In an internal memorandum recently circulated at the CFPB, Bryan Schneider, who leads the Bureau’s Division that houses its supervision, enforcement, and fair-lending functions, announced a major internal reorganization.

The reorganization would take away the Office of Enforcement’s autonomy to open investigations and issue civil investigative demands.  It would also significantly reduce Enforcement’s role in deciding whether potential violations uncovered during examinations should be transferred to enforcement attorneys.  Under the new structure, these critical decisions will be made by a new unit—the Office of SEFL (Supervision, Enforcement, Fair Lending) Policy and Strategy—while the two other Offices in the SEFL Division (Office of Enforcement and Office of Supervision), will focus on the execution of their respective functions.

Peggy Twohig, who currently heads SEFL’s Office of Supervision Policy (which will be eliminated in the reorganization), will be promoted to lead the new unit.  In her new role, Ms. Twohig will determine strategic planning for all Offices within SEFL and control the Office of Enforcement’s investigation pipeline.

Because the changes shift power from the Enforcement Director to a new position to be filled by the highest-ranking official in the Office of Supervision (Ms. Twohig), these changes align with Kathy Kraninger’s public remarks favoring supervision as the CFPB’s primary regulatory tool.  In an April 2019 speech, Director Kraninger said, “I have reiterated my view that supervision is the heart of this agency.”  She has also expressed her belief that enforcement should be employed as a last resort.  It is not surprising, therefore, that Director Kraninger has approved the restructuring, according to Mr. Schneider’s memorandum.

Alan Kaplinsky, the Chair of Ballard Spahr’s Consumer Financial Services Group, applauds the announced changes:

As the long-time head of SEFL’s Office of Supervision Policy, Peggy Twohig is already deeply involved in deciding whether a bank or company supervised by the CFPB should be referred to enforcement or whether violations of law are best handled within the supervision division.  For there to be consistency in how the CFPB decides when to use enforcement for a company not subject to CFPB supervision, it makes sense that Peggy should be the primary decision maker.  I have known Peggy for many years.  She was with the FTC Bureau of Consumer Protection until the CFPB was created by Dodd-Frank. She was then hired by the Obama Treasury Department to stand up the CFPB.  When the CFPB became operational in July, 2011, Peggy was one of the first senior officers hired.  Based on her experience, consumer financial services expertise and bipartisanship, I can’t think of anyone better suited to hold this position.

Because the reorganization is expected to take approximately six months, if not longer, the upcoming Presidential election could ultimately modify or scuttle the proposed changes.  If the restructuring is implemented, we will monitor how it impacts use of the enforcement tool, whether it reduces the number of enforcement investigations, and whether it changes the scope of the investigations.

We will be discussing the reorganization in an upcoming Consumer Finance Monitor podcast.