In the wake of the election and pushback from Senate Banking Committee Ranking Member Sherrod Brown, consumer groups, and even agency staff members, the Consumer Financial Protection Bureau (CFPB) announced last month that it would pause a plan to reorganize the Division of Supervision, Enforcement, and Fair Lending (SEFL) that, if adopted, would leave consumers vulnerable and defenseless.
More than 80 advocacy groups, including CFA, had submitted comments to the Bureau last month in which they argued that the SEFL Division should be strengthened rather than reorganized. Criticism did not come from advocates alone. Arent Fox LLP, an industry law firm, said that “the change amounts to the single most effective effort by the CFPB to weaken its own Enforcement arm since the Trump administration took over. It cuts across all industries and products overseen by the Bureau.”
In their comments, the consumer groups wrote that “the proposed SEFL reorganization undermines the vast enforcement authority granted by the landmark Dodd-Frank Act to enforce federal consumer financial law and bring legal action against companies that violate that law.” The proposal would do this in a number of ways.
First, the proposal would disband Enforcement’s Policy and Strategy Team, which provides support to Enforcement attorneys and determines Enforcement’s overall policy and strategy, and would reassign team members to various Institution Product Line teams. The reorganization would also require Enforcement attorneys to get approval from another office before opening new investigations. Further, it would leave the question of whether federal consumer financial law should be resolved through supervisory exams or through an enforcement action to another office. “These drastic changes will eliminate the Enforcement office’s independence, strip its authority to open new research matters, and remove Enforcement’s critical, expert voice from the SEFL decision making process,” the groups stated.
In addition, the proposal would “dramatically weaken the CFPB’s ability to hold small financial firms accountable for violating the law, especially payday lenders and debt collectors. Because CFPB supervisors do not conduct examinations of these non-bank firms, violations by these institutions could go undetected,” the groups wrote.
With COVID-19 numbers rising nationally and consumers reeling from the current financial crisis, this reorganization could not come at a worse time, the groups argued. Enforcement actions under the current administration have plummeted even as complaints are on the rise. Since the pandemic broke out, the CFPB has seen record-setting numbers of consumer complaints each month.
“In March-June 2020, complaint levels were up by 50% over complaint levels during the same period of the previous year, with complaint volume increasing each consecutive month. The sheer number of complaints received by the CFPB illustrates how much consumers are struggling in the current financial crisis, and the proposed reorganization would leave consumers with less effective recourse in the face of lawbreaking financial institutions,” the groups stated.
“We are pleased that the CFPB has heeded our warning and paused the reorganization of the Division of Supervision, Enforcement, and Fair Lending,” said Rachel Gittleman, CFA’s Financial Services Outreach Manager. “We urge the CFPB to fully abandon this proposed reorganization as it would further diminish the CFPB’s enforcement efforts which have already plummeted under the current administration.”