It’s A New CFPB
Public statements and actions by Director Kathy Kraninger shed some light on her approach to financial services regulation and enforcement.
The Senate confirmed Kathy Kraninger as Consumer Financial Protection Bureau (CFPB) Director in December 2018, following a year-long stint by Mick Mulvaney as Acting Director. Given her lack of a financial services background, no one was certain about the path Kraninger would follow when she assumed the helm. But her public statements and actions over the last few months have shed some light on her approach to financial services regulation and enforcement.
No More Rulemaking Through Enforcement
Former Director Richard Cordray’s tenure was defined by the CFPB’s failure to provide clear guidance as to what was expected to avoid legal action under federal consumer protection statutes such as RESPA. The most glaring examples of this policy were his administrative ruling against PHH, in which he ignored previous HUD guidelines to set new RESPA standards (which later was vacated by the D.C. Court of Appeals), and the CFPB’s consent orders on marketing services agreements (MSAs) that created confusion throughout the industry by vaguely warning against the usage of MSAs without further guidance.
Mulvaney signaled during his tenure that this era of “regulation by enforcement” at the CFPB was over, and Kraninger also appears to have adopted this policy. In an April 17 speech, she announced that the CFPB will no longer engage in rulemaking through enforcement and instead will use formal rulemaking that provides “clear rules of the road. Rules “are not best articulated on a case-by-case basis through enforcement actions,” she said.
More Targeted Civil Investigative Demands
On April 23, the CFPB announced that its Civil Investigative Demands (CIDs) would provide more information about the potentially wrongful conduct under investigation. Under Cordray’s tenure, CIDs had been worded in extremely broad terms, leaving the recipient with little information as to what specific conduct may have violated the law and inviting what some called fishing expeditions under which the Bureau would request a wide array of information and then change the scope of the investigation based on what it learned from the acquired materials.
A Revamped No-Action Letter Program
The CFPB’s new Office of Innovation (created by Mulvaney) is overhauling the Bureau’s 2016 No-Action Letter Program, which provides limited enforcement relief to companies that develop “consumer-friendly innovations” for “emerging products or services” when regulatory standards are uncertain. In a December 13, 2018, Proposed Rule, the CFPB noted that there has only been one No-Action Letter issued so far, indicating that the Program has not provided firms with sufficient relief to encourage applications. It requested public comment on ideas to improve and expand the Program, such as a streamlined application process, confidentiality safeguards, and agreements with state regulators for similar state relief. In the same proposal, it outlined a new Product Sandbox Program that would give companies additional regulatory relief when testing new financial products and services.
Possible TRID Clarifications in the Works
Kraninger has recognized publicly that additional changes may need to be made to the Truth in Lending Act-RESPA Integrated Disclosure (TRID) rule. In a January 14 response to a letter from Senator Hoeven (R-ND) expressing concern that the TRID rule does not allow title companies to disclose available discounts on mortgage disclosure forms, Kraninger replied that the CFPB intends to launch a mandatory five-year assessment of the TRID rule and will “carefully examine” the disclosure of title fees during that assessment. She informed Congressman Brad Sherman (D-CA) during an April House committee hearing that she has heard about needed clarifications to TRID from stakeholders and said that it “is something we are looking at.”
Little Focus on MSAs and Affiliated Businesses…So Far
Kraninger has demonstrated less awareness of issues raised by Cordray’s controversial interpretations of Section 8 of RESPA, although she has expressed a willingness to review concerns brought to her attention. She indicated that she was not aware of a 2015 RESPA bulletin that Congressman Sherman told her at an April committee hearing was “problematic” (presumably referring to the CFPB’s vaguely-worded 2015 compliance bulletin on MSAs), but stated she “will go back and take a look at it.” When Congressman Bill Huizenga (R-MI) asked if the CFPB will change the definition of “points and fees” in the Qualified Mortgage rule to correct the disparate treatment of affiliated title fees, she acknowledged that the CFPB has been asked to reconsider the “points and fees” definition and that she “has been talking with staff extensively about the issue.”
In April testimony before the Senate, Kraninger emphasized that she is committed to enforcement and will “take aggressive action against bad actors who break the rules by engaging in fraud and other illegal activity.” But based on her recent remarks and actions, the industry also can expect more guidance and collaboration from the CFPB over her five-year term.
Sue Johnson is the former executive director of RESPRO, the Real Estate Services Providers Council Inc. She retired in 2015 and is now a strategic alliance consultant.