3 goals of CFPB’s revamped strategic plan


It’s been a busy start to 2018 at the Consumer Financial Protection Bureau, especially since acting director Mick Mulvaney took office. 

First came multiple waves of requests for information about how the bureau is performing. Then on Monday, the CFPB highlighted three primary goals within its five-year strategic plan.

Along with other objectives, the bureau plan outlined those three primary goals as:

—Ensure that all consumers have access to markets for consumer financial products and services.

—Implement and enforce the law consistently to ensure that markets for consumer financial products and services are fair, transparent and competitive.

—Foster operational excellence through efficient and effective processes, governance and security of resources and information.

“If there is one way to summarize the strategic changes occurring at the Bureau, it is this: we have committed to fulfill the bureau’s statutory responsibilities, but go no further,” Mulvaney said in a news released shared by the bureau.

“By hewing to the statute, this strategic plan provides the bureau a ready roadmap, a touchstone with a fixed meaning that should serve as a bulwark against the misuse of our unparalleled powers,” he continued.

Mulvaney explained the plan draws directly from the Dodd-Frank Wall Street Reform and Consumer Protection Act and refocuses the bureau’s mission on regulating consumer financial products or services under existing federal consumer financial laws, enforcing those laws judiciously, and educating and empowering consumers to make better informed financial decisions.

Among changes from the prior strategic plan, the bureau said it will now focus on equally protecting the legal rights of all, including those regulated by the bureau, and will engage in rulemaking where appropriate to address unwarranted regulatory burdens and to implement federal consumer financial law and will operate more efficiently, effectively, and transparently.

“Armed with this strategic direction, I look forward to working with the talented and hardworking people at the bureau to fulfill the bureau’s statutory mission in service of the American people,” Mulvaney wrote in the opening letter of the 16-page plan that’s available online here.

BB&T Dealer Financial Services to abandon flat fees


With regulators such as the Consumer Financial Protection Bureau issuing official requests for information about the implications of rules, investigations and enforcement actions, a sterling example might have arrived from BB&T Dealer Financial Services.

In a direct message to SubPrime Auto Finance News on Friday, the auto finance division of the North Carolina-based commercial bank indicated that it’s abandoning its flat-fee dealer compensation program first implemented nearly three years ago.

Brian Davis, BB&T’s director of corporate communications, explained the reasons for the bank’s decision; details that likely won’t come as much of a surprise to providers trying to compete for the best paper to fill their portfolios.

“While we had some successes with the flat fee program announced in 2015, BB&T also experienced an overall reduction in volume,” Davis said. “So to provide our dealer clients with more options and better flexibility, we will introduce a more traditional auto pricing program in mid-March.”

“BB&T remains firmly committed to the auto finance industry and to the fair and equal treatment of all consumers,” Davis added.

The bank originally made the switch to flat fees back in July 2015, just weeks after the CFPB published a rule that allowed the agency to supervise larger nonbank auto finance companies for the first time. The bureau already supervised auto financing at the largest banks and credit unions, but that rule extended that supervision to any nonbank auto finance company that makes, acquires or refinances 10,000 or more contracts or leases in a year.

When then-CFPB director Richard Cordray arrived for his semiannual hearing with the House Financial Services Committee that fall, lawmakers clashed with the agency leader over the rule, believing it was directly targeting dealer participation in hopes of moving the entire industry toward a flat-fee structure.

Rep. Scott Garrett, a New Jersey lawmaker, directly asked Cordray, “Are you working to eliminate dealer reserves?”

Cordray replied with, “We have been working to try to address a practice that we believe is discriminatory, discretionary markups.”

With dealer participation possibly coming back at BB&T Dealer Financial Services, perhaps the bank’s auto finance activities will improve.

According to the bank’s third quarter financial statement — the last one that included a carve-out of Dealer Financial Services performance as the institution changed its structure and reporting for Q4 — net income for its auto-finance division came in at $38 million, flat compared to the prior quarter and down by $2 million year-over-year.

Now CFPB wants feedback on enforcement process


Along with naming a chief of staff who formerly served the chair of the House Financial Services Committee, Consumer Financial Protection Bureau acting director Mick Mulvaney is continuing to put his stamp on how the regulator operates.

The CFPB issued another request for information (RFI); this time in connection with the bureau’s enforcement processes. The agency indicated it is seeking information to help assess the overall efficiency and effectiveness of its processes related to the enforcement of federal consumer financial law.

This is the third in a series of RFIs announced as part of Mulvaney’s call for evidence to ensure the bureau is fulfilling its proper and appropriate functions to best protect consumers.

“This RFI will provide an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities,” the bureau said in a news release.

“The next RFI in the series will address the bureau’s supervisory processes, and will be issued next week,” the CFPB added.

Previously, the bureau announced that it was seeking feedback in connection with civil investigative demands (CIDs).

Meanwhile earlier this week, Mulvaney named Kirsten Sutton Mork chief of staff for the agency. Sutton Mork had been serving as staff director of the House Financial Services Committee under Chairman Jeb Hensarling.

“I am pleased to announce Ms. Sutton Mork as the new chief of staff at the Bureau of Consumer Financial Protection,” Mick Mulvaney said. “I worked with Kirsten during my tenure as a member on the House Financial Services Committee and can attest to her in-depth financial policy expertise, proven track record of developing and implementing strategic initiatives, and ability to manage a team.

“Kirsten brings with her more than a decade of invaluable experience that will advance the mission of the bureau and make it more efficient, effective and accountable,” Mulvaney added.

Sutton Mork’s tenure on Capitol Hill spans the financial crisis and post-crisis legislative response. She staffed Hensarling during House Financial Services Committee, House and conference committee consideration of the legislation that established the bureau, the Dodd-Frank Act.

The CFPB insisted Sutton Mork is intimately familiar with the bureau’s statutory mission and obligations. She was appointed deputy staff director to the House Financial Services Committee in 2013 and became staff director in early 2017.

CFPB’s office of fair lending now within acting director’s office

CARY, N.C. - 

Another busy week at the Consumer Financial Protection Bureau closed with a personnel move by the acting director that one legal expert called without hesitation, “a big deal.”

According to an internal email first brought to light by The Washington Post and later obtained by SubPrime Auto Finance News, CFPB acting director Mick Mulvaney indicated the office of fair lending and equal opportunity will be transferred to the director’s office as part of the office of equal opportunity and fairness.

Why is that such a crucial move? The office of fair lending and equal opportunity has been involved in some of the stiffest enforcement actions within the auto finance space orchestrated by the bureau. Here’s a brief rundown of three examples, stretching up and down the market:

—In late 2013, the CFPB reached a settlement with Ally Financial, a package of enforcement actions that included $98 million in penalties and instruction on how the company should revamp its compliance department to prevent future alleged discriminatory activities.

—In September 2015, as part of its $18 million penalty in the auto space, the CFPB and Department of Justice ordered Fifth Third Bank to substantially reduce or eliminate entirely dealer discretion. Officials told the bank to pay that $18 million to “harmed” African-American and Hispanic borrowers. Meanwhile the dealer participation stipulations were included in the agreement.

—In January 2016, the bureau took enforcement against Herbies Auto Sales, a single buy-here, pay-here dealership in Greeley, Colo., for what the CFPB deemed to be abusive financing schemes, hiding auto finance charges and misleading consumers. The CFPB told Herbies to pay $700,000 in restitution to harmed consumers, with a suspended civil penalty of $100,000.

“The Fair Lending Office will continue to focus on advocacy, coordination and education, while its current supervision and enforcement functions will remain in (the supervision, enforcement & fair lending division). I do not expect that staff will experience changes in employment status, but it is possible that some may experience changes in jobs and duties,” Mulvaney wrote.

At the beginning of the message, Mulvaney said, “As I mentioned last week, I am continuing to evaluate Bureau operations, and will be making changes where I deem necessary. These changes are intended to help make the Bureau more efficient, effective, and accountable, and I plan to seek both internal and external input as I continue to evaluate how we work.”

Mulvaney also mentioned in the email that the bureau’s office of consumer response will be relocated within the consumer education and engagement division.

“We do not anticipate that this move will result in any changes to internal operations and functions, or to any individual’s employment status,” he wrote.

The personnel actions at the CFPB coincided with the D.C. Circuit Court of Appeals ruling that the agency is constitutional.

Along with the Mulvaney email, the CFPB also provided SubPrime Auto Finance News with comments from John Czwartacki, who is senior adviser to the acting director.

“The bureau’s statutory mandate includes the supervision and enforcement of fair lending laws and regulations, and the bureau will continue to perform those functions. The fact is, it never made sense to have two separate and duplicative supervision and enforcement functions within the same agency — one for all cases except fair lending, and the other only for fair lending cases,” Czwartacki said.

“By announcing our intent to combine these efforts under one roof, we gain efficiency and consistency without sacrificing effectiveness. And by elevating the office of fair lending to the director’s office, we have enhanced its ability to focus on its other important responsibilities,” he went on to say.

Assessing these moves

SubPrime Auto Finance News gathered reaction from a trio of leading experts. Each one expressed the impact of these moves. 

“This is a big deal,” Mayer Brown consumer financial services partner and former CFPB official Ori Lev said.

“Moving the office of fair lending out of the division that handles enforcement and supervision is more than a message. It will have real life impact on the number of CFPB fair lending cases and examinations,” Lev continued.

Terry O’Loughlin is the director of compliance at Reynolds Document Solutions, a part of Reynolds and Reynolds. O’Loughlin offered this reply after reviewing Mulvaney’s message.

“As to Mulvaney, I think that he represents the better view of a regulatory agency,” he said. “Regulation by enforcement is unfair to those industries, which are the targets of the enforcement and regulation.

“It forces a heightened regulatory environment where resources are being spent needlessly. If matters need regulation then the regulator should announce those regulations after observing the appropriate administrative procedures,” O’Loughlin went on to say.

The team at Hudson Cook is taking an even deeper look at all of the changes at the CFPB since Richard Cordray departed as director last November. Hudson Cook is offering a free webinar beginning at 2 p.m. EST on Wednesday as the firm quipped, “Intrigue? Drama? Suspense? You don’t need Hollywood (or Ben Affleck), as life imitates art at the CFPB.”

Partner Allen Denson is set to be joined by Hudson Cook colleagues Lucy Morris, Jean Noonan and Jim Chareq where these personnel moves will be among the more than half dozen topics included in the webinar agenda.

“This effort to reorganize the bureau’s fair lending responsibilities is just the latest in a series of initiatives by acting director Mulvaney to repurpose the bureau’s oversight of financial markets,” Denson said.

“It signals a further retreat from some of the more controversial positions held by the bureau under director Cordray,” Denson added.

Experts, industry leaders and lawmakers dissect appeals court action over CFPB

CARY, N.C. - 

Two attorneys who spent part of their legal careers with the Consumer Financial Protection Bureau and are now in private practice described how the regulator can claim some victories since the latest federal court action deemed the agency is constitutional.

However, these experts also pointed out the opinions shared by the D.C. Circuit Court of Appeals left the CFPB with some ongoing challenges.

Lucy Morris is a partner with Hudson Cook and a founding member of the CFPB Implementation Team that organized the CFPB after passage of the Dodd-Frank Act. Morris served as a CFPB deputy enforcement director for four years and shared her assessment of the ruling that arrived on Wednesday.

“It affirms the CFPB’s independence as a consumer watchdog and shows that the CFPB is here to stay,” Morris said. “At the same time, the opinion represents a setback for the bureau because it reinstates the earlier circuit opinion on the merits, including the ruling against the CFPB that it is subject to the statute of limitations in its administrative forum. 

“It also means that President Trump will have the opportunity to name a new director who will be able to remain in place for the full term, regardless of what happens in the next presidential election,” Morris continued in a message to SubPrime Auto Finance News.

Ori Lev is a partner in Mayer Brown’s Washington D.C., office and a member of the firm’s financial services regulatory and enforcement practice and the consumer financial services group. Like Morris, Lev also was a deputy enforcement director at the CFPB and also led the office of enforcement at the Office of Foreign Assets Control (OFAC).

In a message to SubPrime Auto Finance News, Lev began by explaining where the court seemed to agree with former CFPB director Richard Cordray with regard to Real Estate Settlement Procedures Act (RESPA), the regulation at the heart of this case involving the bureau against PHH Corp.

It’s perhaps a point that might be most interesting to auto finance companies, especially ones that have felt the wrath of the bureau’s enforcement.

“The one thing that everyone seems to agree on — including those judges who think Cordray’s interpretation of RESPA was correct — is that an agency cannot seek penalties for past conduct that violates a novel legal interpretation first advanced in an enforcement case,” Lev said.

“That is, ‘regulation by enforcement’ is OK as a way to announce new legal principles, but it can’t be a basis to penalize past conduct, because of due process concerns,” he added.

More industry and consumer advocate reaction

Richard Hunt, president and chief executive officer of the Consumer Bankers Association (CBA), shared his assessment of the court’s opinion.

“We applaud the court’s decision to repeal the amplified penalty on PHH, which undermined the longstanding application of RESPA,” Hunt said.

“While the court ruled the CFPB’s governing structure was not unconstitutional, it does not mean the current structure is appropriate for the bureau’s long-term credibility,” he continued.

“Congress should create a bipartisan commission at the CFPB, in place of a sole director, to uphold the bureau’s mission of consumer protection and would establish transparency, diversity of thought, additional industry insight and rule makings beneficial to consumers, the industry and the economy,” he went on to say.

Allied Progress executive director Karl Frisch also cheered what the appeals court did, but for much different reasons.

“This isn’t just a victory for the Consumer Financial Protection Bureau. This is a victory for consumers everywhere,” Frisch said. “The D.C. Circuit has soundly rejected attempts by Wall Street special interests to cripple the Bureau by challenging its constitutionality.

“Equally important, the court has reaffirmed the CFPB’s independence from the Trump administration, rejecting the notion that a president should be able to replace the agency’s director without cause. The majority decision called this case a ‘wholesale attack on independent agencies’ and we couldn’t agree more,” he continued.

“Beyond this decision, the Trump administration’s attack on Consumer Bureau continues. An affront to the very notion of an independent agency free from executive interference, Trump has installed Mick Mulvaney, a current member of his administration, to serve part-time as ‘acting director,” Frisch went on to say.

“While this case is an important victory, the fight continues to protect consumers and defend the mission of the CFPB to hold big banks, predatory lenders and other financial bad actors accountable,” he added.

Lawmaker response

Meanwhile, U.S. House Financial Services Committee chairman Jeb Hensarling, a Texas Republican, expressed his regret the court didn’t find the CFPB unconstitutional. Hensarling is an outspoken CFPB detractor and clashed with Cordray several times during the semiannual hearing on Capitol Hill.

“I am deeply disappointed with the court’s decision and hope the Supreme Court will review the ruling in short order,” Hensarling said.

“In the meantime, I take great solace in the fact that Mick Mulvaney can use his unchecked, unilateral powers to continue the agency’s transformation into one that will, as he said, ‘exercise [its] statutory authority to enforce the laws of this nation ... execute the statutory mandate of the bureau to protect consumers’ and go no further,” Hensarling continued.

“Even though I have total confidence in acting director Mulvaney’s vision, the fact remains that no one person in America — especially someone who is unelected — should have the authority to unilaterally control whether working Americans can get a mortgage or a checking account,” Hensarling went on to say.

“The bureau’s consumer protection mission is important, but no government agency — no matter how well-intentioned — should be able to evade common sense checks and balances that are necessary for accountability,” he added. “Republicans stand ready to work with Democrats to reform the CFPB into a law enforcement agency that truly protects consumers and is accountable to the people’s elected representatives.”

Hensarling’s colleague on the House Financial Services Committee took a much different view. Rep. Maxine Waters is the ranking member and a Democrat from California.

“Today, the full U.S. Court of Appeals for the District of Colombia Circuit confirmed what we have always known: the Consumer Bureau is constitutional and is here to stay,” Water said. “This is an important ruling for America’s consumers and should send a clear warning to predatory actors that despite the unlawful actions of the Trump Administration toward the Consumer Bureau, the courts can clearly and correctly interpret congressional intent.

“I am pleased that the court followed established precedent and preserved the structure of the agency that Congress envisioned,” she continued.

“When Congress drafted and passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, we intentionally created a strong, independent Consumer Bureau to better protect consumers after millions were ripped off by predatory lenders in the lead up to the 2008 financial crisis,” Waters went on to say. “The independence of the Consumer Bureau is essential to ensure that the agency can operate as a tough regulator that stands up for consumers.”

As CFPB revises CID process, scammers use bureau’s name to swindle consumers


Well, here is an interesting twist, since probably the last thing that auto finance companies or dealerships feel if they’ve been contacted by the Consumer Financial Protect Bureau is that they’ve won the lottery.

There have been several times that the CFPB has issued civil investigative demands (CIDs) alleging auto finance providers used deceptive practices, especially in activities such as collections.

As the bureau is looking for comments about how the CID process unfolds, the CFPB now says it’s also dealing with a situation where scammers are using the bureau’s name to swindle consumers.

Here are the details.

In a recent blog post, Stacy Canan, who is the CFPB’s assistant director for the Office for Older Americans, explained that scammers who are claiming to be the bureau official are contacting people saying they have won a hefty lottery prize. Canan explained this scam has four basic parts:

—Individuals receive a call notifying them that they’ve won a lottery or sweepstakes prize. Several other calls will follow.

—One of these calls may come from an imposter claiming to be Canan, or another CFPB or U.S. government agency official who confirms that you’ve won the prize.

—Later, the consumer is told that in order to collect the prize, taxes must be paid upfront.

—Individuals send the money to pay the taxes and never hear from any of the callers again.

“I’m never going to call you to confirm that you have won a lottery or sweepstakes,” Canan wrote in the blog post.

When an auto finance provider does receive a call from the CFPB, it’s likely to be associated with a CID. To assess the efficiency and effectiveness of its existing CID processes, the CFPB published the request for information (RFI) about the bureau’s CIDs that was announced as part of acting director Mick Mulvaney’s call for evidence of the bureau's effectiveness.

The bureau reiterated that this RFI will provide an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities.

“The bureau is issuing this request for information seeking public comment on how best to achieve meaningful burden reduction or other improvement to the CID processes while continuing to achieve the bureau’s statutory and regulatory objectives,” officials said.

The CFPB also reminded the industry that all submissions in response to this request for information, including attachments and other supporting materials, will become part of the public record and subject to public disclosure.

“Sensitive personal information, such as account numbers or Social Security numbers, or names of other individuals, should not be included. Submissions will not be edited to remove any identifying or contact information,” officials said.

Complete details about this RFI are available here.

CFPB now seeking industry feedback on operational effectiveness


While a consumer advocate in a note to SubPrime Auto Finance News called the action “an insane development,” industry representatives cheered the request by the acting director of the Consumer Financial Protection Bureau for evidence of the regulator’s effectiveness.

On Wednesday, the bureau announced that it is issuing a call for evidence to ensure the CFPB is fulfilling its "proper and appropriate" functions to best protect consumers. The bureau indicated that in the coming weeks, it will be publishing in the Federal Register a series of requests for information (RFIs) seeking comment on enforcement, supervision, rulemaking, market monitoring and education activities.

Acting director Mick Mulvaney explained these RFIs will provide an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities.

“In this New Year, and under new leadership, it is natural for the Bureau to critically examine its policies and practices to ensure they align with the bureau’s statutory mandate. Moving forward, the Bureau will consistently seek out constructive feedback and welcome ideas for improvement,” said Mulvaney, who was appointed by President Trump to replace Richard Cordray after he left the regulator to run for governor in Ohio.

“Much can be done to facilitate greater consumer choice and efficient markets, while vigorously enforcing consumer financial law in a way that guarantees due process. I look forward to receiving public comments in response to this call for evidence and encourage all interested parties to participate,” Mulvaney went on to say.

The first RFI issued by the bureau will seek public comment on Civil Investigative Demands (CIDs), which are issued during an enforcement investigation.

Officials noted that comments received in response to this RFI will help the bureau evaluate existing CID processes and procedures, and to determine whether any changes are warranted.

A legal practitioner who has been involved in a few CIDs associated with finance companies and dealerships applauded Mulvaney’s move.

“The bureau’s proposed RFIs represent a first step in ensuring fair, but effective, federal regulation,” Hudson Cook partner Allen Denson told SubPrime Auto Finance News in a message on Wednesday afternoon.

“For too long, subjects of CFPB investigations have faced burdensome investigations that are fraught with strong-arm tactics designed to result in settlement. This announcement suggests a reconsideration of these tactics,” continued Denson, who served as an expert during a panel discussion on compliance during Used Car Week that can be watched here.

Consumer Bankers Association president and chief executive officer Richard Hunt described a similar reaction to the CFPB’s request for feedback on its operations.

“Many actions conducted previously by the CFPB certainly warrant a thorough review,” Hunt said. A balanced approach to regulation is essential to a healthy banking sector, and preserving consumer choice and access to credit.

“We look forward to working with the CFPB to ensure consumers and the banking industry benefit from any potential changes,” Hunt added.

Meanwhile, Allied Progress executive director Karl Frisch used several vivid analogies to express his assessment of what the bureau is doing under Mulvaney’s leadership.

“This is essentially like asking the fox, in what order it would like to eat the hens? It is a troubling move from a man who is clearly hell bent on dismantling the agency he has been tasked with overseeing when he should be fulfilling its mission to protect consumers and hold bad financial actors accountable,” Frisch said.

“Mulvaney has taken $1.28 million from industries that are regulated by the Consumer Financial Protection Bureau. These same industries have spent tens of millions of dollars trying to destroy the CFPB from day one. Now, like a parent appeasing a spoiled child, Mulvaney is asking for industry’s wish list — a development that is frankly, insane,” Frisch continued.

“This is a conflict to end all conflicts and makes clear that Mulvaney can't be trusted. It is time for President Trump to nominate someone free of conflicts who will fight to protect consumers, not Wall Street special interests and financial predators,” Frisch concluded.

Akerman adds third former CFPB official to legal team


Akerman recently bolstered its stable of legal talent by adding another former high-ranking official from the Consumer Financial Protection Bureau.

The law firm’s consumer financial services practice Group welcomed Kathleen “Kitty” Ryan from Buckley Sandler as a partner in the Los Angeles office. Ryan previously served as the CFPB’s deputy assistant director for the Office of Regulations. Prior to joining the CFPB, she was senior regulatory counsel at JP Morgan Chase.

“Kitty’s extensive experience as a regulator, combined with her work as in-house counsel, makes her an invaluable asset to our clients, particularly within the areas of CFPB rulemaking and compliance,” said William Heller, chair of Akerman’s consumer financial services practice group. “Her impressive financial services background builds upon our team’s national strengths in the home loan space and adds a deep understanding of laws governing bank and non-bank consumer debt originators and servicers.”

Ryan focuses her practice on fair lending and regulatory compliance matters, particularly on issues related to the Fair Housing Act, Equal Credit Opportunity Act, Home Mortgage Disclosure Act, Community Reinvestment Act, Truth in Lending Act and UDAAP. She has applied her knowledge of regulations across the spectrum of consumer financial services and products — including mortgages, auto finance contracts, installment lending and prepaid cards.

During her time at CFPB, Ryan oversaw the completion of the TILA-RESPA Integrated Disclosure rulemaking — also known as Know Before You Owe — and the HMDA rulemaking that completely rewrote Regulation C. She also oversaw the development of CFPB’s debt collection rulemaking and extensive amendments to the CFPB’s mortgage servicing rules, and is well-versed in the CFPB’s 2017 small dollar lending rule. Ryan also advised on enforcement and supervisory matters — including matters involving fair lending, RESPA and UDAAP.

As in-house counsel at JPMorgan Chase, Ryan analyzed a range of consumer financial products and practices across multiple business lines and provided legal and regulatory guidance and support. She also spent more than 10 years in the Federal Reserve Board’s Division of Consumer and Community Affairs, where she led several TILA, ECOA, HMDA and CRA rulemakings, including the 2002-2004 HMDA amendments and the 2008 Regulation Z Higher-Priced Mortgage Loan amendments, as well as the mortgage loan originator compensation rules.

Ryan is the latest former CFPB official to join Akerman’s Consumer Financial Services Practice Group. The team previously welcomed Washington, D.C., partners Mary “Molly” Calkins and Thomas Kearney. Calkins served under the CFPB’s Division of Supervision, Enforcement & Fair Lending, as well as the Professional Liability & Financial Crimes Section of the Federal Deposit Insurance Company. Kearney served within the CFPB’s Office of Regulations where he worked closely with Ryan.

Together with Ryan, they collectively enhance Akerman’s team of federal and state compliance lawyers, including Tobias Moon, who brings deep in-house experience in servicing and originations from his work for Bank of America, Citi and Capital One. The team is well-positioned to provide regulatory compliance and enforcement guidance to consumer financial services providers — including mortgage, Fintech and other small dollar installment lenders and servicers.

Though CFPB is in flux, compliance efforts still benefit auto finance providers


Even before the wrangling over who will lead the Consumer Financial Protection Bureau intensified earlier this week, Craig Nazzaro emphasized that the heavy compliance lifting done by auto finance companies still has plenty of value.

Nazzaro, who is of counsel in the Atlanta office of Nelson Mullins Riley & Scarborough, made the point before a federal judge scheduled a hearing as the court conflict continues since Richard Cordray departed the CFPB at the end of November.

“I believe the controls that were put in place by the auto finance companies will remain valuable in the future,” Nazzaro said in a message to SubPrime Auto Finance News. “While the new director can have an immediate effect on the supervision and enforcement activities of the bureau, he cannot immediately repeal any rules and/or regulations.

“Those within the industry that have conformed to all guidance and/or updated their practices to be in line with various enforcement actions and continue to do so will remain positioned to be less of a CFPB target,” he continued. “I would caution against those in the industry who believe that a new director means that compliance with existing regulations can be relaxed. Remember that the CFPB is staffed with examiners and staff attorneys who believe in the bureau’s mission. That approach cannot be turned around on Day One.

“If your entity is non-compliant with regulations that are currently in place, you will still face a great deal of regulatory risk, no matter who the director is,” Nazzaro went on to say. “The biggest change, I believe, that we will see is that the CFPB should cease to overstep its authority. For example, we should not see any future rules with the scope we saw in the arbitration rule or enforcement actions with the new interpretation of industry practices with absurd fines like we did in the PHH matter.”

Undoubtedly, auto finance compliance department will be watching what develops out of the court system. Washington D.C. District Court Judge Timothy Kelly scheduled preliminary injunction hearing for Dec. 22 as the court clash continues between Mick Mulvaney, who President Trump installed as the temporary CFPB director; and Leandra English, who was selected the bureau’s deputy director just before Cordray departed on his way toward running for governor in Ohio.

In light of the attention the CFPB has created since its inception, SubPrime Auto Finance News asked Nazzaro if he was surprised, and why or why not, in the way Cordray departed the agency and how a new director was established.

“I was not surprised about the timing, but was surprised how haphazard the choice and promotion of Leandra English to deputy director seemed to be,” Nazzaro continued. “Director Cordray knew the choice and the manner of the promotion would be attacked, and the choice seemed to have very little strategic planning behind it, making it easier to attack.” 

Nazzaro also shared what element of the CFPB’s future he plans to watch the closest and why going forward.

“In the short term, I am interested in the pace and structure of the enforcement actions that are announced. I will be analyzing which entities they choose to move forward against and the severity of those actions,” he said.

“I am also looking forward to seeing if there will be a noticeable change in the tone and approach to their supervision activity,” Nazzaro continued.

“For the long term, I will be looking to see if the single director structure can be successfully challenged,” he went on to say. “The choice of Mick Mulvaney, the anti-Cordray, will wind up sustaining the partisan approach the CFPB has taken in years past and will not lead to even-keeled, logical regulation that the industry will need for growth.” 

CFPB update: Auto finance bulletin now subject to Congressional review


The flurry of activity associated with the Consumer Financial Protection Bureau, its leadership and the regulation of auto financing intensified again this week.

On Tuesday, Washington D.C. District Court Judge Timothy Kelly scheduled preliminary injunction hearing for Dec. 22 as the court clash continues between Mick Mulvaney, who President Trump installed as the temporary CFPB director; and Leandra English, who was selected the bureau’s deputy director just before Richard Cordray departed on his way toward running for governor in Ohio.

Then, Thomas Armstrong, general counsel for the Government Accountability Office (GAO), delivered a letter to Sen. Patrick Toomey indicating that the bulletin the CFPB issued back in 2013 involving indirect auto financing and compliance with the Equal Credit Opportunity Act (ECOA) actually is a “rule” for purposes of the Congressional Review Act (CRA). This ultimately means that it must be submitted to Congress for review.

“GAO’s decision makes clear that the CFPB’s back-door effort to regulate auto loans, which was based on a dubious legal justification, did not comply with the Congressional Review Act,” said Toomey, a Pennsylvania Republican.

“GAO’s decision is an important reminder that agencies have a responsibility to live up to their obligations under the law,” he continued. “When they don't, Congress should hold them accountable. I intend to do everything in my power to repeal this ill-conceived rule using the Congressional Review Act.”

Part of what triggered the bulletin issued in March 2013 was the CFPB’s contention about discriminatory issues arising in connection with dealer markup when a customer applies for financing through the dealership’s F&I office to the store’s network of finance companies.

Armstrong explained that the CFPB discusses the legal theories under which indirect auto finance companies that are determined to be creditors under ECOA could be held liable for pricing disparities on a prohibited basis when such disparities exist within an indirect auto lender’s portfolio. 

Armstrong wrote in the letter available here that, “In its final section, the bulletin states that indirect auto lenders ‘should take steps to ensure that they are operating in compliance with the ECOA and Regulation B as applied to dealer markup and compensation policies,’ and then lists a variety of steps and tools that lenders may wish to use to address significant fair lending risks.”

Armstrong made several other points in the letter to Toomey that could interest finance companies and dealerships.

“At issue here is whether a nonbinding general statement of policy, which provides guidance on how CFPB will exercise its discretionary enforcement powers, is a rule under CRA. CFPB states, and we agree, that the Bulletin ‘is a non-binding guidance document’ that ‘identifies potential risk areas and provides general suggestions for compliance’ with ECOA and Regulation B.  Moreover, the bulletin is a general statement of policy that offers clarity and guidance on the bureau’s discretionary enforcement approach,” Armstrong wrote.

Armstrong also explained that the CRA excludes three categories of rules from coverage, including:

—Rules of particular applicability

—Rules relating to agency management or personnel

—Rules of agency organization, procedure  or practice that do not substantially affect the rights or obligations of non-agency parties

“CFPB did not raise any claims that the bulletin would not be a rule under CRA pursuant to any of the three exceptions, and we can readily conclude that the bulletin does not fall within any of the those exceptions. The bulletin is of general and not particular applicability, does not relate to agency management or personnel, and is not a rule of agency organization, procedure or practice,” Armstrong wrote.

“The bulletin is a general statement of policy designed to assist indirect auto lenders to ensure that they are operating in compliance with ECOA and Regulation B, as applied to dealer markup and compensation policies.  As such, it is a rule subject to the requirements of CRA,” he went on to state.

Depending on how lawmakers assess the bulletin, plenty of action could involve the CFPB director; a position that has been in flux since Cordray said he would be departing the bureau.

Kelly’s decision is continuing the matter that initially triggered a ruling on Nov. 28 against English in her motion for a temporary restraining order against Mulvaney as acting director of the CFPB.

No matter what happens in court, Consumer Bankers Association president and chief executive officer Richard Hunt continues to maintain how the bureau should be led by more than just a single person.

“We look forward to working with acting CFPB director Mick Mulvaney to bring transparent and balanced consumer protections to all customers and small businesses. Many actions conducted previously by the CFPB as well as those that are pending warrant a thorough review and we support Mr. Mulvaney’s previous comments concerning a five-person bipartisan commission,” Hunt said.

“If the CFPB were structured as a bipartisan commission, as originally intended, we could have avoided this circus,” Hunt continued. “A Senate-confirmed, bipartisan commission at the CFPB would ensure consumers benefit from a fair and accountable rulemaking process. Having a sole director structure, with unilateral rulemaking authority, does not provide the long-term stability and certainty consumers deserve.”