Have we seen the last of Mick Mulvaney as acting head of the Bureau of Consumer Financial Protection (CFPB or Bureau)? It looks as though the Senate will finally vote on Kathy Kraninger’s nomination as director. Other new developments at the Bureau include a $12 million consent order with a consumer finance unit of an international bank over an add-on product as well as the first amicus brief favorable to industry, filed with the U.S. Supreme Court, in a Fair Debt Collection Practices Act (FDCPA) case.
What happened
- CFPB director vote. After a few months of quiet, the battle over leadership at the Bureau may ratchet up again now that the midterm elections are over.
Last June, President Donald Trump nominated Kathy Kraninger, as we reported, to become the director of the CFPB, an appointment that carries a five-year term. Currently working under Mulvaney as an associate director at the Office of Management and Budget (and a relative political unknown), Kraninger faces continued criticism about her lack of relevant financial services or management experience, as well as her involvement in the president’s controversial child separation immigration policy.
After multiple delays, the Senate Banking Committee approved Kraninger by a vote of 13 to 12 along party lines, sending her nomination to the full Senate for consideration. The movement then stalled.
Now, with the Republican majority assured following the midterm elections, Sen. Mitch McConnell (R-Ky.) filed cloture just prior to Thanksgiving, signaling that a vote will be held once the full Senate returns in the coming weeks. On November 29, on a party line vote of 50–49, the Senate invoked cloture and decided to proceed to debate and vote on her nomination.
- Enforcement actions. Two CFPB-related enforcement actions are worth noting.
Marketing of “add-on” products: In a settlement with the consumer lending unit of a major foreign bank with U.S. operations, the CFPB secured nearly $12 million in consumer refunds and penalties. After reviewing certain lending and marketing practices of the non-depository consumer financial services company, the Bureau identified violations of the Consumer Finance Protection Act (CFPA). During the relevant period, the company marketed an add-on product known as S-GUARD GAP to cover the “gap” between a consumer’s primary auto insurance payout and the outstanding auto loan balance in the event a consumer suffered a total loss of his or her vehicle. But the product was subject to a loan-to-value (LTV) limitation of 125 percent, the CFPB said, so consumers who purchased the product for a loan that had an LTV greater than 125 percent would not receive the “true full coverage” promised by the company.
In addition, the company offered “extensions” via outbound telephone calls to consumers who had missed at least one payment on their auto loans. Instructed to follow a script, customer call representatives told consumers that the loan maturity date would be extended and that “interest would continue to accrue,” moving “one or more monthly payments to the end of the loan.” But the so-called extension actually required consumers to continue to pay back their loans beyond the number of months extended due to the interest accrued on the principal during the extension period, the Bureau alleged, and yet the representatives did not disclose how the principal and interest would be allocated.
To settle the CFPB’s charges that the representations for the extensions and the S-GUARD GAP constituted deceptive acts or practices in violation of the CFPA, the parties reached an agreement. Without admitting or denying any of the findings of fact or conclusions of law, the consumer financial services company agreed to provide roughly $9.29 million in restitution to approximately 3,493 consumers (including an estimated $7.3 million in statement credits) who purchased the add-on GAP product. The company will also pay a $2.5 million civil penalty. In addition, the company must clearly and prominently disclose the terms of its loan extensions and add-on products going forward and is prohibited from misrepresenting the benefits and limitations associated with its products.
Pension advances: It looks as though the CFPB’s enforcement action against a pension advance company is likely going nowhere. You may recall that back in September 2018, the CFPB brought an enforcement action in U.S. District Court in California against a pension advance company, its owner and various related companies, alleging that the company made loans disguised as the purchase of assets. If these sales were actually loans, it would also be true that the loans lacked Truth in Lending disclosures, and that is precisely what the Bureau alleged in its complaint, along with claims of usury and unfair and deceptive practices. Now, while the CFPB action remains pending, that same company has just defaulted in proceedings filed by the Virginia attorney general over similar accusations. The Virginia AG order includes “more than $50 million” in various consumer debt relief and civil penalties, but it appears the company went unrepresented after its initial counsel withdrew in the spring of 2018. With the companies apparently defunct, it is not entirely clear what steps the CFPB will take, if any.
- Amicus brief favoring industry. In an interesting move, the Bureau sided with the industry defendant in an amicus brief filed with the Supreme Court in an FDCPA case set for oral argument next spring. The justices agreed to answer the question of whether the statute applies to nonjudicial foreclosure proceedings in Obduskey v. McCarthy & Holthus LLP, a case wherein the U.S. Court of Appeals for the Tenth Circuit ruled that a law firm hired to pursue such a foreclosure was not a debt collector under the FDCPA.
Speaking out in support of the law firm, the CFPB told the Court that because enforcement of a security interest by itself is generally not considered “debt collection” pursuant to the statute, a defendant cannot violate the FDCPA by taking actions that are legally required to enforce that security interest. The statute does not apply to all “debts” or “debt collectors,” the Bureau reminded the justices.
“The FDCPA’s text and structure make clear that enforcement of a security interest, without more, is not debt collection except for purposes of one of the Act’s provisions,” according to the CFPB’s amicus brief. “Nonjudicial foreclosure is ‘the enforcement of [a] security interest[]’… Deeming such activities debt collection could bring the FDCPA into conflict with state law and effectively preclude compliance with state foreclosure procedures. No sound basis exists to assume Congress intended that result.”
This is just the second amicus filing during Mulvaney’s tenure as CFPB acting director, and the first ever to support the industry’s position.
To read the CFPB consent order, click here.
To read the CFPB’s amicus brief, click here.
To read the CFPB complaint, Virginia order, click here.
Why it matters
In what are likely the waning days of the Mulvaney era at the CFPB, the Bureau continues to move in a more pragmatic direction, targeting the most abusive elements of consumer lending while retreating from regulation by enforcement. Under the leadership of prior director Richard Cordray, enforcement actions with multimillion-dollar payouts were not uncommon. This is less so under Mulvaney, although current enforcement activity serves as a reminder that add-on products—long a target of regulators from the CFPB to the Board of Governors of the Federal Reserve System—continue to raise significant regulator concern. And the amicus filing is more interesting for its precedent in supporting industry rather than for the breadth or subject matter of its position. That said, it remains unusual for an agency tasked with consumer protection to throw its weight behind an industry defendant before the Supreme Court. Expect more of the same in the future.