As the first year of the Trump presidency drew to a close, White House budget director Mick Mulvaney took to Twitter to summarize the early fruits of the administration’s deregulatory drive.
Speaking into a camera for a live video feed on Dec. 15, Mulvaney said the Trump administration had lifted about a half-billion dollars in “regulatory burden.” He said the Obama administration, by contrast, had added more than $80 billion in a span of eight years.
“Over $500 million, we’ve gotten rid of that burden. That’s a tremendous change in direction,” he said. “Some people call it draining the swamp. Some people describe it as trying to change the direction of an aircraft carrier. We managed to do it in just the first year here.”
For Mulvaney especially, the work is just beginning. In late November, Mulvaney found himself picked to temporarily lead the Consumer Financial Protection Bureau, an agency that through much of 2017 had been the exception to the federal government’s deregulatory crusade. Indeed, with an Obama-appointee still helming the CFPB, the consumer finance sector had to score its regulatory relief the hard way, relying on Congress to nix the agency’s ambitious prohibition on arbitration agreements that prevent consumers from filing class action lawsuits.
With Mulvaney now in charge—though against the backdrop of a legal challenge to his appointment—the consumer finance industry is poised to keep the regulatory relief coming in 2018.
Mulvaney is leading the CFPB while the Trump administration moves to install a new Senate-confirmed director with a five-year term. In the meantime, he isn’t hesitating to put his stamp on the agency.
Upon taking office, Mulvaney ordered a freeze on new regulations and said he would be reviewing the CFPB’s “100 or so” open cases. In late December, the CFPB said it expected in early 2018 to amend a rule extending common consumer protections around credit cards to the burgeoning market for prepaid cards. As part of that process, the CFPB said it planned to push back the April 2018 effective date but did not specify the length of the delay.
“That was all we needed, a signal from him that something was going to change. We, as an industry, were starting to spend real money to implement the rule. The director’s notice of extension of the effective date was welcomed,” said Scott Talbott, senior vice president of government affairs at the Electronic Transactions Association, a top trade group for the payments technology industry.
“The first thing is that we’ve gone from defense to working toward a more positive regulatory environment,” he added. “That’s a big shift.”
As new leadership settles in at the CFPB, the consumer finance industry will follow the agency’s approach to debt collection. The CFPB released an outline in 2016 for a proposal that would overhaul the multibillion-dollar debt collection industry. Among other steps, the outline called for capping collectors’ attempts at contacting debtors, making it easier to dispute debt and ensuring that companies collect the proper debt.
Debt collection has been the primary topic of complaints to the CFPB, with many of the reports dealing with collectors contacting the wrong people or seeking incorrect dollar amounts. Since the 2016 outline, the CFPB has not taken steps to advance a debt collection rule. Any debt collection rule under a new CFPB director would likely depart significantly from the 2016 outline. But a new rule could bring welcomed clarity to the debt collection market.
“The outline released in the summer of 2016 revealed a rulemaking that was going to be very restrictive and very difficult not only to comply with, but would cripple debt collection in this country, making it very difficult to contact people who owe money. I don’t believe the agency will be pursuing a rulemaking in that form in the near future. But that’s not to say there isn’t a need for a debt collection rulemaking. Private litigation under the [Fair Debt Collection Practices Act] is really a plague right now,” said Christopher Willis, a partner at Ballard Spahr.
“There’s a great opportunity for a rulemaking to bring clarity to the statute, deal with circuit splits and put a damper on very expensive and unpredictable litigation. I have been telling all my clients that one of their biggest priorities should be to try to get the debt collection rule reoriented toward that goal,” he said.
The quickest relief is expected to come on the enforcement side. Defense lawyers in the consumer finance sector generally expect more restraint in coming years, especially for larger, mainstream financial institutions.
“They’re more likely to be targeted when they’ve made an error that’s a clear violation of law and haven’t done anything to fix it,” Willis said. “I believe that the threshold will be higher for finding a violation, and we are less likely to see creative legal theories like those that have been the hallmark of the CFPB in recent years.”
Shortly after the agency’s first Senate-confirmed director, Richard Cordray, resigned, companies and their defense lawyers plotted ways to seize on the transition to escape enforcement actions. As one defense lawyer said, “Everyone is going to want to go and say my case is [the] one you should shut down.”
But how to get Mulvaney’s attention? Through December, Mulvaney was not taking meetings with companies and trade groups, although he was expected to begin doing so in the new year. Many lawyers in the consumer finance sector anticipate a spike in the number of formal challenges to CFPB subpoenas—known as civil investigative demands—that trigger an administrative process adjudicated by the agency director. Cordray routinely denied such appeals, but Mulvaney and his successor are expected to lend a more sympathetic ear.
Mulvaney said as much in December, just hours before CFPB disclosed it had agreed to suspend an investigation pending a court challenge to the agency’s authority to conduct the probe. Speaking to reporters in the CFPB headquarters, Mulvaney said CFPB investigative demands can often be “fairly broad” and “fairly burdensome.” “If you don’t like that, if your company got a letter from the CFPB saying, ‘Hi, we hereby demand all this information under penalty of law and perjury,’ and you don’t like that, you can appeal. You know who you appeal to? The director—the guy who approved sending it to you in the first place.”
“It sounds to me like maybe there’s a lack of checks and balances in that process,” Mulvaney added. “Yes, I will look upon the appeals process, my guess is, differently than Mr. Cordray would.”
A more sympathetic ear could also fall on responses to so-called Notice and Opportunity to Respond and Advise letters from the CFPB, a common sign that an enforcement action is imminent. Many defense lawyers have viewed responding to those letters as a futile effort, feeling in most cases that the CFPB had already made up its mind and was not genuinely open to convincing. But that too could soon charge.
“You may stand a real chance of getting the agency to back off a case that the staff wants to bring because of oversight by the agency’s new leadership. In the long run, I believe that the feedback loop from the agency’s new management will cause the staff to be less aggressive,” Willis said.
But that doesn’t mean consumer finance companies can rest easy. State attorneys general are poised to step in and fill any void left by a less aggressive CFPB, forcing companies to still look over their shoulders. California, whose federal courts the CFPB has frequented for enforcement actions, stands out as a state that is preparing to take an especially active role.
“California’s latest budget includes more money to challenge Trump initiatives that could harm the state’s most vulnerable citizens. No one in the financial services industry wants California regulators stepping in to replace uniform federal enforcement,” said Richard Gottlieb, a partner at Manatt, Phelps & Phillips LLP.
“And no one wants to see a return of overly aggressive state sheriffs in the mold of New York’s former AG, Eliot Spitzer.”
“That’s troubling to the industry,” he added, “because they would rather there be a more balanced approach taken by the CFPB.”