Since its inception, my desk received voluminous feedback from the mortgage industry on the insider operations at the Consumer Financial Protection Bureau.
The HousingWire newsroom’s efforts to work with the CFPB on addressing these issues resulted in a mixed bag of responses, ranging from super helpful to highly combative.
To be sure, this is not the complaint.
Without naming names, the two most common complaints (referred to as “worst fears” in my headline) I heard from the mortgage industry about the CFPB were as follows:
1. The CFPB targets lenders for enforcement action based on opaque internal decisioning
The CFPB targets those who harm the most consumers first, right? Well, we don’t know and their enforcement patterns don’t tell us much. My publication and others go to great lengths to set up a crystal ball to see inside the CFPB. We once even managed to get CFPB representatives to do a webinar, who then at the last moment declared they would not take questions from participants.
2. Monetary penalties seemed determined by revenue, not equalitarian application of said enforcement action
In other words, lawyers told me that clients hand over, and sign, sensitive documents in an effort to show eagerness to comply with CFPB provisions. Those documents, they feared, are then used against them; penalties felt levied at the highest level a company could pay, without putting the target out of business. The CFPB wanted to be viewed as a protector, yes, but not a bankrupter.
In a new piece in the National Review, Ronald Rubin discusses at length said internal processes. He should know, Rubin served as an enforcement attorney at the Consumer Financial Protection Bureau and the chief advisor on regulatory policy at the House Financial Services Committee.
Rubin’s main objective in writing “The Tragic Downfall of the Consumer Financial Protection Bureau” is to highlight what he calls the heavy politicization of the CFPB.
In doing so, Rubin also just confirmed the worst fears of the mortgage industry.
For complaint #1, Rubin offers the example of the Wells Fargo accounts scandal as harming millions for years before action was taken. Why didn't the CFPB act sooner? The bank wasn't in its sights.
Rubin explains in more detail, but here in brief:
"Congressional hearings revealed that two years of examinations, thousands of bank-employee firings, and numerous complaints had failed to get the bureau’s attention before the Los Angeles Times published a detailed exposé late in 2013. Worse yet, from 2013 to 2016, the CFPB took no action while the bank continued the incentive program that drove the unauthorized account openings."
For complaint #2, Rubin mentions the trajectory of PHH Corp. v. Consumer Financial Protection Bureau as an example of break-but-don’t-bust violators (last line).
Fortunately for PHH, the CFPB had accused it of violating a specific mortgage law. For two decades, HUD had interpreted the law and provided guidance that allowed business relationships like the ones Enforcement had investigated at PHH; payments to the company and its affiliates above the reasonable market value of services rendered were deemed illegal kickbacks. An administrative-law judge, following HUD’s interpretation, ordered PHH to refund consumers $6.4 million in excess payments. PHH appealed to the director. Cordray’s decision was stunning: HUD’s interpretation was wrong; the CFPB was not bound by the mortgage law’s three-year statute of limitations; all payments during the last eight years were kickbacks; PHH didn’t owe $6.4 million, it owed $109 million.
Targets were almost certain to write a check, especially if they were accused of subjective “unfair, deceptive, or abusive acts or practices.” Even the size of the checks didn’t depend on actual wrongdoing — during investigations, Enforcement demanded targets’ financial statements to calculate the maximum fines they could afford to pay.
Rubin’s account may seem to some the rants of a disgruntled former employee; we all have our share of those. There is no doubt in my mind the CFPB is staffed with primarily able-bodied regulators who make prudent decisions on a daily basis — with the vision of leaving the American consumer with more protection tomorrow than today.
So it’s not the starting point that’s the problem, it is the CFPB as a means to an end. And if that continues to operate outside additional checks and balances, then the due process of the law will continue to be pushed aside to achieve the wrong kind of vision under a masquerade of consumer protection.
The CFPB needs reminding that in order to be needed one should behave with necessity. Until that day, the complaints of the mortgage industry should not be disregarded; we are in this too.
The best door to great financial responsibility should swing both ways.