Regulatory Policy

The Consumer Financial Protection Bureau Returns to Lawlessness

Consumer Financial Protection Bureau headquarters in Washington, D.C. (Andrew Kelly/Reuters)
Elizabeth Warren’s brainchild has often confused progressive politics with consumer protection. The Trump administration tried making the CFPB follow the law. Under Biden, it’s back to its old ways.

On April 1, the Consumer Financial Protection Bureau (CFPB) issued a “compliance bulletin” that warned mortgage servicers that “unprepared is unacceptable.” The agency, largely a brainchild of then-professor Elizabeth Warren, intimated that the proverbial hammer would fall on any mortgage servicer that does not allocate sufficient resources and staff to handling an anticipated wave of distressed borrowers. Left unstated is what the CFPB would consider to be sufficient resources, and where it gets the legal authority to make such a demand. What was clearly stated is that the agency wants to dictate how companies act beyond what the law requires, and is willing to use the strong arm of the government to get its way. This is the government equivalent of a visit from the mob: Nice business you got there. It would be shame if anything happened to it.

Unfortunately, this was not the first time the criminal syndicate masquerading as a government agency ignored the law and issued vaguely worded threats to regulated entities without regard to niceties like what the law actually requires. And, sadly, it likely will not be the last time either.

The rule of law is an interesting thing. It is important, in part because it is typically at the vanguard of the defense against tyranny and anarchy. But the rule of law’s importance is driven predominantly by its legitimacy. If a legal requirement is obfuscated or ignored — even in the name of good policy — the weaker and less legitimate the rule of law becomes. Even the perception that a law is being ignored or capriciously enforced injures the rule of law. The rule of law’s legitimacy is driven primarily by applying valid laws equally to everyone: young and old, rich and poor, powerful and weak. This includes making sure that the government operates within whatever limits are placed on it by the constitution and statutes. A bureaucrat does not get to decide which parts of the law he is obliged to follow any more than an ordinary citizen can pick and choose which laws to follow.

Unfortunately, government agencies like the CFPB often act as though the law does not apply to them. This is not new to the Bureau. Richard Cordray, the CFPB’s first director, routinely “asked” companies to do things not required by law, with the implication that failure to do so would not be looked on kindly. But when Mick Mulvaney was appointed acting director, he made it clear that those days were over. No longer would the operating ethos be “push the envelope.” No longer would there be regulation by enforcement, or coercive “suggestions” about how private businesses should conduct their affairs — untethered from valid law or legislative rulemaking. No more novel statutory interpretations that courts overturn, while noting that doing so is “not a close call.” Everyone in this country has a right to know what the law requires of him, and the Trump administration made sure that the CFPB respected that right.

But since the change in administration, the CFPB has returned to its lawless ways. Though many CFPB employees, and especially Acting Director Dave Uejio, think the relevant laws say only “protect consumers,” that is not in fact the case. Congress and, more important, the Constitution have put limits on what the CFPB can actually do within the bounds of the law. In just a few short months, the CFPB has set about systematically violating those limits.

For example, in February, the CFPB sued a company called “Libre by Nexus” for violating the prohibition on deceptive and abusive acts and practices in the Consumer Financial Protection Act (CFPA). The catch is that the CFPA applies only to companies that provide certain financial services, and the agency does not allege that Libre actually provided those services. Rather, it alleges only that people thought that Libre provided those services. But what people perceive the service to be is not the relevant question; all that matters is what the service actually is. To see how absurd this line of reasoning is, imagine how Acting Director Uejio would respond to a lender that claimed it could not be supervised by the CFPB because the lender thought that it was really selling consumer goods. To ask the question is to answer it.

But the Bureau’s lawlessness is not limited to its enforcement activities. One of the first things Acting Director Uejio did was to announce that “it is the official policy of the CFPB to supervise lenders with regard to the Military Lending Act.” But the agency lacks authority to do that. The relevant statute allows it to “conduct examinations” to “assess[] compliance with federal consumer financial law,” a defined list of federal laws and regulations that does not include the Military Lending Act. If the CFPB is free to ignore clear limits to its jurisdiction such as this, then we do not have the rule of law in this country; we have the rule of bureaucrats.

The CFPB further muddied its supervisory activities by rescinding a policy designed to differentiate between that which is legally required and that which is merely suggested. The agency has the authority to supervise certain financial institutions to (1) assess compliance with federal consumer financial law, (2) obtain information about compliance-management systems, and (3) assess risks to consumers and to markets. Only one of these relates to legal obligations imposed on the financial institutions — even though it may be good business practice, most companies are not under a legal obligation to maintain a compliance-management system or not to engage in risky behavior. Under the Trump administration, the CFPB put in place a policy that required examination reports from the CFPB to differentiate between findings that an institution had violated a legal requirement and those findings that did not relate to a violation of law. Acting Director Uejio has rescinded that policy, asserting that the Bureau’s “supervisory expectations,” even where not grounded in legal requirements, should be treated exactly the same as what is required by law. That is not the rule of law. It is the rule of bureaucrats.

The CFPB has also returned to the bad old days where it makes “suggestions” about how an institution should run its business — regardless of any actual legal requirements — with the implied threat that failure to follow the “suggestion” will lead to punitive supervisory and enforcement scrutiny. On March 17, the Bureau expressed “concern” that some financial institutions or debt collectors would collect on validly owed debts by using legal means to access stimulus payments that the federal government made to the debtors. The Bureau was not “concerned” about anything illegal. In fact, it appears the Bureau recognizes that the debt at issue is legally owed. But the bureaucrats at the Bureau apparently disapprove, and the mobsters wanted to make their disapproval known.

The play A Man for All Seasons perfectly articulates the importance of following the law even when it impedes pursuit of the guilty. “This country is planted thick with laws, from coast to coast — man’s laws, not God’s — and if you cut them down, . . . do you really think you could stand upright in the winds that would blow then? Yes, I’d give the Devil the benefit of the law, for my own safety’s sake.” Acting Director Uejio — and Rohit Chopra, if confirmed — should heed this advice, remember that the rule of law is vital to this nation’s survival, and take the CFPB off of its current lawless path.

Eric Blankenstein is director of policy at the American Cornerstone Institute and former associate director of supervision, enforcement, and fair lending at the Consumer Financial Protection Bureau.

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