of you know removed without much. Fanfare was a a larger market participant will make defined it installment loan market. That's a very large market. That is not supervised but bureau because there's no larger market participant bull. You know that that would be an area As well and then. So i think rulemaking is the most obvious one in there are few others. But let's just take one at a time. What do you think chris. Yeah so i first of all. I agree with you on your observations with regard to rulemaking just like we saw some rulemakings become kind of a political football in between the changes between the obama and trump administration's and between richard cordray though she succeeded him like the payday lending rule There's no reason to believe that the same payday lending rule as well as the debt collection rule and the ten seventy one rulemaking process make it affected by the choice of what is and seventy one growth. Oh sorry. ten section. Ten seventy one is a section in dodd-frank that requires the cfp be to promulgate a rule requiring the collection of demographic data on small business borrowers. It's similar to the collection of data. That's done under the home. Mortgage disclosure act for consumer mortgage loans. That data's them collected and submitted to the government and is publicly available and is primarily used for identifying and bringing fair lending enforcement actions relating to that type of lending. So that's the making that the baby is now in a court mandated timeline to finalize on and when it comes into effect we expect it to bring about a great deal of increased activity on the fear lending front as it respects. Small business lending. What do you think Let's let me give you the easy part of the question. What happens in the areas supervision and much it will thing. Yeah it'll be totally the same. I mean the thing is it didn't change a when when director cordray left and even mick mulvaney was acting director supervision. Just doing exactly what it had always done. It did the same number of exams. The were of equal duration and death as they had been before they were just as willing to find call out. violations of law require. Remediation require changes to business practices and in fact we started noticing them. Send a lot more power letters at the end of exams. Starting in around two thousand seventeen which had not been the case prior to that point. So i think all of that will continue to be the same because nothing really changed to begin with now i do. There will be a change in the tendency of matters to get escalated from supervision to enforcement. That was something we saw a lot under director cordray less under the current directorship of kathy. Kranenburg and i think it's reasonable to assume that will return to the cordray style. They are of having more matters. Resolved in enforcement rather than supervision preferentially. And i guess we'll probably see The return of larger civil money penalties. Right i believe so because again you have this narrative from the democrats about how the agency's fallen down on the job and they're barometer of the agencies vigor of consumer protection is the number of public consent orders and the number of dollars that changed hands as a result of them. And so i think in order to make that narrative true the newly appointed director to make the number. Go up and so. I think they'll be pressured to do that. Yeah i agree. The one thing i would add about changes the supervision is i. I wonder if under new leadership the bureau matter of policy and also scratch statutory interpretation and take the position that it has the authority to supervise compliance with the military lending act. That was something that mulvaney realized and said he didn't breed Dodd frank to give the bureau of that authority and therefore they weren't going to include mla in examinations target companies that focus on lead to service members for example Be forced to tool send out issues which is really a poor fit. I would say for diagnostic compliance. So you wonder if a a new director take a different position. And you start to examine for emily compliance which begs the question. Which is you know. Now that the issues highlighted meeting potential gap in the statute with that 'cause trade associations certain companies to litigate to say a. You don't have the authority to examine this for. Mla combines thinking through added a way that gets you because if the bureau. I just send you a id instead museum. Could the hell wants to be in that position and also optically no matter what kind of company you are. What their political stripes are do you. Do you wanna be perceived as someone as a wanting the leeway so to speak to to not comply with the military lending act any. I don't think optically that's something that in any company wants to have section. I agree not a not a good look for sure Look like you're trying to avoid compliance with the am l. a. Let me Let me move to a slightly different question The related to all this is it conceivable that either of you think that the republicans Knowing that you know the the leadership for the next four years is not gonna be to their liking might they be inclined to push for an amendment of the consumer financial protection at. You know what. I'm gonna ask right now calling for a five member commission allah the federal trade commission The it what it would seem like this might be a good time at least through the republicans to try to push for this whether the democrats go along. I i don't know but i think probably not I don't think they something. Elizabeth warren Would support you recall. When they were enacting dodd-frank the original version of the bill passed the house. Call for five member commission when it got over to the senate The the democrats realize they had a lot of leverage going for them at that time and they got rid of the five member commission and substituted governance by a single director Do either of you think that this is now a propitious time to bring this issue back up to the table and the chance that something like that may happen while alan i would say it's just as propitious time for this as it was when trump was elected and he was going to be appointing new director to the cfp be and the rationality that should compel both parties to want to go to a five member commission. Sh- garnered zero interest from the democrats at that time and so empirically. I think we have to say that. It is likely that the republicans will be just as interested and i mean disinterested in going to a five member commission today as the democrats were before. So i think the answer is. There's no reason to believe that it's going to happen. Even though it would be a great idea and it would provide more stability and predictability for everybody. Yeah you re james. Yeah i think the chances I owed of zero right. Unfortunately i tend to agree with both debut even though it really would be a prudent thing for congress to do But there's a big difference between what would be prudent for them to do what they're actually gonna do. So we've come to the end of our show today Wanna thank Both james and chris for joining me today. Want to thank all of you out there. Who downloaded our show today. and to remind you that our show is is generally released. A new show every thursday except when thursday falls on a legal holiday We've been doing our show now for little over two years. 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