Lawyers who practice before the Consumer Financial Protection Bureau agree on one thing: “It’s been good for law firms,” said Ballard Spahr partner Alan Kaplinsky.
Created by the Dodd-Frank Act, the agency turned 3 Monday. In the last 12 months, lawyers say the CFPB has hit its stride after the confirmation of director Richard Cordray last July, bringing a series of big-ticket enforcement actions.
“The bureau is starting to mature a bit as an organization, to get its sense of identity and purpose,” said David Bizar, who cochairs the consumer financial services litigation practice group at Seyfarth Shaw.
Agency lawyers filed at least 20 enforcement actions in the past year (compared with two in the CFPB’s first year), racking up a series of major settlements. Among them: Bank of America in April agreed to pay consumers $727 million for deceptively marketing credit card add-on services, and Chase Bank USA, N.A. and JPMorgan Chase Bank settled similar charges in September for $309 million. Working with other federal and state regulators, the CFPB in June compelled SunTrust Mortgage Inc. to pay $540 million in relief to homeowners for servicing wrongs.
In all, the CFPB in its first three years has helped refund more than $3.8 billion to consumers, Cordray told the Senate Committee on Banking, Housing and Urban Affairs last month.
“Since we opened our doors, we have been focused on making consumer financial markets work better for the American people, the honest businesses that serve them, and the economy as a whole,” Cordray said in a written statement.
‘Head on a platter’
Still, some lawyers complain the CFPB has been over-zealous when it comes to enforcement. “Their position when you’re trying to settle is ‘No, we want your head on a platter,’” said Venable partner Randall Miller, who represents Morgan Drexen Inc. in ongoing litigation against the CFPB.
The agency in August alleged that the company charged illegal up-front fees for debt relief services and deceived consumers. Morgan Drexen countered with a suit now pending before the U.S. Court of Appeals for the D.C. Circuit claiming the CFPB is unconstitutional because it is too powerful and lacks checks and balances.
“I don’t believe that anybody at the CFPB isn’t trying to do the right thing, but they have unchecked power,” Miller said. Oral arguments before the D.C. Circuit are likely in September, he said.
Another criticism is that the CFPB has put enforcement in front of regulation. “They have been picking their targets and hitting them hard, trying to get the rest of the industry to take notice and make changes,” Bizar said. “They’re often getting out front on enforcement first, and then trying to follow up with regulation.”
Kaplinsky, who heads the consumer financial services practice at Ballard Spahr, agreed. “They’re de facto regulating by consent order,” he said.
To Hunton & Williams partner Ronald Rubin, the CFPB is sending a message of what it expects through its consent orders.
“Other companies don’t have to follow the terms in the consent order—they just have to balance the risk of being investigated by the CFPB if they don’t. It’s similar to issuing voluntary guidance, but not as coercive,” said Rubin, who was one of the agency’s first enforcement lawyers.
Pushing enforcement scope
In recent months, the CFPB has moved against payday lenders, debt collectors and auto financers—businesses that were not previously subject to federal oversight and where the rules of the road are less clear.
The agency took action against ACE Cash Express on July 10, faulting the pay-day lender for practices such as using “legal jargon in calls to consumers” and threatening to bring legal action without actually filing suit, as well making harassing phone calls and other “predatory behavior.”
The CFPB on July 14 also went after a Georgia law firm, Frederick J. Hanna & Associates, which it described as “a lawsuit mill” that “uses illegal tactics to intimidate consumers into paying debts they may not owe.”
The firm disputed the charges, saying that “at all times, our firm has faithfully followed the well-established legal rules and due process provisions set forth under Georgia law.” The case may set up a conflict over attorney discipline.
According to NLJ affiliate The Daily Report, in 2010, the Governor’s Office of Consumer Affairs sought to investigate the firm after receiving more than 200 complaints about its aggressive tactics. But a Cobb County judge ruled the firm did not have to comply with the office’s request for documents and information concerning its debt collection business because authority over attorney discipline resides solely with the State Bar of Georgia and the state Supreme Court.
Another controversial case was against Ally Financial Inc. and Ally Bank, which in December agreed to pay $98 million to settle CFPB and U.S. Department of Justice charges of discriminatory auto-loan pricing.
The CFPB does not have jurisdiction over auto dealers, but it was able to go after Ally, an indirect lender that works with dealers when consumers finance auto purchases.
In a statement issued at the time, the National Automobile Dealers Association criticized the CFPB for withholding the “secret methodology it uses to determine whether unintentional discrimination has occurred. The public still does not know whether the bureau takes into account legitimate factors that can affect finance rates.”
On the rulemaking front, the CFPB has moved more cautiously. In January, mortgage rules implementing provisions of the Dodd-Frank Act took effect, establishing new protections for homebuyers and homeowners. The agency is also working on rules to implement its supervisory program for certain nonbank entities by defining “larger participants” in various markets.
The agency says it is “researching and considering whether rulemaking is warranted in the areas of payday and deposit advance products, as well as consumer overdraft products.”
Rubin of Hunton & Williams praised the CFPB for taking the time to get it right.
“The best thing the CFPB did in 2014 was often nothing—not because they should do nothing, but because their rulemaking division is being very deliberate and less political,” he said. “They’re listening to industry and critics with an open mind and really trying to get the final rules right.”