Coming soon: the return of “Supervision by Enforcement”
I shared some thoughts recently in The American Banker on why large banks should expect the return of Supervision by Enforcement and how they can prepare. Here’s some additional historical context that might be helpful.
The Consumer Financial Protection Agency (CFPB) was created “to provide a single point of accountability for enforcing federal consumer financial laws and protecting consumers in the financial marketplace”(1) following the financial crisis of 2008, and the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Not surprisingly, its attitudes and actions have reflected the administrations under which it operates.
Under the leadership of former CFPB Director Richard Cordray during the Obama administration, the CFPB’s enforcement action activity set records for both the number of enforcement actions initiated, and in the amount of monetary restitution and CMPs collected from regulated institutions. In 2015, the Bureau’s most active year from an enforcement perspective, the CFPB initiated 56 enforcement actions and collected more than $6 billion in customer relief from regulated entities.(2) Large CMPs were often common in enforcement actions initiated during Cordray’s tenure, including most notably a $100 million fine against Wells Fargo in 2016 for rampant unauthorized account opening practices.(3)
Despite record volumes of consumer complaints submitted to the CFPB during the Trump administration - including in key areas of consumer protection such as credit reporting and debt collection that are generally of great interest to the Bureau - enforcement activity under former Acting Director Mulvaney and former Director Kraniger plummeted across the board.(4) This is not to say that the CFPB was completely dormant under Trump’s leadership, but much of the enforcement activity was against smaller regulated institutions and often included nominal monetary penalties. The highest amount of customer relief collected in a year during Kraninger’s tenure occurred in 2019 when the Bureau collected approximately $783 million in customer relief.(5) With the exception of a $10 million fine against TD Bank in 2020, when CFPB enforcement actions in the Trump administration did include monetary penalties, those penalties were very frequently as little as $10. In some instances, particularly later in Kraninger’s tenure, financial penalties (which are intended to be a deterrent to those that violate consumer protection laws under the jurisdiction of the Bureau) were as low as $1.(6)
With the Trump administration’s commitment to deregulation, the CFPB’s power and influence waned, as did its level of activity, but we expect that trend to reverse quickly. President Biden made his intent to enhance oversight of the financial services industry clear during his 2020 campaign, and the new administration has strongly signaled its intent to embrace financial regulation, focusing particularly on the goals of enhancing consumer protection and expanding access to credit and other financial services.
The emerging regulatory environment will present both the opportunity to redouble commitments to enhancing diversity and inclusion and addressing systemic racism and inequality, and the challenge of demonstrating this commitment to regulators through concrete outcomes. Any bank that engages in the activities enumerated by CFTC Commissioner Rohit Chopra in his recent testimony before the Senate Banking Committee should start thinking now about a comprehensive approach to CFPB readiness in order to proactively identify potential risks of noncompliance with consumer protection laws and regulations and take appropriate corrective actions. This should include a continuous analysis of real-time consumer complaint data to more proactively identify potential deficiencies in consumer protections, and a modernization of how bankers approach risk management to potentially encompass operational areas never before subjected to intense regulatory scrutiny.