Insight

Spotlight on the CFPB

Current topics relevant to the activities of the Consumer Financial Protection Bureau

Amy S. Matsuo

Amy S. Matsuo

National Leader, Regulatory Insights, KPMG US

+1 919-664-7302

Todd Semanco

Todd Semanco

Partner, Banking & Consumer Compliance Risk, KPMG US

+1 412-232-1601

Michael Lamberth

Michael Lamberth

Partner, Operations & Compliance Risk, KPMG US

+1 804-241-2795

Despite speculation of reductions to bank consumer financial protection focus under the current administration, prudential bank regulators have continued their focus on consumer protections via their enumerated regulatory coverage as well as compliance program and control reviews. Individual state banking activity as well as non-bank supervision entities (such as FTC and FCC) will continue to intensify consumer protections in such areas as UDAAP/UDAP, fair lending, fair advertising, data privacy, fintech providers, debt collection, and credit reporting.

Key points

  • Potential operational and budgetary impacts could result from 1) a U.S. Supreme Court decision regarding  the constitutionality of the CFPB’s leadership structure (oral arguments will begin in early March), and 2) provisions in the President’s proposed 2021 budget that would subject the CFPB to the Congressional appropriations process beginning 2022.
  • Updates to CFPB supervision and regulation include the release of a policy statement clarifying the definition of “abusive” for applications of the CFPB’s UDAAP authority and anticipated additional rulemakings addressing the GSE Patch for Qualified Mortgages, HMDA data points and disclosures, and debt collection rules.
  • Federal agencies and individual states are actively enforcing consumer protections within their jurisdictions inclusive of UDAAP/UDAP, fair lending, fair advertising, data privacy, fintech providers, debt collection, and credit reporting.

Current topics relevant to the activities of the Consumer Financial Protection Bureau (CFPB or Bureau) follow.

Judicial/Executive branch actions

The future operations of the CFPB could be impacted by issues being considered by the U.S. Supreme Court and the Administration.

  • U.S. Supreme Court: On March 3, the U.S. Supreme Court will hear arguments for the case Seila Law LLC v Consumer Financial Protection Bureau, which challenges the constitutionality of the CFPB leadership structure. At present, the single director of the CFPB may be removed by the President only “for cause,” specifically inefficiency, neglect of duty, or malfeasance in office. The case will consider whether (1) the vesting of substantial executive authority in the CFPB, an independent agency, violates the separation of powers; and (2) if the CFPB is found unconstitutional on this basis, can it be severed from the Dodd-Frank Act, thus nullifying the Bureau.
    The Department of Justice has filed a brief with the Supreme Court indicating it supports the position that the CFPB’s structure violates the separation of powers. The brief indicated that the Director of the Bureau “has reached the same conclusion.” The CFPB Director has stated that litigation concerning the question of the CFPB’s legality has caused significant delays to some of the Bureau’s enforcement and regulatory actions.
  • Administration: The President’s proposed 2021 budget would establish a Congressional appropriations process for the CFPB beginning in 2022. At present, the CFPB receives funding from the Federal Reserve Board.

Supervision and Regulation 

Key areas garnering attention related to supervision and regulation include:

  • Definition of “abusive”: The CFPB issued a Policy Statement to describe how, going forward, the Bureau will apply the abusiveness standard in supervision and enforcement matters related to the prohibitions on unfair, deceptive, or abusive acts or practices (UDAAP). In particular, the CFPB will:
    • Focus on citing or challenging conduct as “abusive” if the Bureau concludes that the harms (i.e., quantitative or qualitative) to consumers from the conduct outweigh its benefits to consumers.
    • Avoid challenging conduct as “abusive” if doing so relies on all or nearly all of the same facts that the Bureau alleges are “unfair” or “deceptive”. The Bureau will explain the relationship between the specific facts and circumstances that are the basis for a claim of abusive conduct.
    • Generally seek certain types of monetary relief for abusiveness violations only where, based on a “reasonable interpretation” of the standard, the covered person was not making a good-faith effort to comply with the standard.
      • Where a good-faith effort was made, the Bureau will a) seek damages and restitution to redress identifiable consumer injury and b) not seek civil penalties or disgorgement.

The CFPB’s UDAAP enforcement authority applies to insured depository institutions with total assets in excess of $10 billion and their affiliates as well as nonbanks that offer consumer financial products and services. The Dodd-Frank Act also provides authority to the individual states to enforce the CFPB’s UDAAP provisions. Separately, the prudential regulators have authority to enforce the Federal Trade Commission Section 5 prohibitions against unfair or deceptive acts or practices (UDAP).

  • Pending rulemakings
    • “GSE Patch”: CFPB has indicated that it intends to adopt a “limited extension” of the temporary qualified mortgage provision applicable to certain mortgage loans eligible for purchase or guarantee by the Government Sponsored Enterprises (GSEs), Fannie Mae, and Freddie Mac. The temporary provision, which is in the Bureau’s Ability to Repay/Qualified Mortgage (ATR/QM) Rule, is commonly referred to as the “GSE Patch”. It is set to expire once the GSEs exit conservatorship or receivership but also no later than January 10, 2021.
      • CFPB is also considering whether to amend the general QM definition, including an alternative method for assessing a borrower’s financial capability.
      • A proposed rule (NPR) is expected to be released during 2020. An advanced notice of proposed rulemaking (ANPR) was released in July 2019.
    • Home Mortgage Disclosure Act (HMDA): Two NPRs are expected to be published in July 2020 seeking public comment on:
      • Privacy risks and perceived benefits of public disclosure of HMDA data.
      • The collection of new and amended data points, including data on coverage of certain business or commercial purpose loans.
        Final rules addressing certain open-end lines of credit and closed-end mortgages are expected to be released during Summer 2020.
    • Debt Collection: A final rule is anticipated to be released during 2020. The rule will amend Regulation F, which implements the FDCPA, and include topics such as communication, time-barred debt, and validation notice disclosures.
  • Enforcement
    • The CFPB’s Winter 2020 Supervisory Highlights includes observations in the areas of debt collection, mortgage servicing, payday lending, and student loan servicing. A Fall 2019 special edition of the Supervisory Highlights focused on consumer reporting. The Director’s Congressional testimony similarly highlighted enforcement activity in each of these same areas against depository institution and nonbank financial services providers.
    • Additional factors that could influence future enforcement activity:
      • CFPB signed an MOU with the Department of Education to share complaint information for student loan borrowers, and is expected to sign another regarding examinations.
      • Staffing hires, including a director to lead the Supervision, Enforcement, and Fair Lending (SEFL) Division and another to focus on Enforcement.
      • An anticipated policy statement outlining how companies can exit CFPB Consent Orders early.

 

Spotlight on the CFPB
Current topics relevant to the activities of the Consumer Financial Protection Bureau


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