July 21, 2016, marked the fifth anniversary of the Consumer Financial Protection Bureau, an independent bureau created by Section 1011 of the Dodd-Frank Act to oversee consumer financial products and champion consumer rights. That provided the CFPB with an opportunity to reflect on its accomplishments in enforcing consumer protections.
Earlier in the year, at a speech before the Consumer Banking Association, CFPB Director Richard Cordray discussed the CFPB’s enforcement approach:
Likewise, our public enforcement actions have been marked by orders, whether entered by our agency or by a court, which specify the facts and the resulting legal conclusions. These orders provide detailed guidance for compliance officers across the marketplace about how they should regard similar practices at their own institutions. If the same problems exist in their day-to-day operations, they should look closely at their processes and clean up whatever is not being handled appropriately. Indeed, it would be “compliance malpractice” for executives not to take careful bearings from the contents of these orders about how to comply with the law and treat consumers fairly.
Some have criticized this approach as regulation by enforcement, but I think that criticism is badly misplaced. Certainly any responsible official or agency charged with enforcing the law is bound to recognize that they should develop a thoughtful strategy for how to deploy their limited resources most efficiently to protect the public. That means working toward a pattern of actions that conveys an intelligible direction to the marketplace, so as to create deterrence that can be readily understood and implemented. The alternative is just a random series of actions that takes a few wild swipes at the bad actors without systematically cleaning up the practices that harm consumers across the marketplace.
Others have framed this criticism as a suggestion that law enforcement officials should think through and explicitly articulate rules for every eventuality before taking any enforcement actions at all. But that aspiration would lead to paralysis because it simply sets the bar too high. Particularly in an area like consumer financial protection, the vast majority of our enforcement actions involve some sort of deception or fraud. And courts have long noted that trying to craft specific rules to root out fraud or untruth is a hopeless endeavor, as they would likely fail to cabin “the ingenuity of the dishonest schemer.” For these reasons, we strive to present specific enforcement orders that meticulously catalogue the facts we have found in our very thorough investigations and set out the legal conclusions that follow from those facts. These specific orders are also intended as guides to all participants in the marketplace to avoid similar violations and make an immediate effort to correct any such improper practices.
Over the past five years, the CFPB has filed enforcement actions against numerous companies for unfair, deceptive, and abusive practices—which the bureau estimates has resulted in $11.7 billion in relief for more than 27 million harmed consumers—including:
Credit card companies, such as JPMorgan Chase and American Express, for engaging in unfair, deceptive, and abusive practices related to marketing, billing, and enrollment for credit add-on products and services. In September 2013, the bureau ordered JPMorgan to refund an estimated $309 million to more than 2.1 million customers for engaging in unfair billing practices for adding credit monitoring products to credit card accounts. Four months later, the bureau ordered AmEx to refund almost $60 million to more than 335,000 consumers for similar practices.
Banks, for charging overdraft fees to consumers who had not agreed to opt-in to overdraft services. Earlier this month, Santander Bank, N.A. agreed to pay a $10 million fine for enrolling customers in its overdraft protection service for ATM and one-time debit card transactions—a service that cost customers $35 per overdraft. The CFPB found that during the bank’s “vigorous” telemarketing campaign,” call representatives did not ask consumers if they wanted to opt in but enrolled them anyway.
Mortgage lenders, such as BancorpSouth Bank, for engaging in discriminatory mortgage practices. The CFPB and Department of Justice in June 2016, announced a joint action against BancorpSouth for discriminatory mortgage lending practices, including illegally redlining in Memphis, Tenn., that the agencies alleged harmed African Americans and other minorities. BancorpSouth agreed to pay $10.6 million order the consent order.
Payday lenders, such as Cash America—one of the largest short-term, small-dollar lenders in the country—for illegal lending and debt collection practices. In its first enforcement action against a payday lender, the bureau ordered Cash America to pay up to $14 million in refunds to consumers in addition to a $5 million fine for robo-signing court documents in debt collection lawsuits and for destroying records in advance of the CFPB’s examination. The lender also was charged with violating the Military Lending Act by illegally overcharging servicemembers and their families.
For-profit colleges, for encouraging students to take out unaffordable loans. In one of the bureau’s most publicized actions, the bureau filed a complaint against Corinthian College, one of the largest for-profit, post-secondary education companies in the United States, for allegedly inducing students to take out predatory loans to pay inflated tuition and using illegal tactics to collect the loans. In October 2015, a federal court entered a default judgment against Corinthian for more than $531 million. Corinthian was also prohibited from engaging in future misconduct.
Debt collectors, for using illegal tactics, such as masquerading as prosecutors, to intimidate consumers into paying debts they may not owe. In March 2015, the bureau brought an action against a debt collector, National Corrective Group, for allegedly threatening consumers with criminal prosecution and jail time by creating a false impression for consumers that its communications were from a state or district attorney’s office.
Indirect auto lenders, for illegally discriminating against minorities. The CFPB and Department of Justice resolved an action in February 2016, with Toyota Motor Credit Corporation for allegedly charging thousands of minority buyers higher rates for auto loans regardless of the borrower’s creditworthiness. Under the agreement, affected borrowers will receive up to $21.9 million. Toyota also agreed to change its pricing and compensation system to substantially reduce dealer discretion and accompanying financial incentives to mark up interest rates.
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