CFPB Updates: MLA Controversy, GLBA Amendment, Settlement, CFPB Constitutionality

What happened

With never a dull moment at the CFPB, news reports divulged that Acting Director Mick Mulvaney intends to cease supervisory examinations of the MLA, taking the position the law does not provide the Bureau with the authority to examine financial institutions for compliance with the statute.

According to “internal agency documents” obtained by the The New York Times, Mulvaney signed off on a two-page change to CFPB policy stating that “proactive oversight is not explicitly laid out in the legislation.”

Not surprisingly, controversy ensued. All 49 Democratic senators sent a letter to Mulvaney, asking that he reconsider his position. “The CFPB should not be abandoning its duty to protect our servicemembers and their families, and we seek your commitment that you will utilize all of the authorities available to the CFPB to ensure that servicemembers and their families continue to receive all of their MLA protections,” the lawmakers wrote.

CFPB examinations and the Bureau’s Office of Servicemember Affairs have been “critical components of ensuring the detection and prevention of risks to military consumers,” the Senators said, and such examinations “serve as the early warning system for MLA deficiencies so that they do not snowball into costly losses for servicemembers and avoidable litigation costs and penalties for lenders.”

Given his position at the Office of Management and Budget, Mulvaney should recognize that the exams save taxpayer funds, the letter noted, decrying the “unreasonable” burden that will fall on servicemembers.

“What the CFPB is reported to be contemplating is equivalent to forcing our Armed Forces to stop using radar, sonar, and other early warning technologies and instead react to threats as they occur,” the Senators wrote. “No one would force our Armed Forces to do so, and the CFPB should not similarly force any of its examiners to turn a blind eye.”

In less controversial news, the CFPB finalized amendments to Regulation P, providing an exemption for financial institutions from sending annual privacy notices to consumers if certain conditions are met.

The GLBA and Regulation P mandate that banks provide consumers with privacy notices that describe whether and how the institution shares consumers’ nonpublic personal information with third parties and how the bank protects the information that it collects and maintains. Banks are required to provide an initial notice and generally required to provide annual notices. In 2015, Congress passed the Fixing America’s Surface Transportation Act, which created an exception from the annual notice requirement.

Specifically, if the institution has not changed its privacy notice from the one previously delivered and the bank limits sharing of a customer’s nonpublic personal information with nonaffiliated third parties, then the annual notice does not need to be sent. Initial privacy notices are still required.

The final rule also provided timing requirements for the delivery of annual privacy notices if the bank had not been providing them and subsequently becomes ineligible for the exception.

On the CFPB enforcement front, a Missouri federal court entered an order effectuating a deal between the Bureau and two individuals (along with 20 interrelated corporate entities) over alleged violations of the CFPA, Truth in Lending Act (TILA) and Electronic Fund Transfer Act (EFTA).

The CFPB said the father and son duo obtained consumers’ personal and financial information from third-party data brokers and used the information to access consumers’ bank accounts without authorization.

The defendants deposited loans in consumers’ bank accounts and then debited biweekly “finance charges” for an indefinite period, the CFPB alleged. Many consumers never saw the loan agreements and were not even aware of the account activity until after the loan was deposited and the charges withdrawn. Even when consumers did receive loan documents, the written disclosures misrepresented price terms and repayment obligations, the CFPB said.

In November 2017, a New York federal court jury found the father guilty on charges of making false disclosures under TILA, aggravated identity theft, wire fraud, collection of unlawful debts, conspiracy to commit wire fraud and conspiracy to collect unlawful debts. He is appealing the verdict.

Pursuant to the stipulated final judgment and order, the defendants are permanently banned from “marketing, advertising, promoting, or offering any loan or other extension of consumer credit; originating loans or extending credit to consumers; attempting to collect or collecting payments from consumers on an existing loan, whether directly or through a third-party debt collector; communicating with consumers regarding any loan or other extension of credit; and selling, assigning, brokering, gifting, conveying, or otherwise transferring any purported consumer debt to a third party, including any debt broker, debt buyer, or debt collector.”

The defendants are also prohibited from disclosing consumer information and causing debits to be made from any bank or financial account, and from billing any consumer for any charge, without express, informed consent.

A judgment of more than $69 million included in the order was suspended in light of the defendants’ limited ability to pay upon forfeiture of $14 million in assets and payment of a $1 civil penalty.

Finally, the issue of the CFPB’s constitutionality seemingly just won’t go away, rearing its head in both New York federal court and the Fifth Circuit.

In June, U.S. District Court Judge Loretta A. Preska held that the structure of the Bureau—with a single director removable only for cause—rendered the agency unconstitutional. As a remedy, she ruled that Title X of the Dodd-Frank Consumer Protection and Wall Street Reform Act should be struck in its entirety.

The case was a joint action brought with the New York attorney general, alleging unfair and deceptive acts or practices against the defendant. Given that the court struck all of Title X—including the UDAAP provision—the entire action should be dismissed, the defendant argued.

In response, the CFPB contended that the June ruling was a final judgment capable of being appealed. On Aug. 23, the court agreed, allowing the CFPB to take the issue to the Second Circuit to weigh in on the constitutionality of the Bureau. The Second Circuit could agree with the D.C. Circuit’s opinion in PHH Corp. v. CFPB, which found the structure constitutional, or create a circuit split if the panel elects to affirm Judge Preska. A split, of course, could lead to review by the U.S. Supreme Court.

Further muddying the waters, the Fifth Circuit is currently considering the issue in an interlocutory appeal involving a check cashing company that challenged the constitutionality of the CFPB, only to have a Texas federal court side with the Bureau.

Noting that the issue is one of “exceptional importance”—and hinges in part on a recent Fifth Circuit opinion that found the structure of the Federal Housing Finance Agency unconstitutional—the company is seeking an initial hearing of the en banc panel. The CFPB has not opposed the motion.

To read the letter to Acting Director Mulvaney, click here.

To read the final rule amending Regulation P, click here.

To read the stipulated final judgment and order, click here.

Why it matters

The action at the CFPB never ends, from controversy over MLA examinations to enforcement efforts and updated rules to the continuing saga over the constitutionality of the Bureau. In addition, the looming confirmation vote on Kathy Kraninger, Acting Director Mick Mulvaney’s proposed permanent replacement, will likely keep the Bureau in the headlines.