Last Friday in New Orleans, the ABA Business Law Section Consumer Financial Services Committee hosted a fascinating program about CFPB enforcement at the Section’s 2017 Spring Meeting. The program was entitled: “Too Much or Too Little? Is the CFPB Exercising its Enforcement Power with Appropriate Restraint?” As might be expected, the two industry representatives on the panel criticized certain of the CFPB’s enforcement initiatives, including, among others, the PHH case and the use of disparate impact analysis in connection with discretionary dealer pricing to assess Equal Credit Opportunity Act (“ECOA”) compliance by auto finance companies. The industry representatives’ principal complaint was that the CFPB routinely eschews rulemaking in favor of using consent orders, a practice which has been pejoratively referred to as “regulation by enforcement.”
Professor Chris Peterson of the University of Utah School of Law defended the CFPB’s enforcement initiatives by updating certain statistics contained in his law review article “Consumer Financial Protection Bureau Law Enforcement: An Empirical Review,” 90 Tulane Law Review 1057 (2016). According to Professor Peterson:
- The CFPB wins the vast majority of the cases that it initiates, 146 out of 150 cases.
- Over 95% of all consumer relief was awarded in cases in which the CFPB uncovered evidence of deceptive conduct.
- Over 95% of all consumer relief was awarded in cases in which the CFPB collaborated with other state or federal law enforcement agencies.
- No bank has contested a public CFPB enforcement action.
Professor Peterson opined that the greatest risk today is that a change in the CFPB’s governance, such as replacing the current single director with a multi-member commission as has been proposed, will bring the CFPB “to heel” and result in industry capture. Jeffrey Langer, formerly Assistant Director of Installment and Liquidity Lending Markets in the CFPB’s Research, Markets, and Regulations Division, observed that the CFPB has been (and still is) “significantly understaffed” in its Research, Markets and Regulations Division. (It was suggested that the CFPB’s emphasis on enforcement has contributed to the understaffing by reducing interest among CFPB staff in working in the Regulations Division.)
Professor Peterson agreed with Jeff’s observation, adding that “rulemaking is very labor intensive” and that the Regulations Division does not have the “bandwidth” needed to engage in more robust rulemaking. He further noted that CFPB regulations run the risk of being “thrown out” by Congress under the Congressional Review Act. Professor Peterson made the obvious point that regulations only operate prospectively and “don’t return money” to consumers.
Patrice Ficklin, the Assistant Director of Fair Lending and Equal Opportunity of the CFPB’s Office of Supervision, Enforcement and Fair Lending, viewed the program as an audience member. Speaking from the audience, she made several comments in defense of the CFPB’s use of disparate impact analysis to determine whether banks and non-banks that purchase motor vehicle installment sales contracts from auto dealers are violating the ECOA by enabling the dealers to use discretionary pricing. Ms. Ficklin made the following points:
- The CFPB was not the first federal law enforcement agency to deploy disparate impact analysis. She described the CFPB as having received a “hand-off” of disparate impact analysis from “sister agencies,” including DOJ, that were already using that analysis.
- In using disparate impact analysis, the CFPB is not “clarifying the law” because the “law is clear.” Ms. Ficklin was, of course, basing her claim on language in Regulation B that purports to legitimize the use of disparate impact analysis.
Unfortunately for the CFPB, however, the law is anything but clear, particularly in the aftermath of the U.S. Supreme Court’s Inclusive Communities decision. While language in Regulation B does purport to authorize the use of disparate impact analysis, there are powerful arguments supporting the proposition that such language is contrary to the ECOA’s express language.
Peggy Twohig, Assistant Director of Supervision Policy of the Office of Supervision, Enforcement and Fair Lending, was also an audience member. Ms. Twohig had previously spent 17 years with the Federal Trade Commission where she was the Associate Director of the FTC’s Division of Financial Practices. Speaking from the audience, she observed that many years ago the FTC was “put down” for what Congress considered to be overly aggressive rulemaking. Ms. Twohig was, of course, referring to the Magnusson-Moss standards enacted in 1980 which made it virtually impossible for the FTC to engage in rulemaking for more than 30 years. Ms. Twohig seemed to imply that, if history is any guide, the CFPB should be cautious in using its rulemaking authority.