Be careful what you wish for!

This article was written by: Allan Fried, White Clarke Group Business Consultant and Consumer Credit Compliance Certified

The CFPB is required to prepare and publish a five-year Strategic Plan in accordance with the Government Performance and Results Act (GPRA) and GPRA Modernization Act. The previous Strategic Plan was published in April 2013. The Consumer Financial Protection Bureau (CFPB) released its Strategic Plan for 2018-2022, stating that the bureau intends to go no further than its statutory duties outlined by the Dodd-Frank Act in fulfilling its mission.

“If there is one way to summarize the strategic changes occurring at the bureau, it is this: we have committed to fulfill the bureau’s statutory responsibilities, but go no further,” Mulvaney wrote. “Indeed, this should be an ironclad promise for any federal agency; pushing the envelope in pursuit of other objectives ignores the will of the American people, as established in law by their representatives in Congress and the White House. Pushing the envelope also risks trampling upon the liberties of our citizens, or interfering with the sovereignty or autonomy of the states or Indian tribes. I have resolved that this will not happen at the bureau.”

Gone are the days when Cordray could approve renovations to the CFPB offices that has employees now coming to work in a building that features many high-end touches, including lounge seats for their plaza deck, sunken garden areas, male and female fitness rooms, and credenzas with quartz surfaces and premium drywall. The CFPB spent $88,000 for bike racks and parking striping in the garage. Instead we have an acting Director that requested $0 from the Fed to fund bureau operations for three months and expects to spend $145 million in the next quarter funded through the bureau’s $177 million emergency reserve account with the Fed’s New York branch.

So a kinder, gentler CFPB is now official. I am still a bit reticent to rename the bureau the Consumer Financial Institution’s Protection Board but many of the latest changes enacted by Mulvaney are pointing in that direction. The stated vision of the plan is, “Free, innovative, competitive, and transparent consumer finance markets where the rights of all parties are protected by the rule of law and where consumers are free to choose the products and services that best fit their individual needs.”

So while we hear comments from the National Fair Housing Alliance President and CEO Shanna L. Smith regarding the Office of Fair Lending and Equal Opportunity being transferred to the Director’s Office as part of the Office of Equal Opportunity and Fairness; “[T]he Trump administration’s decision to strip away the CFPB’s Office of Fair Lending’s enforcement powers clearly prioritizes the wishes of Wall Street and loan sharks over the rights of Americans to access quality credit and financial products free from discrimination…”

Loan sharks, give me a break. But as this article title states, ‘Be careful what you wish for!’ because the real sharks are the State Attorneys General anxious to take up the Cordray-esque mantra of enforcement and rule making. State AG’s are becoming more vocal as to “setting policy.” So now instead of one bully on the beach kicking sand on everyone, we should be aware that there are 50 sharks lurking in the shallow waters and they are becoming friends and implementing multi-state activities without the CFPB.

According to AFSA’s February State AG Activity White Paper, some states have already taken steps in this direction, including Pennsylvania Attorney General Jack Shapiro, who has been building his own consumer protection unit for the state over the past year—led by a former CFPB attorney—and is attracting the attention of state attorneys general from both parties. New Mexico Attorney General Hector Balderas has directed his staff to analyze what effect new federal policies may have on the state. The attorneys general in California, Pennsylvania, Washington and Virginia have also recently announced enhanced commitment to safeguarding their consumers and significantly expanding their consumer protection units.

The automotive finance industry is certainly not immune to State actions either. While we wait on Congressional action on the Government Accountability Office determination that the infamous March 2013 CFPB Rule on Dealer mark-up did not follow the required due diligence and does not meet the “rule” criteria, many State AG’s are increasing their enforcement actions especially with regard to ancillary products and other add-on and after sales products. The AFSA White Paper also noted that one action brought by Florida Attorney General Pam Bondi in June 2017 alleged that a vehicle finance company tracked consumers using GPS technology without the consumer’s consent, for the purpose of collecting debt under the threat of repossession.

During one session at the recent American Financial Services Association (AFSA) Law and Compliance Symposium it was noted by the panelist that Massachusetts requiring installment lenders to stop accruing finance charges when repossession is initiated and applying their Direct Loan Statute for deficiency balances etc. to the Motor Vehicle Sales Finance Laws and New York State Department of Consumer Affairs settled with 3 finance companies to reimburse consumers that purchased and financed “non road-worthy” cars and charged Dealerships with UDAAP violations.

At the same American Financial Services Association (AFSA) Law and Compliance Symposium, one comment in particular resonated with me when Hudson Cook partner, Nicky Munro ended her presentation to the Operations, Regulatory and Compliance Committee by pointing out that now is a good time to review your Compliance Management System (CMS) for State-specific guidelines and action plans. Up until now most CMS audit, checklists, and action plans focus on CFPB initiatives but that focus is changing rapidly.

While compliance and cybersecurity remain the two of the top concerns of financial institutions, many States are enacted their own cybersecurity guidelines (many adding to the standards established pursuant to Section 501(b) of the Gramm–Leach–Bliley Act), most notably New York, but also Colorado, Vermont, and Maine with many to follow. State enforcement is also growing in the Student Loan Servicing and Fintech space with FCRA and Credit Reporting along with UDAAP right up there as well.

Keeping up with State AG initiatives is a difficult endeavor. It doesn’t help matters either that there are 23 States with Initiative Referendum, a process that enables citizens to bypass their state legislature by placing proposed statutes and, in some states, constitutional amendments on the ballot can readily pass laws such as the “all-in rate cap.” Trade associations such as AFSA is a great place to start but also do not leave your lending software vendor out of the conversation as well. Having a vendor that can provide both Point-of-Sale/Loan Origination (LOS) and Loan Servicing/Default Management software adds value when looking for consistent compliance tools across the entire loan lifecycle. It will also ease the vendor management burden in your CMS. Your Compliance Officer should work closely with your lending platform vendor’s Compliance Subject Matter Expert to communicate, share ideas, and refine solutions that limit risk and keep your Board of Directors current on oversight and identifying new regulatory requirements especially at the State level.

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