The big picture: The Consumer Financial Protection Bureau has reprioritized its focus amid political scrutiny.
Reduced examinations: The CFPB will cut examinations by 50% and focus on depositary institutions. Certain products offered by non-bank institutions will be deprioritized.
Focus on identifiable harm: The Bureau will concentrate on remediation of “tangible harm,” prioritizing redress to consumers.
Go deeper: Read about actions the CFPB will refrain from taking, including scaling back supervision in states where local authorities have capability to regulate.
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The Consumer Financial Protection Bureau (CFPB or Bureau) has reprioritized its focus amid political scrutiny, with plans to reduce examinations by 50% and shift supervision “back to large depositary institutions as opposed to non-depository institutions,” according to a memo sent to CFPB staff dated April 16.
The memo from Chief Legal Officer Mark Paoletta notes that the CFPB’s focus had “completely flipped” from 2012, when 70% of supervision was focused on depository institutions, to 60% focused on non-banks as of last year. “The Bureau must seek to return to the 2012 proportion and focus on the largest banks and depository institutions.”
The memo further clarified that the Bureau would deprioritize supervisory and enforcement efforts for certain products often offered by non-bank institutions, such as peer-to-peer platforms and lending, remittances, digital payments and student loans[i]. The Bureau would prioritize mortgage products, consumer reporting, debt collections and fraudulent overcharges and fees.
As part of the CFPB’s pivot, it will shift supervisory activities to “conciliation, correction and remediation of harms subject to consumer complaints.” The CFPB struck a collaborative tone by saying it will work with institutions to resolve problems that have impacted consumers. The memo further says the Bureau will focus on the remediation of “tangible harm,” prioritizing redress to consumers over financial penalties.
The focus on identifiable harm and impacted consumers is a clear theme in the Bureau’s stated priorities. Equally important are actions the Bureau said it would refrain from taking:
- Supervision based on legal theories or interpretations.
- Supervision based on the perception that consumers made the “wrong choices.” The Bureau will focus instead on disclosure-based requirements rather than attempting to set limits on fees, charges or rates.
- Use statistical analysis or “stray remarks” to influence enforcement of fair lending laws. The Bureau will instead pursue matters with “proven actual intentional racial discrimination and actual identifiable victims.”
Lastly, the memo makes a point to “respect” federalism (deprioritizing supervision in states where local authorities have the capability and capacity to regulate) as well as avoid “duplicative” supervisory and enforcement efforts (with both state and federal agencies). Under the Consumer Financial Protection Act (CFPA) of 2010, other agencies already have certain authorities to enforce many consumer financial laws and regulations.
It remains unclear how the CFPB will be able to carry out its new mandate with any kind of immediacy. The Trump Administration’s stop-work order and directives to terminate most of the existing CFPB staff have been blocked (for now) by the courts; however, it is clear that much of the agency’s work has been slowed or stopped. The CFPB’s leadership is in flux as well, as a permanent director has not yet been installed.
From a practical perspective, some of these changes may provide relief from scrutiny for certain institutions offering emerging or non-traditional financial products and services, while reducing concerns over regulatory penalties for non-compliance. Still, experienced risk management professionals know well that regulatory priorities and oversight change over time. To that end:
- Risk must be evaluated and managed with a view of what’s likely on the horizon (future look-back reviews included).
- Increasingly, State-level activities need to be monitored for relevant developments.
- Federal prudential regulators continue to expect that risks are managed in a safe and sound manner that are in compliance with applicable law, for existing and new activities a ban may undertake.
Perhaps a deregulatory period is upon us. If so, transformative investments in people and technology may be worth considering, using this opportunity to enhance both the effectiveness and efficiency of compliance risk management programs. Plenty is unknown in this time of uncertainty; this continues to be a space to watch.
[i] Since the memo date, the CFPB has also indicated that it will not prioritize enforcement of certain rules related to payday lending and buy now pay later (BNPL) products, as well as indicated that it will likely rework rules related to small business lending (1071) and open banking (1033).
