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Rumors of UDAAP’s Demise May be Exaggerated

Posted in Financial Services Litigation and Enforcement, Regulatory and Compliance

New Priorities at the CFPB…

On February 12, 2018, Acting Director of the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) and Director of the Office of Management and Budget (“OMB”), Mick Mulvaney, released two documents that provide further insight into the future of the Bureau. But while one describes an out of control Bureau that will be defunded, the other proposes a more moderate shift in course.

On the last page of the Trump Administration’s Fiscal Year (“FY”) 2019 proposed budget, the administration sent a clear message about the CFPB’s standing under President Trump. The budget describes the CFPB as “an independent agency with a single unaccountable director who is able to draw funding…without oversight from the Congress.” Further, “[t]he Agency also has broad authority to unilaterally develop and enforce regulations irrespective of congressional intent or economic impact.” Further still, “[t]he CFPB’s short history is rife with examples of poor financial and personnel management decisions that can result from this form of unchecked authority.” To resolve these structural problems, the administration proposes to cap transfers from the Federal Reserve Board, the CFPB’s source of funding, to 2015 levels. The Administration’s budget proposal historically is not a useful tool for predicting actual appropriations. But the budget does signal an administration’s priorities.

On the same day, in his capacity as Acting Director of the CFPB, Mulvaney released the CFPB’s FY 2018-22 strategic plan (the “Mulvaney Plan”). Notably, because of his status as Acting Director, Mulvaney’s strategic plan may be short-lived. Nevertheless, the Mulvaney Plan illustrates a departure from the CFPB’s draft strategic plan, which was drafted under Director emeritus Richard Cordray’s leadership and released in October 2017 (the “Cordray Plan”). While this is not the first evidence that Acting Director Mulvaney intends to change the Bureau’s focus, it further explains his intent to “fulfill the Bureau’s statutory responsibilities, but go no further.”

The Cordray Plan identified consumer financial protection as the CFPB’s “primary focus” stating that the CFPB’s “Goal 1” was to “Prevent financial harm to consumer while promoting good practices that work for consumers, responsible providers, and the economy as a whole.” In contrast, the Mulvaney Plan states that, “Consumer protection begins with ensuring that all consumers have access to markets for consumer financial products and services.” The Mulvaney Plan envisions “free, innovative, competitive, and transparent consumer finance markets where the rights of all parties are protected by the rule of law and where consumers are free to choose the financial products and services that best fit their individual needs.” Similar to Mulvaney’s prior pronouncements, the strategic plan emphasizes deregulation.

…But not as drastic a shift as some have inferred

While the Mulvaney Plan prioritizes consumer education over enforcement, it does not meaningfully depart from Cordray Plan in describing its objectives related to the goal of protecting consumers. To “prevent financial harm to consumers,” the Cordray Plan would (1) review and refine regulations, including to promote transparent markets, minimize unwarranted burden, an support innovation; (2) supervise institutions to foster compliance; and (3) enforce the laws and hold violators accountable. Similarly, the Mulvaney Plan prioritizes regulation, supervision, and then enforcement as the progression of tools for the Bureau to ensure financial laws are enforced consistently.

Strikingly, the Cordray and Mulvaney Plans articulate virtually the same strategy when it comes to enforcement. Here are the plans side by side:

Cordray Plan Mulvaney Plan
Acquire and analyze qualitative and quantitative information and data pertaining to consumer financial products and service markets and companies. Acquire and analyze qualitative and quantitative information and data pertaining to consumer financial products and service markets and companies.
Focus resources on institutions and their product lines that pose the greatest risk to consumers based on their size, nature of the product, and field and market intelligence. Focus supervision and enforcement resources on institutions and their product lines that pose the greatest risk to consumers based on the nature of the product, field and market intelligence, and the size of the institution and product line.
As appropriate, share information, coordinate activity, and promote best practices with fellow supervisory and law enforcement agencies to ensure the most effective use of regulatory resources. As appropriate, share information, coordinate activity, and promote best practices with fellow supervisory and law enforcement agencies to ensure the most effective use of regulatory resources.
Enhance internal policies that facilitate the integration of the CFPB’s supervision, enforcement, and fair lending functions. Enhance internal policies that facilitate the integration of the Bureau’s supervision and enforcement functions.
Develop and maintain technology solutions for coordinating supervisory information, capable of recording, storing, tracking, and reporting information on the CFPB’s supervisory process. Promote development and enhancement of technology solutions to ensure compliance with Federal consumer financial laws including technology solutions for coordinating supervisory information capable of recording, storing, tracking and reporting information on the Bureau’s supervisory process.

 

Although some commentators have inferred that Acting Director Mulvaney is signaling the end of enforcement targeting unfair,  deceptive, or abusive acts or practices (“UDAAP”), empirical evidence suggests otherwise. In its active litigation, the Bureau has continued to pursue UDAAP theories. For example, in the All American Check Cashing matter, for example, the Bureau asserts claims for abusive, deceptive, and unfair conduct. This matter happens to involve payday loans, an industry Acting Director Mulvaney supposedly favors. The defendants asserted that the matter should be dismissed because of the Bureau’s unconstitutional structure, including that the Bureau Director could only be removed for cause. Recent events have undermined that argument, the Bureau recently argued, because Acting Director Mulvaney is removable at will. Moreover, in support, Acting Director Mulvaney submitted a declaration that he had reviewed and ratified the Bureau’s decision to file the lawsuit. Acting Director Mulvaney similarly ratified the Bureau’s lawsuit against Ocwen Financial Corp., which alleges multiple claims of unfair and deceptive conduct in addition to violations of the Truth in Lending Act, the Fair Debt Collection Practices Act, the Real Estate Settlement Procedures Act, and the Homeowners Protection Act. In active litigation at least, the Bureau has not demonstrated a retreat from UDAAP enforcement.

The Bureau under Acting Director Mulvaney undoubtedly will have different priorities than it did under Director Cordray. But as new leadership continues to find its way, financial institutions must pay close attention to the Bureau’s actions, in addition to its words. While the administration’s budget sends a dire message about the Bureau’s very existence, Acting Director Mulvaney’s four year strategic plan – which, in any event, he may not be around to fully implement – is a relatively modest departure from the Cordray Plan. Meanwhile, the Bureau continues to pursue UDAAP claims. We will continue to closely monitor the Bureau’s activities to see how new leadership implements its plan.