Consumer protection is at the center of the regulatory frameworks of so many industries in the United States, particularly within financial services. Read on for more about the current environment on the topic at the State and Federal levels as well as background on the Consumer Financial Protection Bureau.
This blog post is co-authored by Chase McGrath.
Since its creation, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”), has been a major part of the federal regulatory framework for the financial services industry. However, the CFPB’s seemingly diminishing appetite for enforcement (see Figure 1) creates a significant opportunity for change in consumer protection and regulation. State regulators are stepping in on the consumer protection front, evidenced by the creation of “mini-CFPBs” in New York, New Jersey, and Massachusetts; enhanced consumer protection laws; and a marked increase in the enforcement of state consumer protection laws by State Attorneys General. For financial companies to avoid running afoul of countless state laws, they are encouraged to create responsive policies and procedures.
Since Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 (“Dodd-Frank” and “CFPA”), the CFPB has served as the U.S.’ primary consumer finance regulator and civil law enforcement agency.1 Dodd-Frank authorized the CFPB to grant “…any appropriate legal or equitable relief with respect to a violation of Federal consumer financial law, including a violation of a rule or order prescribed under a Federal consumer financial law ..”2 The CFPB is endowed with an impressive array of tools to fulfill its mandate, including the authority to conduct investigations and license to implement sweeping enforcement actions to uphold federal law.3 At its inception, the CFPB also benefitted from unique features that supported its mission as an independent regulatory agency, including autonomous prosecutorial authority, a funding source outside of Congressional appropriations and a single director who may only be terminated “for cause.”4
In the Bureau’s brief existence to-date, it has consistently pursued enforcement actions against financial giants and small firms alike, resulting in settlement judgments in upwards of tens of millions in some cases.5 However, the enforcement momentum has slowed in recent years and the CFPB’s primary function appears to have evolved into deregulation of the consumer finance industry. In the words of former Director Mick Mulvaney, the agency’s mission should narrow to only the scope of identifying and addressing tedious, “burdensome” consumer protections.6 Consequently, enforcement actions have dropped to an all-time low (see Figure 1), ongoing regulation initiatives at the Bureau have been halted and many rules set during the early years of the Bureau have been wholly reversed.7
Only nine years since its creation by Congress, the pervasive power of the CFPB has been suppressed and enforcement actions have simultaneously dropped to the lowest in the Bureau’s brief history.8 This precipitous drop indicates that former acting CFPB Director Mick Mulvaney followed through on his longstanding pledge to curb enforcement activity.9 By the end of his term, the number of public enforcement cases announced in 2018 declined by 80% from the Bureau’s peak productivity in 2015, and the average amount of monetary relief per case awarded to victims of illegal financial practices dropped by approximately 96%.10 Barring any change in policy by the current director, this trend should continue.
With federal enforcement momentum waning, this is driving considerable innovation on the state level. A growing number of state governments are pushing enhanced consumer protection laws and for greater enforcement actions by their Attorney General offices for violations of state and federal regulations. With CFPB total settlement amounts dwindling to almost nothing in 2018,11 state regulators may seek greater penalties to offset the declining share of federal enforcement revenue. This parallel of state intervention is already readily observable in other areas of regulation, including consumer privacy rights. To respond effectively to this new form of regulatory encroachment, organizations should first understand how states are reacting to the CFPB’s pullback and what they are doing at the state level to protect consumers. Continue reading for an analysis of the actions state governments are taking to bridge the federal enforcement gap and what firms can do to mitigate the impact of this trend on their business.
In the next post of this series on the state of consumer financial protection, learn how states are creating new laws and new government agencies so that there is no lapse in protection.
Facts and Figures
Figure 1: Agency case volume has dropped dramatically since a high of 55 public cases in 2015
Figure 2: Consumer relief settlement amounts have dropped dramatically since the departure of former Director Richard Cordray
Figure 3: Relief to consumers has declined markedly when viewed by Director
Figure 4: Restitution for aggrieved consumers has decreased dramatically for Cordray’s successors
- “H.R.4173 – Dodd-Frank Wall Street Reform and Consumer Protection Act,” Congress.gov, July 21, 2010. Access at: https://www.congress.gov/bill/111th-congress/house-bill/4173/text.
- “CFPB Announces $60 Million Fine Against Debt Collectors,” The Wall Street Journal, July 25, 2019. Access at: https://www.wsj.com/articles/cfpb-announces-60-million-fine-against-debt-collectors-11564097004?mod=searchresults&page=1&pos=16.
- “Is the Consumer Financial Protection Bureau mission changing?,” Consumer Affairs Finance News, January 5, 2018. Access at: https://www.consumeraffairs.com/news/is-the-consumer-financial-protection-bureau-mission-changing-010518.html. See also Mick Mulvaney, CFPB Staff Email: “To Everybody from the Acting Director,” January 23, 2018. Access at: https://www.covfinancialservices.com/wp-content/uploads/sites/19/2018/01/Mulvaney-Memo.pdf. “The Consumer Financial Protection Bureau Has a New Mission: Protecting America from “Burdensome Regulations”,” Slate.com, December 22, 2017.
- “Washington’s New Consumer Cop is Gutting His Own Agency. Here’s Why You Should Care,” Money, February 2, 2018. Access at: https://money.com/money/5129645/mick-mulvaney-cfpb-agency/. “Dormant: The Consumer Financial Protection Bureau’s Law Enforcement Program in Decline,” Consumer Federation of America, March 11, 2019. Access at: https://consumerfed.org/reports/dormant-the-consumer-financial-protection-bureaus-law-enforcement-program-in-decline/. Overall, this study finds that under the leadership of Acting Director Mick Mulvaney, and more recently, Director Kathy Kraninger, enforcement activity at the CFPB has declined to levels that are either nonexistent or significantly below that of the prior Administration.
- “Enforcement Actions Drop Sharply at Trump-Led CFPB,” Bloomberg News, October 11, 2018. Access at: https://news.bloomberglaw.com/banking-law/enforcement-actions-drop-sharply-at-trump-led-cfpb. The CFPB took only 3 enforcement actions in Q1-3 of 2018, compared to 31 in 2017.
- “Dormant: The Consumer Financial Protection Bureau’s Law Enforcement Program in Decline,” Consumer Federation of America, March 11, 2019. Access at: https://consumerfed.org/reports/dormant-the-consumer-financial-protection-bureaus-law-enforcement-program-in-decline/.
- “Dormant: The Consumer Financial Protection Bureau’s Law Enforcement Program in Decline, Consumer Federation of America Report, March 12, 2019. Access at: https://consumerfed.org/wp-content/uploads/2019/03/CFPB-Enforcement-in-Decline.pd.