Four takeaways from the first CFPB trial in the post-Kraninger era
On February 22, 2021, the Consumer Financial Protection Bureau (CFPB) filed its first trial since the election and resignation of former director Kathy Kraninger. The lawsuit alleges that the defendant engaged in deceptive and abusive practices by charging detained immigrants a substantial upfront and monthly fee to arrange payment of immigration obligations securing the release of immigrants. The complaint sets out a rather damning set of facts alleging that the defendant distorted the nature of its services to consumers, many of whom do not speak English, and then engaged in aggressive collection actions. As the CFPB’s first lawsuit against the Biden administration, it offers some clues as to the direction of CFPB enforcement.
- Wide view of the jurisdiction.
The CFPB trial represents a broader vision of the agency’s competence. The CFPB can only bring actions for unfair, deceptive or abusive acts or practices (UDAAP) against “covered persons”, that is to say those who financial products or services. These services include the granting of loans as well as the collection of debts which are themselves linked to “any consumer financial product or service”. And indeed, the agency’s enabling statute includes an express exclusion of authority over sellers of non financial products and services.
Here, the complaint alleges that the defendant acted as an intermediary between the detainees and the sureties and surety officers who actually posted the immigration bonds resulting in the release of the consumer from detention. As alleged in the complaint, therefore, the Respondent was selling a service and not a loan. This service, which acts as an intermediary to help secure an immigration bond, is not a consumer financial product or service. In the absence of another check mark, therefore, the conduct of the defendant, both in the marketing of its services and in the collection for these services, would escape the authority of the CFPB.
Apparently acknowledging this, the CFPB complaint repeatedly alleges that the defendant made a false statement to consumers that he paid the bond and that the monthly payments he charged to consumers were “payments for a loan”. Accordingly, the complaint alleges that because the Respondent “creates a reasonable impression in the minds of consumers that it offers or provides extensions of credit to pay for consumers’ immigration obligations”, the transactions at issue are “Consumer financial products or services” and the Respondent is a covered person subject to the UDAAP authority of the CFPB. In essence, the CFPB’s position appears to be that while the defendant does not in fact provide a consumer financial product or service, it is nonetheless subject to the agency’s authority because its alleged deceptive practices have brought consumers to believe he was.
It will be for a court to determine whether the authority of the CFPB extends to conduct like this. But the fact that the CFPB was prepared to pursue this legal action suggests, unsurprisingly, that it will seek to assert its jurisdiction broadly. And that she will not be afraid to do so in the context of a dispute. Although the case has been brought before CFPB acting director Dave Uejio, this approach fits the apparent views of director-nominee Rohit Chopra. As commissioner of the FTC, Mr Chopra wrote that the agency should “show a greater willingness to prosecute” litigation because such actions contribute to “a significant development of the law” and can “cement »The authority of an agency to prosecute certain conduct.
As we are written before, the CFPB led by Kathy Kraninger continued to make allegations of abuse, despite industry concerns about this aspect of the agency’s power. So it’s no surprise that the Biden administration’s CFPB is pursuing such claims. But it’s a bit of a surprise that it is among the earliest claims claimed. The complaint alleges that the defendant’s use of predominantly English agreements to register clients, when it was aware that many of its clients did not understand English, and its omission and misrepresentation of the substantive terms in the written agreement during the registration process, “seriously interfered with the ability of consumers to understand the terms and conditions” of the defendant’s services and thus constituted abusive acts or practices. As with many abuse allegations, the alleged underlying behavior could have been characterized as unfair (because it caused consumer harm that consumers could not reasonably avoid given their lack of fluency in English) or misleading (based on omissions and alleged misrepresentation). . The fact that the CFPB has chosen to plead this as an abusive claim appears to be a signal of the agency’s intention to use all of its powers in the future and that it will not hesitate to wear claims for abuse.
- Interim Director Uejio will not be afraid of guns.
Acting manager Uejio has publicly signaled that he has no intention of simply playing a guardian role while awaiting confirmation from Mr Chopra. This trial provides proof of this assertion. We know that the defendant’s investigation has been ongoing since at least August 2017, when the CFPB issued the company with a civil investigation request. The company sought to quash that request, but its request was denied by then director Cordray. The fact that the CFPB has not filed a complaint so far – nearly three and a half years after that decision – could suggest that there was less appetite to pursue this case under the leadership of Director Kraninger. The fact that Acting Director Uejio authorized the trial is proof that he will not hesitate to act, even when in doubt about the authority of the CFPB.
The lawsuit also provides a concrete example of Interim Director Uejio’s focus on racial equity issues, going beyond traditional fair lending concerns. The CFPB press release describes the case as “a prime example of how people of color are being targeted in the financial scams and latent unfairness that is too often found in the market for financial products and services” and notes the CFPB’s “commitment to fight racial injustice in the marketplace.” CFPB anti-discrimination authorities focus on equitable lending, but this case serves as an example of how these concerns can guide enforcement policy in other areas as well.
- Return of the pejorative press release.
In the early days of CFPB, under the leadership of Rich Cordray, CFPB press releases did more than simply relay the facts of the case. They tried to tell a story, often using derogatory terms like ‘scam’ and ‘scam’, especially when non-bank companies were involved. Indeed, it seemed that the press service was using a thesaurus to choose words to describe conduct that the CFPB found improper. That changed under interim manager Mick Mulvaney and manager Kathy Kraninger. Press releases issued during their tenure were more focused on the facts of the case and lacked the colorful adjectives of the past – the word ‘scam’ does not appear once in press releases issued under their watch. This era seems to be coming to an end. The CFPB press release announcing the case describes the company’s allegedly “predatory” services as a “scam” and a “foreclosure scheme””And refers to the consumers involved as” victims “who were” prey[ed]We expect the tone of press releases in the coming years to be just as harsh, especially when it comes to more troubling factual claims.