IMPACT ANALYSIS: U.S. consumer bureau remains an enforcement power despite uncertain future

NEW YORK (Thomson Reuters Regulatory Intelligence) - Showing no letup in activity amid signs its growing clout may soon be clipped, the fledgling Consumer Financial Protection Bureau (CFPB) has recently acted against firms ranging from national lender Moneytree, Inc., major credit bureaus and Citigroup subsidiaries.

U.S. Consumer Financial Protection Bureau (CFPB) Director Richard Cordray testifies before a Senate Banking Committee hearing on Capitol Hill in Washington June 10, 2014.

The actions signal that the watchdog agency, created under the 2010 Dodd-Frank Act, and its active enforcement regime cannot yet be discounted by any financial service firm’s compliance program. This holds even as President Donald Trump and Congress prepare to enact an agenda of deregulation and structural changes loom.

The agency gained prominence from its role in cracking down on Wells Fargo in a sales-practice scandal last year. Consumer-protection advocates say it has strong public backing, but Republicans in control of Congress have expressed their intent to at least temper the broad powers given to its director.


The CFPB in December filed an administrative complaint against Moneytree, Inc., a Washington-based financial serviced company offering payday loans and check-cashing services, challenging the company’s online advertisements and collection letters as deceptive.

Advertisements for the company’s check-cashing services tricked consumers about the true cost, the Bureau asserted, with an ad in early 2015 offering to cash consumers’ tax refund checks for “1.99” when the actual fee was 1.99 percent of the amount of the check cashed -- not $1.99 as was implied.

Other allegations included misleading letters sent to consumers threatening to repossess their vehicles if they failed to make past-due payments on installment loans -- even though none of the consumers had loans secured by the vehicles.

Multiple supervisory examinations led to the CFPB’s complaint. The bureau identified what it characterized as a “significant weaknesses” in the company’s compliance-management systems with regard to lending, marketing, and collections activities.

The CFPB ordered Moneytree to pay $255,000 to consumers harmed by its deceptive practices and to pay a $250,000 civil penalty.

Dennis Bassford, chief executive of the company, said in a written statement the allegations arose from “unintended and isolated process errors.”

In another case, the CFPB last month took action after a three-year investigation into allegations that two of the three major credit bureaus duped consumers about the usefulness and actual cost of credit scores. The CFPB claimed that Transunion and Equifax also made false promises about credit-related products to enroll consumers in programs with recurring monthly fees. The credit bureaus will pay $23.5 million to settle the charges.

One of these companies used a scoring model from a third-party vendor, while the other sold, to consumers, credit scores based on its proprietary model. The CFPB said the two companies violated the Dodd-Frank Act by falsely representing that the credit scores it marketed were in fact the same scores lenders used to make credit decisions.

Furthermore, both companies allegedly tricked consumers by claiming that their credit scores and credit-related products were free or nearly free.

The bureaus must pay a total of $17.6 million in restitution to consumers and civil penalties will cost a total of $5.5 combined.

TransUnion spokesman David Blumberg and Equifax spokeswoman Ines Gutzmer said (here) their respective companies believe they have complied with applicable laws, and are committed to better educating consumers about their credit.

Also in January, the CFPB charged two Citigroup subsidiaries (here) a total of $28.8 million for mistreatment of homeowners seeking to avoid foreclosure.

CitiMortgage “kept consumers in the dark about foreclosure relief options” when consumers sought payment deferrals, the CFPB said. It required some borrowers seeking assistance to fill out excessive numbers of documents, some previously provided.

CitiFinancial Servicing, the CFPB said, failed to consider borrowers’ requests for loan payment deferments as a request for foreclosure relief options. Consumers paid for credit insurance that CitiFinancial should have canceled after a borrower missed four or more monthly payments; subsequent payments went to insurance premiums rather than unpaid interest, the agency said.

The CFPC ordered CitiMortgage pay an estimated $17 million to consumers and a $3 million civil penalty and CitiFinancial Servicing to refund about $4.4 million to consumers and pay a civil penalty of $4.4 million.

Citi said it was “pleased to resolve these matters.”

Just this week, the CFPB hit Sherman Oaks, Calif.-based Prospect Mortgage LLC with a $3.5 million fine for allegedly paying kickbacks to two real estate brokers and a servicer for referrals of government-backed mortgage loans.

The CFPB also took action against the two real estate brokers, Keller Williams Realty Mid-Willamette and Remax Gold Coast, plus mortgage servicer Planet Home Lending, LLC, for their “improper arrangements” with Prospect Mortgage.

"Today's action sends a clear message that it is illegal to make or accept payments for mortgage referrals," CFPB Director Richard Cordray said in a press release (here). "We will hold both sides of these improper arrangements accountable for breaking the law, which skews the real estate market to the disadvantage of consumers and honest businesses."


All of these actions come in advance of what could be a reinvention of the CFPB by the new administration and Congress. A federal appeals court in Washington ruled last October that the structure of the agency was unconstitutional because it gives its sole director too much power. As a remedy, the court gave the president the power to fire the director.

The CFPB has asked the court to reconsider its decision but the Trump administration could drop the appeal.

The bureau is funded by the Federal Reserve and is thus independent of the congressional budget process. But congressional Republicans critical of the agency have sought to bring it under congressional funding and establish a commission to run it, rather than the single director.

It is still unclear how the CFPB will be affected by Trump’s executive orders on deregulation -- he froze new regulation by government departments upon taking office January 20, and just this week ordered that each future regulation must be accompanied by financial impact data and the elimination of two existing regulations.

These actions, however, do not appear to apply “independent regulatory agencies,” such as the CFPB or the Securities and Exchange Commission. Cordray was quoted by the Wall Street Journal as saying CFPB lawyers are “still digesting” the applicability of the freeze on independent agencies such as his.

However, the CFPB and other independent agencies remain subject to the Paperwork Reduction Act of 1995, which provides that an agency must not conduct information collection activities without the prior approval of the White House Office of Management and Budget (OMB) Director.

This means that while the OMB may not be able to prevent an independent agency from issuing a new rule, it potentially can stop the agency from requiring the public to submit filings to comply with the rule.


This time of uncertainty will require compliance officers to pay even closer attention to federal actions.

Compliance officers must not let their guard down simply in response to political rhetoric foretelling weaker regulations. The potential for change does not nullify existing rules, and regulators may use any policy hiatus to increase their supervision and enforcement efforts.

Firms should continue to operate with an expectation that lapses in complying with rules currently in place can lead to enforcement actions, even as they monitor any changes by the agencies to which they are accountable.

Regulatory change is happening, but the “how” to implement all of these directives is still hanging in the air. Without clearer instructions, compliance officers should stay the course.

- CFPB administrative complaint: here

- Dennis Bassford, Moneytree chief written statement: here

- Paperwork Reduction Act of 1995: here

(Julie DiMauro is a regulatory intelligence expert in the Enterprise Risk Management division of Thomson Reuters Regulatory Intelligence. Follow Julie on Twitter @Julie_DiMauro. Email Julie at