10 minute read | September.30.2021
The Consumer Financial Protection Bureau under the leadership of Rohit Chopra appears poised to pursue an aggressive enforcement posture and test the limits of its authority in pursuit of broad market change. But the headline-grabbing enforcement actions expected under Chopra, whom the Senate narrowly confirmed as director today, ultimately may be less consequential than his rulemakings and appointments, which could shape the marketplace and the agency for years beyond his tenure.
Chopra’s public statements during his tenure at the Federal Trade Commission provide an indication of how he will exercise the CFPB’s formidable enforcement authority. In prepared remarks and separate statements accompanying FTC enforcement actions, he strongly disagreed with what he called the commission’s “whac-a-mole” enforcement strategy and urged it to use its authority to “systematically challeng[e] market-wide abuses.” Lower-dollar enforcement actions against small entities engaged in clearly illegal conduct, common at the CFPB during the prior administration, may become relatively less frequent as the agency instead pursues large institutions and other entities that it believes exercise meaningful influence over the market.
The CFPB will likely seek to shape market conduct by relying on its broad and flexible authority to bring actions addressing conduct it regards as unfair, deceptive, or abusive.[1] It is also likely to target those institutions and individuals that it believes facilitate that conduct, including technology providers, investment firms, and other intermediaries that do not directly deal with consumers. Indeed, the CFPB recently sued a software company that it alleges facilitated unlawful conduct by credit-repair businesses, even though it did not sue any of the businesses actually engaging in the unlawful conduct. Similar actions were brought under former Director Richard Cordray, and we should expect even more under Chopra.
Companies should also expect the CFPB to expand its practice of suing corporate officers who oversaw or carried out companies’ allegedly unlawful conduct. Chopra has strongly advocated for holding individual officers liable, suggesting that “it is appropriate to charge officers and directors personally when there is reason to believe that they have meaningfully participated in unlawful conduct, or negligently turned a blind eye toward their subordinates doing the same.” Although the CFPB has historically charged the individual owners and managers of smaller companies, it has largely declined to charge the officers of large corporations. Chopra’s past statements suggest this may change.
Under Cordray, the CFPB was often accused of pushing the boundaries of its statutory authority. Under Chopra, the agency is unlikely to be deterred by similar criticism, especially if it concludes that companies deliberately structured products or services to evade the law. Although the CFPB may issue regulations expanding its authority to reach products or services that it believes were “entered into as a subterfuge” or in order “to evade” its authority,[2] it has never used this authority.[3] Rather, it has simply asserted its authority through enforcement actions, leaving for another day open questions regarding how the product fits into the often finely reticulated regulatory regime that governs the marketplace.[4] Companies designing new products and services that do not fit neatly into preexisting regulatory categories should be prepared for the CFPB to act first and answer questions later.
A court decision once described the CFPB director as, with the exception of the president himself, “the single most powerful official in the entire United States government, at least when measured in terms of unilateral power.”[5] Of course, that statement was made when the director was thought to be protected from removal by the president, and the Supreme Court has since definitively held that no such protection exists.[6] But companies concerned with the CFPB’s exercise of enforcement authority are not likely to find a receptive audience in the White House. President Biden presumably nominated Chopra because of, and not in spite of, his strongly held and oft-expressed views about consumer protection.
As a consequence, companies facing a potential enforcement action and unable to persuade Director Chopra or his team of their view may have no option other than to rely on the courts. After all, the CFPB cannot unilaterally impose its will through an enforcement action: It must either obtain the putative defendants’ consent to settle or persuade the independent judiciary that it is entitled to relief.[7] If a company concludes the CFPB’s legal theory is overly aggressive or its settlement demand is beyond what the CFPB might extract in a judicial proceeding, it may decide to litigate rather than settle. Indeed, a recent Seventh Circuit decision cut back significantly on the agency’s authority to obtain restitution and civil money penalties.[8] Other significant challenges to the CFPB’s authority are pending judicial resolution.[9] The ultimate outcome of this and similar litigation, and the resulting impact on the CFPB’s perceived or actual authority, will be one of many interesting aspects of the next chapter in its history.
The CFPB’s aggressive enforcement agenda is not likely to come at the expense of its regulatory agenda. Indeed, the agency has already issued several significant rules to govern the consumer financial marketplace under Acting Director Dave Uejio. The CFPB’s most recent submission to the Unified Agenda included several ongoing rulemaking projects, and it suggested that a confirmed director would have ample discretion to initiate new rulemaking initiatives to advance his agenda.
The two most noteworthy rulemakings in the Unified Agenda concern small business lending data collection and consumers’ access to financial account data. The CFPB regards these efforts as furthering its statutory mission of ensuring that “markets for consumer financial products and services are fair, transparent, and competitive.”[10] For example, it said it believes its proposed rule on collecting small business lending data will increase market transparency for lenders, consumers, and policymakers, which in turn will help it and state and federal partners enforce fair lending laws and create a more competitive marketplace. Likewise, President Biden’s July Executive Order on Promoting Competition in the American Economy “encouraged” the CFPB to finalize its much-anticipated rule regarding consumers’ access to their financial data, which the president believes will “facilitate the portability of consumer financial transaction data so consumers can more easily switch financial institutions and use new, innovative financial products.”
It is not yet clear what other initiatives Chopra may pursue. He could revisit CFPB initiatives abandoned under the prior administration,[11] or he may prioritize rulemakings intended to enhance its authority and that of its partners. For example, Chopra urged the FTC to restate existing legal precedent regarding unfair or deceptive practices in a rule in order to enhance the FTC’s authority to penalize unlawful conduct. The CFPB could undertake a similar rule for unfair, deceptive, or abusive acts or practices. That would not significantly affect the CFPB’s authority, but would enhance the FTC’s enforcement authority,[12] and permit state attorneys general to bring actions alleging unfair, deceptive, or abusive acts or practices against federally chartered depository institutions.[13] Similarly, it has been over six years since the CFPB last issued a rule to bring larger non-bank participants in defined markets under its supervisory authority, and it would be reasonable to expect activity in this area as well, especially given the large number of new market entrants.[14] The CFPB could also exercise largely untapped regulatory authority to require market participants to submit periodic reports containing information and data about their conduct.[15] The CFPB, and upon publication, other regulators, could use this information to identify supervisory or investigatory targets, or areas in need of further regulation.[16]
Enforcement and rulemaking garner attention, but the most important authority Chopra may exercise, particularly in the early days of his tenure, is his authority to “fix the number of, and appoint and direct, all employees of the Bureau.”[17] The CFPB has been operating well below its statutory funding cap,[18] and Chopra is likely to use available resources to significantly increase headcount over the coming months and years.[19] These new employees will join an agency already largely populated by individuals hired under past Democratic leadership, and will be led by a team of executives that Chopra will, to an unusual degree, be able to handpick. Indeed, not since then-Professor Elizabeth Warren brought in the first slate of executives has a leader of the CFPB had the opportunity to fill so many key positions at once. In addition to appointing his deputy director, Chopra will be able to appoint four of the five division heads at the CFPB: general counsel, chief operating officer, associate director to lead the Division of Consumer Education and External Affairs, and associate director for Supervision, Enforcement and Fair Lending (SEFL).[20] Historically, these have been career positions, which means Chopra’s picks could remain in key roles long after he is gone.
He also will be able to appoint like-minded individuals to key executive positions one layer down. For example, all three offices within SEFL are currently led on an acting basis by long-time career officials; Chopra’s picks for these key roles will translate his vision into actual examinations, investigations, and enforcement actions. Chopra’s appointments to these positions will be an early indicator of the direction the CFPB will take under his leadership and will have a significant impact on the actions the agency takes for years to come.
[1] See 12 U.S.C. §§ 5531(a); 5536(a)(1)(B).
[2] 12 U.S.C. § 5481(15)(A)(xi).
[3] See 12 C.F.R. 1001.2.
[4] See, e.g., Regulatory Clarity Could Transform the ISA Market | JFF (“[R]egulators must follow up by providing clear guidance on how ISA providers can comply with existing law and ensuring the guidance is thoughtfully designed to recognize that the structure of an ISA is very different from that of a traditional loan.”).
[5] See PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1, 16 (D.C. Cir. 2016), reh’g en banc granted, order vacated (Feb. 16, 2017), on reh’g en banc, 881 F.3d 75 (D.C. Cir. 2018).
[6] See Seila L. LLC v. Consumer Fin. Prot. Bureau, 140 S. Ct. 2183 (2020).
[7] Note, in this respect, that the CFPB may bring administrative proceedings to enforce the law. Legal and factual disputes that arise in these proceedings are decided, in the first instance, by an administrative law judge, subject to review and issuance of a final agency decision by the director. The director’s decision is directly reviewable in the Courts of Appeal, but under the more deferential standards applicable to judicial review of final agency action. See 12 U.S.C. § 5563.
[8] Consumer Fin. Prot. Bureau v. Consumer First Legal Grp., LLC, 6 F.4th 694 (7th Cir. 2021). The CFPB has indicated it may seek review of this decision by the full court.
[9] See, e.g., CFPB v. CashCall, Inc., et al., No. 18-55407 (9th Cir.) (appeal pending); CFPB v. Townstone Fin., Inc., et al., No. 1:20-cv-04176 (N.D. Ill.) (motion to dismiss pending).
[10] 12 U.S.C. § 5511(a).
[11] See Statement of Commissioner Rohit Chopra (ftc.gov) (noting that the CFPB had not finalized a rule regarding first party debt collection practices and expressing support for “[c]ommonsense rules for ensuring accuracy in the collection and sale of debt”).
[12] See 12 U.S.C. § 5581(b)(5)(C)(ii).
[13] See 12 U.S.C. § 5552(a)(2)(B).
[14] See 12 U.S.C. § 5514(a)(1)(B).
[15] See 12 U.S.C. § 5512(c).
[16] Id.
[17] 12 U.S.C. § 5493(a)(1)(A).
[18] In Fiscal Year 2020, the CFPB requested $537 million in transfers from the Federal Reserve, well below the statutory cap of $696 million. See cfpb_annual-financial-report_fy-2020.pdf (consumerfinance.gov). Likewise, through the first three quarters of fiscal year 2021, the CFPB had requested transfers of $488.8 million, leaving it with the authority to request as much as $228.7 million in additional funding for the fourth quarter alone. See Microsoft Word - CFO Update for CFPB.gov (FY2021 Q3) FINAL (consumerfinance.gov).
[19] In fact, the increase in headcount is already underway. See Calling attorneys interested in joining the CFPB | Consumer Financial Protection Bureau (consumerfinance.gov)
[20] Bureau Structure | Consumer Financial Protection Bureau (consumerfinance.gov)