Watchdog tells CFPB to get its fair lending house in order

Decline in enforcement, fines after Kraninger-era reorganization


After a government watchdog agency found a reorganization of the Consumer Financial Protection Bureau (CFPB) gutted its fair lending office and halted the reporting of enforcement actions, at least two officials have left the agency.

The Government Accountability Office found that a 2018 reorganization of the Bureau’s fair lending practices shifted its fair lending enforcement from specialists to generalists at the enforcement office. The CFPB distributed nearly three quarters of its fair lending staff to other divisions.

Just weeks after the Bureau received the report, but before it was made public, the CFPB announced the departure of Bryan Schneider, who headed up the supervision, enforcement and fair lending office.

Schneider was appointed by the Trump administration in 2019. Before that, he was secretary of the Illinois state finance agency. He previously spent nearly 15 years at the Walgreen Company, where he worked in healthcare compliance regulation and lobbying.

Schneider did not return requests to comment.

The reorganization, which the CFPB announced at the beginning of 2018, limited the enforcement division’s power to open investigations without outside approval.

Before the reorganization, the fair lending office identified institutions to examine. Under the new structure, approval for those investigations had to pass through a new policy and strategy office, led by the CFPB’s supervision policy associate director, Peggy Twohig. Last week, Twohig, who was instrumental in the founding of the agency more than a decade ago, announced her retirement.

In a statement to HousingWire, CFPB Acting Director Dave Uejio thanked Schneider and Twohig for their “dedicated service” to the Bureau.

A spokesperson for the Bureau did not immediately comment on the GAO report.

The 2018 changes to fair lending practices at the CFPB — and a drop-off in enforcement actions — drew the attention of Sens. Elizabeth Warren (D-MA) and Sherrod Brown (D-OH), who asked the GAO to look into the matter.

For the past year, the GAO has conducted interviews with CFPB staff and pored over data to gain a clear picture of how the changes impacted fair housing enforcement at the CFPB.

In recent years, the decline in enforcement actions at the bureau was striking.

While Kathy Kraninger helmed the CFPB, from 2018 to 2020, it fined companies about $800 million. That figure is dwarfed by the $12 billion in fines it charged companies during six years under the agency’s first director, Richard Cordray. During Kraninger’s tenure, the agency also began targeting mostly smaller companies, like payday lenders and debt collectors. In many cases it opted to settle with companies.

The GAO report highlighted dramatic changes to fair lending enforcement at the Bureau.

During the reorganization, the fair lending office was reshuffled. Twenty-eight staffers were transferred to other divisions, leaving only ten full-time staffers at the office of fair lending and equal opportunity.

The changes initially received pushback from employees, who the GAO said were kept in the dark about the purpose of the restructuring.

In 2018, the GAO found, the CFPB opened the fewest enforcement investigations since 2014. It also took no fair lending-related public enforcement actions that year, and the number of investigations it closed grew.

In 2019, the agency stopped reporting the number of completed fair lending examinations or how many enforcement cases it successfully resolved. It also dissolved its fair lending analytics team.

The GAO recommended the CFPB “address any challenges or unintended consequences” of the 2018 reorganization. It also recommended the Bureau develop and implement fair lending performance goals to supervise and enforce fair lending laws.

According to the GAO, the CFPB has not yet fully addressed those recommendations, although it said it is committed to implementing them.

Under the Biden administration, the CFPB appears to already be baring its teeth. The agency noted in May that mortgage-related complaints hit a three-year high. It’s vowed to aggressively go after servicers it says violated forbearance laws.

The regulator is no longer “taking it easy” on consumer financial services firms in light of the pandemic, Jeffrey Naimon, a partner at Buckley LLP, said at the Mortgage Bankers Association’s spring 2021 virtual conference.

Naimon said that with the new presidential administration, he’s noticed there is a “lower bar” for enforcement actions.

“They’re looking to pin some heads on the wall, to show that there’s a new cop on the beat,” said Naimon. “They want to make examples.”

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