CFPB has been busy
Our friends at the CFPB were very busy while a banking scare quickly came and seemingly went. As a result, I am going to return below to more typical CFPB commentary in “hot take” fashion covering three different CFPB actions in this Musing.
First, however, a sad note.
Kim Newby
I often write about unfair fights with the government, but nothing is more unfair than medical conditions that can interfere with one’s personality and dignity. Two years ago, I wrote about unfair fights (and fair fights) in a Musing in which I mentioned the struggles facing my friend and former colleague, Kim Newby, who had been homebound ever since dealing with complications from brain cancer. I am sad to report that Kim lost her unfair fight last weekend.[1]
Kim exemplified the kind of mortgage industry professional that makes you love this business. She began her career in the mortgage industry in 1982 as a receptionist and within about a 15-year period rose to the level of President of a national wholesale mortgage company. Along the way, she probably had every job there is in the mortgage business. Kim climbed the career ladder with kindness, competence and humility; a role model reminder of the Maya Angelou quote about people not remembering what you said, but rather how you made them feel. Kim was even nicer as friend, neighbor, and parent outside the office.
David Stevens used to call on my old bank when he was our Freddie Mac representative. Dave knew many people at the bank from those days, but every time I ran into him in Washington, DC, or a conference, even after I was no longer working with Kim and he was FHA Commissioner or MBA CEO, the one person he always asked me about was Kim Newby. Kim’s colleagues at Waterstone Mortgage honored her by creating the “Kim Newby Heart of the Champion Award” to honor a team member who brings purpose, authenticity, enthusiasm, and positive energy to the workplace. That’s the kind of impact she had on people.
Kim was reluctant to have many people to see her after her stroke. It pained many of us to honor her wishes in that regard, but the last thing you want to do in those situations is to take away someone’s sense of agency to control their own dignity. I always appreciated Kim’s sense of humor and can still distinctly hear her unique gravelly laugh today when I think of her. So, Kim’s humility blessed me and many others with only memories of her only as she was before. May her memory also be a blessing to her husband Harold, daughter Halee, son Justen and all of her family, friends and colleagues.
CFPB scorecarding
Switching gears, I have been known to say nice things about the CFPB[2], but I seem to get a lot more readership interest out of complaining about CFPB.[3] That may only prove that outrage triggers more interest than compliments. While I always try to be fair and insightful in my analysis of CFPB actions, others might say I miss the mark by being too harsh, too kind, too partisan or too pedestrian.[4] Such is the nature of commentary on regulation and government.[5]Alas, my opinions and interpretations in this blog are not legal advice, nor carry the force of law[6], so you are free to ignore them[7]. But, hey, you signed up for this free blog voluntarily, so you probably should still at least read it before casting it aside.
In any event, here’s my takes on some recent CFPB actions.
Townstone appeal kudos
In the wake of the widely publicized Townstone Mortgage opinion saying that ECOA/Reg B only applied to applicants, but not prospective applicants, Patrice Ficklin, the CFPB’s fair lending director was quoted as telling the attendees last month at the National Community Reinvestment Coalition’s Just Economy conference in Washington, DC,
“What I really want to say and be very clear about is that the CFPB will continue to vigorously enforce the law against bad actors who are discriminating against consumers, whether applicants or prospective applicants, on a prohibited basis,” [emphasis added]
CFPB has been adamant for years that ECOA/Reg B covers prospective applicants[8], so there was no surprise that CFPB would reject the Townstone decision. The premise of the government’s attacks against redlining,however, is that redlining is discrimination against prospective applicants. So, if the Townstone decision remains the law of the land, then; (i) ECOA and Reg B. don’t cover prospective applicants, (ii) CFPB is unable to enforce redlining claims, and (iii) only the Justice Department’s enforcement of the Fair Housing Act[9]supports bringing redlining claims.
CFPB had many choices in how to respond to the Townstone decision beyond speeches. The most concerning from a power imbalance and administrative law perspective would have been for CFPB to simply ignore the ruling. Given how CFPB has operated in other contexts in terms of misconstruing judicial interpretations and asserting questionable authority, my initial fear was that was the path Ms. Ficklin was signaling for the CFPB. That is, CFPB would simply pursue and file redlining enforcement actions under ECOA and Reg B in other jurisdictions looking for a different outcome with a different judge/defendant until they got the result they wanted or were enjoined by another court from enforcing their preferred interpretation on a nationwide basis. To their credit, however, CFPB has instead elected to take the direct route to enforcing their interpretation of ECOA/Reg B by filing a Notice of Appeal with the Seventh Circuit.
While their position on redlining remains dubious, I applaud the CFPB’s rare display of agency humility in appealing the Townstone decision. An appeal is procedurally the proper course of action for this agency and for the rule of law, because CFPB has publicly said they are going to keep enforcing Reg. B in the same way notwithstanding the District Court’s decision. To me, this is a humble act because CFPB is recognizing that the court’s decision must be challenged. To ignore the decision and proceed with enforcement based on its own interpretations would have been tantamount to an agency putting itself above the authority of the judiciary. So, while they may or may not win the appeal, they win a point from me for recognizing their own limitations in enforcement interpretation and using a Constitutionally established process to obtain their desired result instead of putting themselves above it.
Defining Abusiveness
On April 3, 2023 and after rescinding guidance issued in 2020 a year later, the CFPB has circled back to its effort to define “abusive conduct” in the context of consumer financial services.[10]Unfortunately, I’m not offering many points of praise on this one. CFPB claimed “we issued a policy statement that explains the legal prohibition on abusive conduct in consumer financial markets and summarizes over a decade of precedent.” Well, when I was in law school, “precedent” referred to reported judicial opinions, not the agency consent order settlements CFPB relies on for its ”precedent” in this policy statement.
Worse, this policy statement gives carte-blanche to enforcers to find virtually anything to be abusive in consumer financial services. Boiled down, CFPB has made the term “abusive” synonymous with the term “unreasonable”. CFPB also identified as “abusive”, conduct which obscures or interferes with a consumer’s ability to understand terms or conditions (like so-called “dark patterns”). While I agree that kind of stuff is bad and should be illegal, that particular conduct seems more fitting to the definition of “deceptive” than “abusive”. But, now those terms have also been rendered interchangeable for CFPB enforcers.
Meanwhile, CFPB’s policy notes, “Congress determined that it is an abusive act or practice when an entity takes unreasonable advantage of three particular circumstances. The circumstances are:
· A “lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service.” This circumstance concerns gaps in understanding affecting consumer decision-making.
· The “inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service.” This circumstance concerns unequal bargaining power where, for example, consumers lack the practical ability to switch providers, seek more favorable terms, or make other decisions to protect their interests.
· The “reasonable reliance by the consumer on a covered person to act in the interests of the consumer.” This circumstance concerns consumer reliance on an entity, including when consumers reasonably rely on an entity to make a decision for them or advise them on how to make a decision. [emphasis added]
I imagine the CFPB would agree that the whole reason for the CFPB’s existence is that these statutory conditions are almost always present in consumer financial service relationships, but notably the mortgage finance transaction. Meanwhile, the astute reader will see that I highlighted the words “unreasonable advantage” and ask what that means.[11] Unfortunately, CFPB’s policy only tells you what you can’t do, and leaves open the possibility that anything else you might do could take unreasonable advantage of a consumer and thus be abusive.
I have mentioned in previous Musings, CFPB may think that even something as common as mortgage foreclosure could be seen as an abusive practice.[12]With that in mind, consider a lender’s right to foreclose in light of the following sentence. “Unreasonable advantage-taking includes using the statutory circumstances[13]to acquire particular leverage over people or deprive consumers of legal rights.” Reform in mortgage servicing default and loss mitigation management is a worthy objective, but is it possible CFPB or another plaintiff will say that a mortgage lender took unreasonable advantage of a consumer by depriving them of legal rights by making a mortgage loan with lender rights to foreclose? Unfortunately, none of the examples in the policy statement are helpful to distinguish an abusive situation from a reasonable or non-abusive practice. In fact, there are no examples whatsoever in the policy statement of permissible, non-abusive practices.
Ultimately, like obscenity for SCOTUS Justice Potter Stewart, CFPB has simply defined “abusive” as “we know it when we see it” and left the field wide open for any enforcement action without really providing helpful guidance. That said, again I ask, was it really necessary to give guidance to Wells Fargo explaining that signing consumers up for unauthorized accounts was illegal?
Consumer Financial Outing Bureau?
I have been clear in my feelings that discriminating against someone based on race is bad and you can’t be my friend if you disagree. I feel the same about discriminating against someone based on gender, sexual orientation, national origin, or religion.[14] So, I don’t have a lot to say to about the CFPB’s HMDA-like efforts to identify illegal discrimination in small business lending (CFPB Finalizes Rule to Create a New Data Set on Small Business Lending in America | Consumer Financial Protection Bureau (consumerfinance.gov), except I don’t understand why CFPB wants to gather data about LGBTQ discrimination, but not other kinds of discrimination such as religious or national origin as well.[15] I assume racial discrimination is the CFPB’s primary concern, but if LGBTQ discrimination is occurring in small business lending it would also be bad. But the same holds true for religious or national origin discrimination.
Meanwhile, asking people to disclose their LGBTQ status seems to be a bit of a recurring theme at CFPB. See e.g., https://www.americanbanker.com/news/cfpb-launches-staff-survey-on-sexual-orientation-and-gender-identity. Asking folks to reveal their sexual orientation to lenders, employers or the government, however, might enable more discrimination against such individuals than it identifies. Skin color is visible, but sexual orientation (and even gender) often is concealed by individuals for various reasons and can remain unknown. In fact, there are many people (including me) who think it’s none of anyone’s darn business who they love, especially not the government or an employer. And I really hope no one is ever going to try to validate any self-reported LGBTQ data in an audit.
[1] Separately, last weekend I received word from an extremely relieved mortgage industry friend of her daughter’s successful brain surgery. My mom calls that kind of coincidental timing thing a “woowoo”.
[2]See e.g., Ed. #44: (P)raising Chopra? (mortgagemusings.com).
[3]There are too many to link.
[4]For some reason, I like using the word “pedestrian” to describe something mundane or boring. I hope I am not boring.
[5] I am always willing to engage in discussion with any detractor, supporter, or agnostic who can engage in reasoned discourse. Send me an email and you’ll see.
[6] Despite sometimes being told they are wrong, the CFPB certainly believes their statements (including, exam manuals, advisory opinions and consent order “guidance”) carry the force of law. To be clear, one can appeal to higher authorities, but it’s never a fair fight against the government. I will say, however, CFPB seems to be on a bit of a losing streak and the higher authorities at SCOTUS seem less inclined to defer to agencies than ever.
[7] Seriously, you can safely ignore anything I say. Sometimes lawyers will write a letter to the other side in a dispute saying, with ominous overtone, “Ignore this at your peril” or some other similar unveiled threat. That’s not at all what I meant.
[8]See e.g., CFPB Issues Advisory Opinion on Coverage of Fair Lending Laws | Consumer Financial Protection Bureau (consumerfinance.gov)
[9] There are also state laws that may implicated in any redlining allegations as well, but those claims would be brought by state enforcement officials, not the CFPB.
[10] For an excellent summary of the CFPB’s Abusive Conduct policy statement see CFPB releases policy statement defining abusive acts or practices | Consumer Finance Monitor
[11] Is it possible to take “reasonable” advantage of a consumer? Astute readers also read the footnotes.
[12] CFPB says servicers should offer loss mitigation beyond COVID hardships | National Mortgage News
[13] My note-as described previously, these statutory circumstances can be summarized as, (i) lack of understanding, (ii) unequal bargaining power, or (iii) reliance on professionals.
[14]Federal and state laws make such discrimination not just disqualifying for my friendship, but also illegal.
[15] Clearly there has been historical discrimination against both these categories as well.