Shift in enforcement priorities by CFPB toward nonbank financial institutions and fair lending disputes
The Consumer Financial Protection Bureau (CFPB) has announced a significant change in its enforcement strategies, with a focus on protecting servicemembers and their families, and addressing clear cases of fraud and measurable consumer damages. The shift, under the leadership of Mick Mulvaney and now, Mark Paoletta, aims to prioritize getting money back directly to consumers rather than imposing penalties.
Key differences from the previous administration’s enforcement strategies include:
- Rollbacks of prior guidance: The Bureau has rescinded about 60 guidance documents and policy statements that were seen as de facto rulemaking without full Administrative Procedure Act compliance, signaling a reduction in expansive regulatory interpretations.
- Less aggressive supervisory scope: The CFPB is proposing to narrow its supervisory authority over several industries by raising thresholds defining "larger participants," such as in consumer debt collection, automobile financing, and international money transfers. This would limit the scope of firms subject to CFPB oversight, based on criteria like annual receipts, aligning thresholds closer to Small Business Administration standards.
- Shift from broad enforcement to targeted harm: The Bureau has stated it would avoid pursuing supervision under novel legal theories and is less likely to classify clearly disclosed practices as unfair or abusive, contrasting with the prior approach that sometimes pursued expansive interpretations for consumer protection.
- Operational changes: Staffing reductions and a pause in issuing guidance have caused uncertainty among examiners, leading to a focus on basic consumer federal regulations such as fair lending and the Community Reinvestment Act, rather than broader or more novel regulatory initiatives.
The CFPB's new approach will see it focus on redressing harm by getting money directly to affected consumers. The agency will pivot its focus away from non-depository institutions and towards fraud against consumers with "material and measurable" damages, particularly related to mortgages, data furnishing violations, consumer contracts issues, fraudulent overcharges and fees, and loss resulting from lax controls to protect consumer information.
In addition, the CFPB has outlined 11 priorities for 2025, including a focus on providing redress to military members, their families, and veterans. Notably, the CFPB will no longer focus on fair lending law violations based solely on statistical evidence and/or stray remarks that may be susceptible to adverse inferences. Instead, it will only pursue lending law matters with "proven actual intentional racial discrimination and actual identified victims."
This shift in focus comes as the CFPB has finalized a rule to oversee big technology companies that offer various financial services, but this will no longer be a primary focus. The CFPB has also participated in several redlining settlements, such as a $105,000 settlement with Townstone Financial and a $9.9 million settlement with Fairway Independent Mortgage Corp., with $1.9 million going to the CFPB victims relief fund. However, the CFPB has moved to vacate the Townstone case under the new leadership.
Former associate director at the CFPB, David Silberman, has expressed concerns about the future of fair lending supervision and enforcement under the new policy. The CFPB's shift in focus, emphasizing direct consumer relief for clear fraud over broad agency-driven regulatory expansions, represents a more restrained and transparent enforcement approach.
- The Consumer Financial Protection Bureau (CFPB), under the leadership of Mark Paoletta, plans to prioritize finance-related businesses that have caused fraud and measurable consumer damages, especially in matters such as mortgages, data furnishing violations, and consumer contract issues.
- In an effort to provide direct relief to consumers, the CFPB is set to focus on targeting business practices involving fraudulent overcharges and fees, loss due to lax controls regarding consumer information, and instances of material and measurable harm, while deeming fewer practices as unfair or abusive.
