The CFPB is rescinding its existing enforcement and supervision priority documents, according to a memo sent to bureau staff by CFPB Chief Legal Officer Mark Paoletta.
The CFPB will focus its enforcement and supervision resources on pressing threats to consumers, particularly servicemembers, their families, as well as veterans, Paoletta wrote, in a memo to bureau employees.
The CFPB also will shift its supervisory efforts back to depository institutions. He noted that in 2012, 70% of the bureau’s supervision focused on banks and depository institutions and 30% on nonbanks. He said those figures have “flipped,” adding that more than 60% of the CFPB’s supervision are focused on nonbanks and less than 40% on banks and depository institutions. “The bureau must seek to return to the 2012 proportion and focus on the largest banks and depository institutions,” Paoletta wrote.
It is not at all surprising that the majority of the CFPB’s supervisory efforts have “flipped” since 2012 in light of the fact that the bureau’s supervisory jurisdiction for non-banks has increased significantly since 2012, with the promulgation of rules establishing larger non-bank participants in various segments of the consumer financial services market.
Supervision shall decrease the number of “events” by 50%, according to Paoletta. “The focus should be on conciliation, correction and remediation of harms subject to consumer complaints,” he added. In referring to “events,” we assume that Paoletta is referring to examinations.
Paoletta emphasized that the “bureau will focus on actual fraud against consumers, where there are identifiable victims with material and measurable consumer damages as opposed to matters based on the bureau’s perception that consumers made ‘wrong’ choices.”
In addition, the bureau will focus on redressing tangible harm by getting money back to consumers, rather than imposing penalties merely to fill the CFPB’s penalty fund.
Mortgages will be singled out as the highest priority category.
The Trump Administration has targeted the CFPB for significant downsizing, but those efforts have been tied up in federal court. In congressional testimony, bureau officials have conceded that the agency will continue to fulfill its statutory duties.
In his memo Paoletta outlined other top bureau priorities, including:
- Respecting federalism by, among other things, deprioritizing duplicative enforcement where states have ample regulatory and supervisory authority.
- Minimizing duplicative enforcement where another federal regulator is currently engaged in or has concluded enforcement.
- Coordinating exams with other federal regulators.
- Eliminating supervision outside of the bureau’s authority, e.g. no supervision of M&A, just because regulated entities are involved, and no interjecting itself into bankruptcy supervision, an apparent reference to CFPB Bulletin 2023-01, regarding student loan debts and bankruptcy.
- Ceasing supervision under novel legal theories. “It will focus on areas that are clearly within [the bureau’s] statutory authority,” the memo states.
- Pursuing only matters with proven actual intentional racial discrimination and actual identified victims. “Such matters shall be brought to the leadership’s attention and maximum penalties will be sought,” Paoletta wrote.
With regard to fair lending, the memo provides that the bureau “will not engage in or facilitate unconstitutional racial classification or discrimination in its enforcement of fair lending law. Specifically, the memo provides that:
- “The Bureau will not engage in redlining or bias assessment supervisions or enforcement based solely on statistical evidence and/or stray remarks that may be susceptible to adverse inferences,” according to the memo. (The former statement appears to indicate an end to disparate impact enforcement solely through statistical analyses, and the latter statement is an apparent reference to the Townstone Financial matter.)
- “The Bureau will pursue only matters with proven actual intentional racial discrimination and actual identified victims,” the memo states. “Such matters shall be brought to the leadership’s attention and maximum penalties will be sought.”
He went on to specify the areas that the bureau will deprioritize, including:
- Medical debt.
- Peer-to-peer platforms and lending.
- Student loans
- Remittances.
- Consumer data.
- Digital payments.
- Loans or other initiatives for “justice involved” individuals.
It seems clear that under these new priorities, the CFPB will be able to cut its supervisory and enforcement staff significantly. However, it is unclear whether this memo will be considered a “particularized assessment,” which the D.C. Circuit recently stated is required to reduce staff.
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