Politics & Money

CFPB adds firepower to enforcement division

Industry expects larger settlement sums, proceedings against individuals and protracted litigation

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The Consumer Financial Protection Bureau (CFPB) is adding 20 to 30 enforcement attorneys as it ramps up fair lending and redlining enforcement.

Adding that many attorneys to the supervision, enforcement and fair lending division amounts to about a 10% increase, said Bryan Schneider, who until July was the associate director of supervision, enforcement and fair lending division for the CFPB. Schneider said the move communicates the “firmness with which they’re going to proceed” in enforcement actions.

The CFPB declined to comment.

The supervision, enforcement and fair lending division is divided into four geographical regions, each with more than 100 examiners, a team of field managers, analysts, and administrative assistants.

The bureau has signaled it will intensify its fair lending and redlining enforcement.

Per the agency’s latest report, it has a number of newly-opened and ongoing fair lending investigations of institutions. The CFPB also said it referred three cases of redlining to the Department of Justice for further investigation. The CFPB has authority to bring redlining claims due to its interpretation of the Equal Credit Opportunity Act.

The agency’s interpretation, because it is so novel, has yet to be proven in court.

Redlining investigations — which can stretch on for years, compliance attorneys say — are triggered by a statistical analysis of a mortgage lender’s performance in underserved communities. If the CFPB finds a lender is underperforming in those areas relative to its peer group, the CFPB may search for other signs a lender is discouraging protected groups from seeking a mortgage.

Anything from advertising materials, the number of branches in an underserved area, loan pricing, internal emails with derogatory language or radio advertisements with questionable language are fair game for the regulator.

Mortgage industry stakeholders have asked the regulator to provide further clarity in light of enhanced enforcement. But observers expect the CFPB’s newly sworn-in director, Rohit Chopra, to seek larger settlement sums, proceed against individuals and publicly litigate disputes, rather than settle.

“They won’t be reluctant to litigate,” said Schneider.

Observers expect Chopra to seek larger settlements, as he did while at the Federal Trade Commission, in part because that is what a former CFPB director did. During Richard Cordray’s tenure the CFPB charged companies more than $11 billion, extracting more than $9 billion over a two year stretch.  By comparison, in 2019 and 2020, under Kathy Kraninger, the CFPB carried out a comparable number of enforcement actions, but reaped $1.5 billion in penalties.

Yet the CFPB may not be content with large, headline-grabbing civil penalties alone.

“Large incumbents can easily afford to bankroll the kind of blockbuster settlements that generate headlines,” Chopra wrote in his 2019 dissent on Facebook’s $5 billion FTC settlement. Wrapping up investigations earlier to settle for large sums favors larger companies, Chopra wrote, while smaller entities face the full force of the regulator because they lack the resources to settle.

There are other methods beyond large settlements and reputational harm the CFPB could use to bring the mortgage industry to heel. Schneider said the bureau could turn to novel injunctive relief, possibly by putting caps on growth or removing management.

“When companies can violate the law, pay big penalties, and still turn a profit while keeping their business model intact,” Chopra wrote, “Enforcement agencies cannot claim victory.”

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