In remarks yesterday at the winter meeting of the National Association of Attorneys General in Washington, D.C., Mick Mulvaney indicated that the CFPB will be looking to state attorneys general for “much more collaboration and much more leadership” when deciding which enforcement cases to bring.

Mr. Mulvaney stated that a significant, although not determinative, factor in the CFPB’s decision to initiate an enforcement action in a particular case will be whether state AGs or regulators are also considering whether to take enforcement action.  He stated that if state AGs “are not bringing an action we are looking at, I’m going to want to know why.”  More specifically, he would want to know whether the state’s reason is lack of resources or other factors unrelated to the merits of an action or whether it is that the state AG or regulator thinks the conduct in question is not illegal.

In addition to various federal consumer protection statutes that give direct enforcement authority to state AGs or regulators, Section 1042 of the Consumer Financial Protection Act authorizes state AGs and regulators to bring civil actions to enforce the provisions of the CFPA, most notably its prohibition of unfair, deceptive or abusive acts or practices.  A state AG or regulator, before filing a lawsuit using his or her Section 1042 authority, must notify the CFPB and Section 1042 allows the CFPB to intervene as a party and remove an action filed in state court to federal court.

In response to a follow up question from Pennsylvania Democratic AG Josh Shapiro regarding the CFPB’s current philosophy on a state’s use of its Section 1042 authority, Mr. Mulvaney indicated that the CFPB will consider Section 1042 notices it receives from states on a case by case basis and does not plan to “get in the way” of states seeking to bring such actions (although he referenced the CFPB’s authority to intervene and oppose an action).  He stated that the CFPB’s primary interest is to expend its efforts on cases that are “on solid legal grounds” and not on “creative claims.”

Mr. Mulvaney reiterated his previous statements that the CFPB will no longer be “pushing the envelope” or engaging in “rulemaking by enforcement” and intends to let industry know what the rules are before bringing an enforcement alleging violations of such rules.  He indicated that the CFPB will be spending more time on consumer education efforts and engaging in more cost-benefit or quantitative analysis in rulemaking and less qualitative analysis.  He identified the prevention of elder financial abuse as a priority issue for the CFPB and stated that complaint volume will be a significant factor in how the CFPB sets its priorities (contrasting the high volume of debt collection complaints with the low volume of complaints about payday and other short term loans).

Mr. Mulvaney also indicated that the CFPB plans to be responsive to the perception that the CFPB has “listened more than it has heard” the views of stakeholders (i.e. that the CFPB has already decided what approach it will take and is just “checking a box” when soliciting input).


A group of Democratic Senators and House members have sent a letter to Mick Mulvaney and Leandra English expressing concern about Mr. Mulvaney’s announcement that he plans to reorganize the CFPB’s Office of Fair Lending (OFLEO).

Earlier this month, Mr. Mulvaney announced that he plans to transfer the OFLEO from the Supervision, Enforcement, and Fair Lending Division (SEFL) to the Director’s Office, where it will become part of the Office of Equal Opportunity and Fairness (OEOF).  At that time, Mr. Mulvaney stated that OFLEO “will continue to focus on advocacy, coordination, and education, while its current supervision and enforcement functions will remain in SEFL.”  The OEOF oversees equal employment, diversity, and inclusion at the CFPB, and has no enforcement or supervisory role.

In their letter, the Democratic lawmakers expressed concern that the reorganization will frustrate the CFPB’s efforts to protect consumers from unfair, deceptive, or abusive acts and practices and from discrimination.  They cited OFLEO’s role in “help[ing] design specialized oversight and support[ing] bank examiners in assuring that CFPB’s regulated institutions were complying with anti-discrimination laws” and in “work[ing] with the CFPB’s enforcement lawyers and the Department of Justice to bring lawsuits” when problems identified in examinations could not be resolved. They noted that OFLEO has “also counseled banks in their efforts to build good compliance systems” and comment that of the OFLEO’s functions to date, “only the counseling will be supplied after the reorganization, though in the absence of dedicated anti-discrimination enforcement, it’s not clear whether there will be continuing demand.”

The Democratic lawmakers seek written responses to the questions asked in their letter by March 1, 2018 as well as “a copy of all documents and communications relating to the decision to [reorganize the OFLEO].”  Among the questions asked by the lawmakers are:

  • Whether the CFPB performed “a legal analysis to determine whether stripping the OFLEO of its enforcement authority would hinder the CFPB’s ability to carry out its statutory mandate to provide oversight and enforcement of federal fair lending laws
  • How transferring the OFLEO to the Director’s Office will “modify the Bureau’s decision-making process with regard to enforcement and other actions to protect consumers from unfair discrimination”
  • Whether Mr. Mulvaney or any other CFPB employee discussed the reorganization before it was announced “with any outside entities—including lobbyists or representatives of the banking or financial services industry”
  • Whether the CFPB is considering any substantive changes to its approach to the enforcement of fair lending laws, including changes to the CFPB’s interpretation of such laws


The CFPB has issued a request for information that seeks comment on how the agency can best achieve meaningful burden reduction or other improvement in the processes it uses to enforce federal consumer financial law while continuing to meet the CFPB’s statutory objectives and ensuring a fair and transparent process.  Comments on the RFI must be received by April 13, 2018.

The new RFI represents the third in a series of RFIs announced by Mick Mulvaney, President Trump’s designee as Acting Director.  The new RFI is broader than the two prior RFIs, which focused on specific aspects of enforcement.  In the new RFI, the CFPB now seek comment on all aspects of its enforcement processes but lists the following seven topics:

  • Communication between the CFPB and subjects of investigations, including timing and frequency of such communications and information provided by the CFPB on the status of an investigation
  • Length of CFPB investigations
  • Notice and Opportunity to Respond and Advise (NORA) process, including whether the NORA process should be mandatory rather than discretionary and the information contained in letters the CFPB may send to potential subjects of investigations pursuant to the NORA process
  • Whether subjects of potential enforcement actions should have the right to make an in-person presentation to the CFPB before the CFPB decides whether to initiate legal proceedings
  • Calculation of civil money penalties, including whether the CFPB should adopt a civil penalty matrix
  • Standard provisions in CFPB consent orders
  • Manner and extent to which the CFPB can and should coordinate enforcement activity with other federal and/or state agencies with overlapping jurisdiction

The CFPB’s first RFI, which has a March 27, 2018 comment deadline, seeks comment on the CFPB’s processes surrounding civil investigative demands and investigational hearings.  The second RFI, which has a comment deadline of April 6, 2018, seeks comment on how the CFPB can improve its administrative adjudication processes.  In its press release announcing the third RFI, the CFPB stated that the next RFI in the series will be issued next week and will address the Bureau’s supervisory processes.


On January 31, 2018, the en banc D.C. Circuit handed down its opinion in the PHH v. CFPB case, which we’ve discussed at length. It held, 7 to 3, that the CFPB’s single-director-removable-only-for-cause structure is constitutional but that the CFPB’s interpretation of RESPA was wrong.

En Banc Court Reinstates Panel’s RESPA Ruling

The en banc Court reinstated the RESPA-related portions of the D.C. Circuit’s October 2016 panel decision. The panel had held that the plain language of RESPA permits captive mortgage re-insurance arrangements like the one at issue in the PHH case, if the mortgage re-insurers are paid no more than the reasonable value of the services they provide. This is consistent with HUD’s prior interpretation. For the first time in 2015, in prosecuting the case against PHH, the CFPB announced a new interpretation of RESPA under which captive mortgage reinsurance arrangements were prohibited. The panel rejected this on the ground that the statute unambiguously allows the kinds of payments that the CFPB’s 2015 interpretation prohibited.

In remanding the case to the CFPB for further proceedings, the panel had admonished the CFPB by alternatively holding that—even assuming that the CFPB’s interpretation was permitted under any reading of RESPA—the CFPB’s attempt to retroactively apply its 2015 interpretation, which departed from HUD’s prior interpretation, violated due process. It held that “the CFPB violated due process by retroactively applying that new interpretation to PHH’s conduct that occurred before the date of the CFPB’s new interpretation.” The en banc Court cited the panel’s due process analysis with approval.

The panel’s RESPA decision remanded the case to the CFPB to determine whether PHH violated RESPA under the longstanding interpretation previously articulated by HUD. The en banc Court’s reinstatement of that aspect of the panel decision led it to order that the case be remanded to the CFPB for further proceedings.

Statute of Limitations Continues to Apply to RESPA Cases Before CFPB

At the administrative stage of the case, the CFPB argued that no statute of limitations applies to any CFPB administrative action. The panel soundly rejected that argument, holding that RESPA’s three-year statute of limitations applies to any RESPA claims that the CFPB brings, whether administratively or otherwise. That aspect of the panel decision, because it pertains to RESPA, is also reinstated by the en banc Court’s ruling.

CFPB’s Structure Deemed Constitutional

The panel of the D.C. Circuit had also held that the CFPB’s structure was unconstitutional because it improperly prevented the President from “tak[ing] Care that the Laws be faithfully executed.” Rejecting this holding, the en banc Court held that “[w]ide margins separate the validity of an independent CFPB from any unconstitutional effort to attenuate presidential control over core executive functions.” In other words, the en banc Court found (wrongly, in our view) that it wasn’t even a close call.

In reaching this conclusion, the en banc Court considered two questions: First, it asked whether the “means” that Congress employed to make the CFPB independent was permissible? That is, were the independence-creating tools used ones that the Supreme Court approved of, such as for-cause removal or budgetary independence? The en banc Court found that the Supreme Court approved each of the “means” Congress used to achieve CFPB “independence” individually. It reasoned then, that those “means” could all be combined in a single agency without running afoul of the U.C. Constitution.

Second, the en banc Court asked whether “the nature of the function that Congress vested in the agency calls for that means of independence?” In answer to the second question, the en banc Court found it was consistent with historical practice to grant financial regulators like the CFPB such independence.

The en banc Court went further, however, and dismissed the panel’s other constitutional concerns under the heading “Broader Theories of Unconstitutionality.” For example, it rejected the panel’s concern that having a powerful unaccountable CFPB Director was a threat to individual liberty. It suggested that such an argument “elevat[ed] regulated entities’ liberty over those of the rest of the public.” “It remains unexplained why we would assess the challenged removal restriction with reference to the liberty of financial services providers, and not more broadly to the liberty of the individuals and families who are their customers,” it said. In doing so, it seems to have forgotten that Dodd-Frank gives the CFPB Director broad powers to go after individuals, “mom and pop” businesses, and large “regulated entities.”

Lucia Issue Regarding ALJ Appointment Not Addressed

Notably, the en banc Court in PHH specifically “decline[d]to reach the separate question whether the ALJ who initially considered this case was appointed consistently with the Appointments Clause.” That was the issue in Lucia, which we have blogged about extensively. In that case, Raymond J. Lucia challenged the manner in which the SEC appointed administrative law judges (“ALJs”), arguing that ALJs are “inferior officers” who must be appointed by the president, a department head, or the courts under the Appointments Clause of the U.S. Constitution.  The Supreme Court recently agreed to hear Lucia.

In an email to CFPB staff, Mick Mulvaney, President Trump’s designee as CFPB Acting Director, has indicated that he plans to make changes to the CFPB’s organizational structure to best enable the CFPB to fulfill its statutorily-mandated activities in a way that avoids redundancy and makes the best use of the CFPB’s resources.

The email describes two initial changes to be made by Mr. Mulvaney.  The first change is to relocate the Office of Consumer Response from the Operations Division to the Community Education and Engagement Division.

The second change is to transfer the Office of Fair Lending and Equal Opportunity (OFLEO) from the Supervision, Enforcement, and Fair Lending Division (SEFL) to the Director’s Office, where it will become part of the Office of Equal Opportunity and Fairness (OEOF).  In his email, Mr. Mulvaney stated that OFLEO “will continue to focus on advocacy, coordination, and education, while its current supervision and enforcement functions will remain in SEFL.”

The OEOF oversees equal employment, diversity, and inclusion at the CFPB, and has no enforcement role.  As a result, once it is part of the OEOF, it appears the OFLEO would no longer have any involvement in fair lending supervision or enforcement.  While it appears fair lending supervision and enforcement would remain in the SEFL, those activities would be performed by SEFL staffers whose responsibilities are not limited to fair lending.

Mr. Mulvaney’s reorganization plan has quickly provoked criticism from consumer advocacy groups who believe it will undermine the CFPB’s fair lending initiatives.


The CFPB has issued a request for information that seeks comment on how the CFPB can improve its administrative adjudication processes, including its “Rules of Practice for Adjudication Proceedings” codified at 12 CFR part 1081, Subpart E (Rules).  The Rules address the general conduct of administrative enforcement proceedings, the initiation of such proceedings and prehearing rules, decisions and appeals, and temporary cease-and-desist proceedings.  Comments on the RFI must be received by April 6, 2018.

In the background discussion, the CFPB states that, to date, there have been eight administrative adjudication proceedings under the Rules that were not immediately resolved through a consent order.  Six of those proceedings were settled during the course of adjudication, one is pending, and one has resulted in a final decision.  In explaining its rationale for issuing the RFI, the CFPB states that it understands “that the administrative adjudication process can result in undue burdens, impacts, or costs on the parties subject to these proceedings.”

The RFI seeks feedback on all aspects of the CFPB’s administrative adjudication process but lists 13 general areas, which according to the CFPB “represents a preliminary attempt by the Bureau to identify elements of Bureau processes related to administrative adjudication that may be deserving of more immediate focus.”  In addition to the requirements and other aspects of specific provisions of the Rules, the 13 general areas include “[w]hether, as a matter of policy, the Bureau should pursue contested matters only in Federal court rather than through the administrative adjudication process.”  Given that the administrative adjudication process puts the CFPB simultaneously in the role of prosecutor, judge and jury, we believe the CFPB should give careful consideration to discontinuing the use of the administrative adjudication processes.

In addition, a serious constitutional question exists as to whether the CFPB Director has the authority to appoint administrative law judges.  The U.S. Supreme Court recently agreed to decide whether SEC ALJs  are “inferior officers” who must be appointed by the President, the courts, or a department head in accordance with the U.S. Constitution’s appointments clause.  A similar question exists as to ALJs used by the CFPB in its administrative adjudication proceedings.  If they are “inferior officers,” it would raise the further questions of whether the CFPB is a “department” and thus whether the CFPB Director is department head who can appoint an ALJ.

The new RFI represents the second in a series of RFIs announced by Mick Mulvaney, President Trump’s designee as Acting Director.  Mr. Mulvaney described the CFPB’s plans to issue the RFIs as “a call for evidence to ensure the Bureau is fulfilling its proper and appropriate functions to best protect consumers.”  In its press release announcing the second RFI, the CFPB stated that the next RFI in the series “will address the Bureau’s enforcement processes, and will be issued next week.”

The first RFI, which was published last week in the Federal Register and has a March 27, 2018 comment deadline, was entitled a “Request for Information Regarding Bureau Civil Investigative Demands and Associated Processes.”  In that RFI, the CFPB asks for comments on its processes surrounding Civil Investigative Demands and investigational hearings.  As we indicated in connection with the first RFI, with the recent change of leadership and philosophy, we anticipate a CFPB that will be more receptive to the concerns of industry.  We therefore view the RFIs as an important opportunity for the industry to argue for permanent changes in the areas addressed by the RFIs.

In a span of three days, the CFPB, under Acting Director Mulvaney, significantly retreated in the payday-lending space and suffered a court defeat in its request for monetary relief with respect to a CashCall installment lending program.  The federal district court’s decision in CashCall followed a bench trial that occurred before Mr. Mulvaney’s first day at the Bureau, making it unlikely that the CFPB will appeal.

First, on January 17, 2018, the CFPB announced that it intends to reconsider the payday/auto-title/high-rate installment loan rule finalized under former Director Cordray.  On the next day, January 18, the CFPB, without explanation, voluntarily dismissed its federal court lawsuit against four online tribal lenders.  Finally, on January 19, the federal judge presiding over CashCall in the Central District of California rejected the CFPB’s demand for $235 million in restitution and a penalty of $51 million, and instead awarded a $10.3 million penalty, the amount available for violations that are neither reckless nor knowing.

Most notably, the district court rejected the CFPB’s claims that CashCall intended to defraud and deceive consumers.  To the contrary, the court found that:

  • CashCall acted in good faith in structuring its tribal lending program and relied on the advice of prominent legal counsel;
  • The CFPB failed to produce any evidence to support its allegation that CashCall deceived consumers;
  • CashCall “made every effort to inform consumers about all material aspects of the loans;”
  • [T]he evidence indicated quite clearly that consumers received the benefit of their bargain;” and
  • The CFPB failed to introduce credible evidence of the net amount of unjust enrichment obtained by CashCall.

It is important to note, however, that the district court reiterated and relied on its prior opinion that CashCall, and not the tribal-affiliated entities, was the true lender.  CashCall’s appeal of the true-lender decision remains pending.

We will continue to monitor the CFPB’s evolving positions under new leadership, especially its proposal to reconsider, and perhaps radically alter, the current payday/auto-title/high-rate installment loan rule.



On January 26, 2018, the CFPB published a “Request for Information Regarding Bureau Civil Investigative Demands and Associated Processes” (“Request”) in the Federal Register. In the Request, the CFPB asks industry and attorneys who regularly practice before the Bureau to comment on its processes surrounding Civil Investigative Demands (“CID”) and investigational hearings. Comments are due by March 27, 2018 and can be submitted electronically, by email, by regular mail, or by hand-delivery. The Request indicates that all comments will be posted online without change.

The CFPB requested comments on several specific topics, but did not limit comments to them. The topics include:

  1. The process for issuing CIDs; the authority of CFPB personnel to issue them; how CIDs  can be made less burdensome; and the timeframes and processes for complying with or challenging them.
  2. The requirements for responding to CIDs, including certification requirements, and the CFPB’s document submission standards.
  3. Transparency with CID recipients as to the focus of the investigation and what information the CFPB needs to conduct its investigation.
  4. The process for dealing with the inadvertent production of privileged information and whether that process should more closely mirror the Federal Rules of Evidence.
  5. The process for conducting investigational hearings of business entities, including whether it should more closely mirror the Federal Rules of Civil Procedure and whether counsel should be able to offer objections at investigational hearings.

This Request is one of the CFPB’s first opportunities to receive official comments from industry on its enforcement process. While the CFPB has requested comments on its rules and processes before, some people in the industry felt their comments were ignored. With the recent change of leadership, we anticipate a CFPB that will be more receptive to the concerns of industry. We therefore view the Request as an important opportunity for the industry to argue for permanent changes to the CID process, and to make the CID process more efficient, less expensive, and fairer to the targets of investigations.

Mick Mulvaney, President Trump’s appointee as CFPB Acting Director, plans to make the CFPB’s practices of “pushing the envelope” and “rulemaking by enforcement” things of the past.

In a memorandum to CFPB staff and a Wall Street Journal article, Mr. Mulvaney described his governing philosophy for the CFPB’s exercise of its authority.  Mr. Mulvaney indicated that:

  • It is not appropriate for a government entity to “push the envelope” because of the potential harm to companies and their employees, with the possibility that a company may have to “close[] its doors under the weight of a multiyear Civil Investigative Demand” cited as an example of such harm.  While observing that there will be times when “dramatic action” is needed to protect consumers and that, at such times, he expected the CFPB “to be vigorous in [its] enforcement of the law,” Mr. Mulvaney stated that “bringing the full weight of the federal government down on the necks of the people we serve should be something that we do only reluctantly, and only when all other attempts at resolution have failed.”
  • In using its enforcement authority, the CFPB will focus on “quantifiable and unavoidable harm to the consumer” and when such harm does not exist, the CFPB “won’t go looking for excuses to bring lawsuits.”  In addition, there will be “more formal rule making and less regulation by enforcement”  because “the people we regulate should have the right to know what the rules are before being charged with breaking them.”
  • CFPB priorities should be guided by data such as 2016 complaint data which showed that “almost a third of the complaints” received by the CFPB related to debt collection and “[o]nly 0.9% related to prepaid cards and 2% to payday lending.”
  • In light of the Dodd-Frank Act requirement for the CFPB to “consider the potential costs and benefits to consumers and covered persons,” CFPB decisions should be driven by quantitative analysis.  Although qualitative analysis can play a role, it should not be to the exclusion of measurable “costs and benefits.”

We have been critical of the CFPB’s consistent attempts to “push the envelope” by adopting broad interpretations of its statutory authority with perhaps the most aggressive and public example of the CFPB’s “jurisdictional creep” being its efforts to indirectly regulate the conduct of car dealerships (which is expressly carved out from the CFPB’s jurisdiction by Dodd-Frank) by applying a questionable interpretation of the ECOA to impose disparate impact liability against auto finance companies.  Last month, we reported on the General Accountability Office’s determination that the CFPB’s bulletin setting forth its interpretation is a “rule” subject to override under the Congressional Review Act (CRA) and expressed our hope that Congress will override the bulletin under the CRA.

We were encouraged by the CFPB’s recent announcement that it intends to engage in a rulemaking process to reconsider its final small-dollar loan rule.  While a CRA override would provide a “cleaner” and quicker vehicle for overturning both the final small-dollar loan rule and the auto finance bulletin, we hope Mr. Mulvaney will also consider taking steps to reconsider the bulletin.

Despite the CFPB’s change in position after Mick Mulvaney’s appointment regarding the need for Nationwide Biweekly Administration to post a bond to stay execution of the $7.9 million judgment obtained by the CFPB, the CFPB has opposed Nationwide’s motion to alter, amend, or vacate the judgment.

In its action against Nationwide, another related company, and the companies’ individual owner, the CFPB alleged that the defendants engaged in abusive and deceptive acts or practices in violation of the CFPA UDAAP prohibition by making false representations regarding the costs of a biweekly mortgage payment program and the savings consumers could achieve through the program.  A California federal district court refused to award restitution sought by the CFPB but did award the CFPB approximately $7.9 in civil money penalties.

Although it had initially filed a response opposing the defendants’ motion to stay execution of the judgment without posting a bond, the CFPB filed a notice following Mr. Mulvaney’s appointment as Acting Director stating that it was withdrawing its response and took “no position on whether the court should require a bond pending the disposition of the defendants’ anticipated post-trial motions.”

In its opposition to the defendants’ post-trial motion to alter, amend, or vacate the judgment, the CFPB rejected the defendants’ argument that the CFPB was required to establish rules interpreting what constitutes deceptive acts or practices before bringing an enforcement action.  The CFPB stated that “nothing the CFPA mandates that the Bureau engage in rulemaking prior to commencing a lawsuit against entities engaged in violations of Federal consumer financial law.”  It also rejected the defendants’ argument that the deception standard in the CFPA is unconstitutionally vague, asserting that the defendants “cannot credibly argue that they were not on notice that the CFPA prohibited deceptive and abusive acts or practices in connection with the sale or offering of consumer financial  products or services like [the defendants’ biweekly payment program].”

Also rejected by the CFPB was the defendants’ argument that they were entitled to relief from the judgment based on their current inability to pay.  The CFPB  stated that the court “appropriately imposed a $7.93 million penalty commensurate with the size of the business as it was during the lawful conduct.”

It seems likely that, in deciding to defend its judgment, the CFPB deemed the case one that involved garden-variety deception claims rather than one in which the CFPB had taken aggressive positions regarding its jurisdiction or in its theory of liability.  The CFPB’s approach also appears to be consistent with statements made by Mr. Mulvaney that he planned to review pending CFPB litigation on a case-by-case basis.