The CFPB’s New Team Has a Message for Banks It Regulates: We’re Back

America’s personal money watchdog is beginning to stir once again.

The Consumer Financial Protection Bureau was created in the wake of the 2008 mortgage crisis. Its mandate: to make sure financial products such as loans aren’t designed to trick people into onerous debt or high fees. The agency was hobbled by its own leaders during the Trump years, to the glee of many in the financial industry, who argued that the agency had been given too much unaccountable power.

President Joe Biden’s nominee to lead the CFPB, Rohit Chopra, is expected to win Senate confirmation within weeks. But the regulator is already sending a message that it’s getting tougher. On-site examinations are up, banking executives tell consultants. Student lending, subprime auto loans, debt collection, mortgage services, and payday loans are all expected to come under renewed scrutiny, analysts say.

The CFPB’s New Team Has a Message for Banks It Regulates: We’re Back

For a time during the Trump administration, the agency’s acting director was Mick Mulvaney, who had previously described the CFPB as a “sick, sad” joke. Over the past four years, the bureau has generated about $2.3 billion in consumer relief through enforcement actions, compared with more than $10 billion in the prior four years. Chopra is likely to be more in tune with the CFPB’s original, activist mission. He was the bureau’s assistant director under Obama-era chief Richard Cordray and is an ally of Senator Elizabeth Warren, the Massachusetts Democrat credited with conceiving of the CFPB and helping to set it up.

Chopra took a Federal Trade Commission seat in 2018. He marked the decade since passage of the Dodd-Frank Act that created the CFPB with a July statement saying “gullible and passive regulators also share responsibility” for the financial crisis, along with “greedy and abusive” financial companies. Chopra said he saw firsthand in his early years at CFPB that the public must ensure that regulators use every available tool “to rein in firms that abuse their power and break the law.” He also has used his FTC perch to take on big business, employing similarly tough language. In February, Amazon.com Inc. agreed to pay $62 million to settle FTC allegations that it withheld tips to drivers. Company executives tried to “mislead its drivers and conceal its theft,” Chopra said in a statement at the time. (Amazon disputed the FTC’s allegations and said its pay policies had been clear.)

“My expectation is, once Chopra is confirmed, he’s going to want to come fast out of the gate,” says Ed Mills, a Washington-based policy analyst at Raymond James Financial Inc. “Several bank management teams have told us informally that they had seen a noticeable change from the CFPB in the last month or two after not hearing from them for the last several years. It seems like a switch has been flipped.”

Patrick McHenry of North Carolina, the top Republican on the House Financial Services Committee, said in a statement that recent moves by the bureau show it is “backsliding” to over-regulation. “Unfortunately, I expect this is just the start of the CFPB’s snap-back to bad policy, abuse of power, and the political tactics we experienced during the Cordray era,” he said.

The agency wields a nearly $600 million budget and almost 1,600 employees overseeing everything from mortgage lenders to student-loan servicers and credit card issuers. In the weeks since Dave Uejio took over as the agency’s acting director after Trump appointee Kathy Kraninger resigned at Biden’s request, banks have been fielding more requests from the agency, according to people familiar with the discussions, who asked not to be identified discussing confidential regulatory matters. Executives expect more aggressive oversight and enforcement, including higher penalties.

“We are planning to rescind public statements conveying a relaxed approach to enforcement of the laws in our care,” Uejio said in a message to the staff after taking over. “We will also be reversing policies of the last administration that weakened enforcement and supervision.” In an emailed statement to Bloomberg Businessweek, Uejio said the agency wanted to address issues made urgent by Covid—such as keeping people in housing—as well as discrimination and racial inequities.

Uejio also has begun a recruiting drive to hire attorneys he says can help hold companies accountable for hurting consumers. “You’re only hiring attorneys to do enforcement actions, so they’ve put their cards on the table,” says Height Capital Markets analyst Edwin Groshans. “We’re having a sharp turn in the direction of the CFPB.”

Big banks aren’t the only businesses likely to get more attention. Groshans sees CFPB as likely to scrutinize private student lenders and loan servicers. He also saw Chopra citing car repossessions and loan defaults in his confirmation testimony as a signal that Chopra may target subprime auto lenders.

On March 11, the agency rescinded self-imposed, Trump-era restrictions on its ability to collect civil penalties and disgorgement from banks and financial companies for abusive acts and practices. That gives it an additional tool to bring actions against consumer finance companies, according to Cowen Inc. analyst Jaret Seiberg. “As importantly, we believe the CFPB wants to develop case law on the definition of abusive practice,” he wrote in a note. By setting precedents for what counts as abusive, the agency could make it harder for future regulators to take a more forgiving view.

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