United States: CFPB Watch

Director Richard Cordray continues to keep watchers of the Consumer Financial Protection Bureau ("CFPB" or "Bureau") guessing as to his departure from the agency. The unpredictability surrounding his specific departure date, however, obscures key aspects of the CFPB's activities that will have a predictable impact on the financial industry.

CFPB Leadership Uncertain

Rumors of Director Cordray's potential departure started at the beginning of the summer and reached fever pitch before his speech at the AFL-CIO Labor Day picnic in Cincinnati, Ohio, which was perceived as an ideal venue for his declaration of intent to enter the Ohio gubernatorial race. This event was preceded days earlier by his refusal to provide any information in response to House Financial Services Committee Chairman Jeb Hensarling's demand that he declare whether he will serve out his term at the CFPB or resign to run for Ohio governor. Indeed, Chairman Hensarling's demand well could have had the effect of causing Director Cordray to stick to his guns and his CFPB position longer, rather than encouraging his early departure. Moreover, there is little prospect of the President forcibly removing Director Cordray from his position, thereby potentially giving the Democrat valuable political capital for his gubernatorial run in Ohio – a crucial swing state wavering on the brink despite the 2016 vote to elect President Trump. Even so, it is most likely that Director Cordray will leave his post this Fall, well in advance of the natural expiration of his term in July 2018.

While Director Cordray continues to sidestep questions about his political intentions, he did deliver a campaign-style speech at the AFL-CIO Labor Day event, coupling discussion of his record of defending consumers at the CFPB with messages of unity to fight for financial equality and opportunity. We believe the speculation, around the specific date when Director Cordray will declare his gubernatorial run, to be more noise than substance. What is more important is the likelihood that he will leave this Fall – but only after attempting to stave off challenges to the arbitration rule, issuing a payday rule and proposed debt collection rule, and consolidating the groundwork for continued CFPB activism after his departure, as discussed below.

Of course, speculation is also rampant on the question of the CFPB's leadership following Director Cordray's departure. The nomination and confirmation of a new Director will be long in coming. Continuing political upheaval has delayed other Trump appointments, and the controversy that will accompany the confirmation hearings of any candidate for the position of CFPB Director will complicate the process still more. As in many other aspects of the agency's operations, novel legal questions surround the issue of who will hold the position of Acting Director in the long interval before the confirmation of a permanent new Director.

When an Executive Branch position covered by the 1998 Federal Vacancies Reform Act becomes vacant, it may be filled in one of three ways: (1) the first assistant automatically assumes the functions and duties of the office; (2) the President directs an officer who has been confirmed by the Senate for another position to perform that role; or (3) the President selects an officer or employee in the same agency who holds a senior rank and has been with the agency for at least 90 of the preceding 365 days. The President has little reason to choose a current CFPB employee to fill the Acting Director role. He would be more inclined to choose a confirmed official from another agency to fill the Acting Director role while continuing to hold their existing office. The most likely choice would be Treasury Secretary Steve Mnuchin. Alternatively, CFPB Acting Deputy Director David Silberman could move into the Acting Director position. That in fact is the outcome specified by the Dodd-Frank Act "in the absence or unavailability of the Director." Some might contend that this specific Dodd-Frank provision for succession at the CFPB would override the Vacancy Act's general provisions for the President to fill vacant positions. Others would argue that the resignation of the Director is not precisely equivalent to his "absence or unavailability," and that the Vacancy Act authorizes the President to appoint a different Acting Director in any case.

Accordingly, any action taken by David Silberman as Acting Director potentially would trigger legal challenges to his authority to act in such capacity. Further, if the President took the initiative to appoint a different Acting Director, his move is far less likely to face opposition at the CFPB than if Rich Cordray was still in residence. Until the President makes that move, however, David Silberman likely would assume the duties of Acting Director and maintain the CFPB on its current course. Yet the CFPB under an Acting Director Silberman potentially would be significantly less aggressive and less inclined to push novel legal positions, particularly in the enforcement and rulemaking arenas.

But CFPB Activism Most Certain

Before the installation of new leadership, however, much activity will ensue through the CFPB that will have major impact on the financial industry and will be challenging to reverse. We focus here on three key CFPB rulemaking priorities and related enforcement and supervision activities.

On the rulemaking front, the CFPB's issuance of the arbitration rule banning class action waivers in arbitration clauses has garnered wide-spread opposition. While the House has passed a resolution to undo the rule pursuant to the Congressional Review Act (CRA), it is still unclear whether there will be sufficient votes in the Senate, where Republicans have only a two-vote margin. Although the 60-legislative day clock for Congress to act likely will not have elapsed before his departure, Director Cordray might well remain at the CFPB until the arbitration rule has survived what is perceived to be the peak of the CRA threat in the coming weeks.

A CFPB Director or Acting Director appointed by the President could not undo the arbitration rule by fiat. An agency's elimination or amendment of a rule must be supported by notice and comment, similar to the adoption of a rule. New CFPB leadership potentially could delay the compliance date of the rule and possibly reopen the rulemaking for further review, however. Indeed, the President might sign an Executive Order demanding such a review. The outcome of course would remain uncertain, as in the case of the Fiduciary Rule, on which the President signed such an Executive Order, resulting in the Department of Labor delaying the compliance date on some but not all components of that rule. The arbitration rule also would be subject to court challenge, which new CFPB leadership might be less inclined to defend vigorously.

The challenge that opponents to the arbitration rule has encountered in obtaining the CRA vote to undo that rule has emboldened Director Cordray to push for issuance of a final rule on payday and small dollar lending in the next few weeks in advance of his departure. In a strategic shift from the earlier wide-ranging proposal, the final rule is expected to be limited to small dollar loans with a term of 45 days or less. Excluded will be installment loans, including potentially auto title loans, that have longer terms. This shift would be a great relief to installment lenders, which the CFPB's original proposal would have subjected to a range of highly prescriptive compliance options that would have been difficult for the CFPB to justify, and for the industry to interpret and implement. There also have been rumors that the final rule will make it attractive for banks to reenter small dollar lending – e.g., through "the 5% option" for lenders to make loans without detailed ability-to-repay underwriting requirements if the monthly payments are no more than 5% of borrower gross monthly income. As a practical matter, we do not think that the rule will cause banks to dramatically increase their small dollar lending. Nevertheless, the narrowed focus of the payday final rule (and the net positive impact for installment lenders facing fewer payday and bank competitors) also will narrow the base for a CRA push to undo the rule – despite the payday industry's continued vociferous opposition.

Finally, the third prong in Director Cordray's rulemaking push – the debt collection rulemaking for third-party collectors and the contemplated analogue for creditors – has little prospect of reaching the finish line before the installation of new Republican leadership at the CFPB. The CFPB still may issue a notice of proposed rulemaking before Director Cordray's departure, but there will be no time to adopt a final rule. In a move similar to the strategic narrowing of the payday rule, Director Cordray publicly committed this summer to focusing the proposed rule largely on the frequency and substance of third-party collectors' disclosures and communications with debtors. As in the case of the payday rule, this narrowing of the first stage of the proposed debt collection rulemaking promises a major reduction in the level of opposition from the industry. While the industry is united in opposing the original proposal's detailed requirements concerning the substantiation of debts and related consumer disputes, some segments are open to receiving additional guidance regarding the frequency and substance of debt collection communications. This groundwork to reduce industry opposition is crucial to the survival of any proposed rule, given the opportunity for new Bureau leadership to undo the rulemaking after Director Cordray's departure.

At the same time that it is narrowing its rulemaking focus, however, the CFPB is pushing on the enforcement and supervision fronts, including expanding and opening new investigations. As one example, the CFPB is driving more aggressively than ever on debt collection investigations, potentially increasing industry exposure even in the absence of new rules. Besides scrutinizing third-party debt collectors, it is investigating creditors – dissecting their use and oversight of third-parties, as well as pursuing potential claims of unfair, deceptive and abusive acts and practices (UDAAP) based on the creditor's own conduct that might be prohibited if undertaken by third-party collectors. Similarly, while the CFPB has narrowed the focus of the payday rulemaking, it is poised to increase scrutiny of providers of what the Bureau broadly categorizes as "open-use credit," to include installment loans, prepaid and credit cards, ancillary products, overdraft and other open lines of credit.

Companies should expect these supervision and enforcement activities to continue after the departure of Director Cordray, and thus should be vigilant in reviewing their practices in these areas for potential exposure. While an Acting Director, especially one appointed by the President, may put a halt to the issuance of new rules, the taming of the CFPB supervision and enforcement machine will take some time even under new leadership. And even with a permanent new Director firmly in control sometime in the future, CFPB staff likely will continue to look for ways to pursue the agency's current activist agenda – including seeding the efforts of State authorities already ramping up their own activities, as discussed in our prior bulletins.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.