Overview
The year 2021 started with the hope of COVID-19 vaccines and a return to (relative) normalcy, only to conclude with new variants that presented new challenges and extended others longer than anticipated. Despite the persistence of the pandemic, in 2021 the consumer financial services regulatory landscape began to return to pre-pandemic norms.
... going forward, the CFPB indicated its intent to return supervisory and enforcement efforts to pre-pandemic levels, and stated that it would again exercise its authority to the full extent provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Most notably, throughout 2021 regulators rescinded flexibilities previously offered to companies in the wake of the pandemic and indicated their intent to strictly supervise and enforce companies' efforts to apply COVID-19-related programs and initiatives. For its part, the Consumer Financial Protection Bureau (CFPB or "the Bureau") formally rescinded seven policy statements issued in 2020 that had signaled substantial flexibility in legal compliance during the early weeks and months of the pandemic. The CFPB's rescission of the former administration's policies effectively revived enforcement of regulations that had been relaxed or suspended in an effort to allow industry participants leeway in assisting consumers through the pandemic. In announcing the CFPB's new approach, then-Acting Director Dave Uejio emphasized industry's and the bureau's need to focus on the pandemic's impact to consumers, noting that "[p]roviding regulatory flexibility to companies should not come at the expense of consumers." While Acting Director Uejio acknowledged that the pandemic also affected the industry, the CFPB expressed the view that the financial services sector's demonstrated ability to adapt to post-pandemic realities meant it was "no longer prudent to maintain these flexibilities." Thus, going forward, the CFPB indicated its intent to return supervisory and enforcement efforts to pre-pandemic levels, and stated that it would again exercise its authority to the full extent provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Other key financial services regulators have indicated a similar intent to return to pre-pandemic norms, particularly with respect to mortgage servicing, as evidenced by the joint statement issued in November 2021 by the Board of Governors of the Federal Reserve (Federal Reserve), CFPB, Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), Office of the Comptroller of the Currency (OCC), and state and state financial regulators. In that joint statement, the agencies collectively revoked the temporary supervisory and enforcement flexibility they had previously provided to mortgage servicers, announced in their April 2020 Joint Statement, advising that that flexibility was "no longer necessary because servicers have had sufficient time to adjust their operations by ... taking steps to work with consumers affected by the COVID-19 pandemic and developing more robust business continuity and remote capabilities." Collectively, these and other regulator statements during the past year indicate that while the pandemic may continue to pose challenges to both consumers and the industry, industry participants now face a world with normal (and likely enhanced) supervision and enforcement going forward.
The past year also ushered in a change in the federal administration, accompanied by increasingly clear indications of the regulatory agenda of the Biden administration as presidential appointees assumed key leadership roles throughout the federal regulatory establishment. Even as the CFPB waited for a permanent director to be confirmed, Acting Director Uejio began the work of dismantling what consumer groups had characterized as former Director Kraninger's industry-friendly guidance. For example, in addition to rescinding guidance on pandemic-related flexibility, in March 2021 the CFPB rescinded its Statement of Policy Regarding Prohibition on Abusive Acts or Practices, issued in January 2020. The 2020 policy was originally intended to provide clarity and address uncertainty concerning the abusiveness standard. Ultimately, the CFPB's new leadership felt the policy statement did not provide any clarity to regulated entities and, in fact, would foster uncertainty in the long run. The pace of change only accelerated once Rohit Chopra was confirmed as Director of the CFPB in September.
Within the first weeks of his tenure, Director Chopra took a number of actions and issued numerous statements - many of which evidenced his intent to reshape the agency's regulatory and enforcement agenda.
in March 2021 the CFPB rescinded its Statement of Policy Regarding Prohibition on Abusive Acts or Practices, issued in January 2020. The 2020 policy was originally intended to provide clarity and address uncertainty concerning the abusiveness standard. Ultimately, the CFPB's new leadership felt the policy statement did not provide any clarity to regulated entities and, in fact, would foster uncertainty in the long run. The pace of change only accelerated once Rohit Chopra was confirmed as Director of the CFPB in September.
For example, Director Chopra announced several initiatives ranging from increased scrutiny on fair lending to reengaging enforcement in the payday lending space - signaling a more aggressive enforcement posture for the CFPB and a marked departure from his predecessor.
Other new (and familiar) faces in leadership roles reflect this same shift in regulatory priorities. In October of 2021, newly-appointed Attorney General Merrick Garland announced the U.S. Department of Justice's renewed focus on fair lending through a specific initiative to combat redlining. The initiative calls for enhanced state-federal or U.S. Department of JusticeU.S. Attorney's Office (DOJ) cooperation wherever possible to supplement federal investigations with the local expertise required to understand specific housing markets and local communities' credit needs.
Though it would be premature to predict all the ways that the change in administration will impact the consumer finance industry, one thing is clear: the industry should be prepared for new regulations and policy statements that impose onerous compliance obligations and aggressive enforcement by federal agencies.
Key Trends
In 2021, Goodwin tracked 96 publicly announced federal and state enforcement actions related to consumer finance, representing a slight decrease from the 111 such actions tracked in 2020.
Nearly half of all enforcement activity across the year is attributable to actions initiated by state enforcement officials and agencies. Both the number of actions tracked and the number of states initiating at least one enforcement action increased from 2020 to 2021. California and Massachusetts continued to lead statelevel enforcement activity, together bringing almost as many publicly announced actions as all other states combined. Though the state actions covered a wide array of issues, a majority of actions concerned either debt collection and debt settlement or student lending or student loan servicing (or both). Despite the uptick in state enforcement activity, these efforts resulted in total recoveries of approximately $55 million, a modest total sum compared to the total state recoveries seen in 2020. Notably, however, those 2020 recoveries were driven by a small number of high-dollar settlements, including two coordinated state settlements that totaled nearly $800 million.
On the federal side, the number of actions brought or settled by the CFPB decreased from 2020, as Goodwin tracked only 27 such actions during 2021 (four of which were joint federal-state or federal inter-agency actions). This reflects a decline from the 52 publicly announced CFPB actions tracked in 2020, though that discrepancy is likely attributable to a combination of factors, including Director Kraninger's efforts to wrap up enforcement actions before leaving office, the number of matters in the pipeline upon the change in administration, and the extended delay in confirmation of a permanent director.
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