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.