The Consumer Financial Protection Bureau’s sanctions against businesses have dropped significantly in recent months as the agency has turned its attention to petty offenders.
The office’s enforcement actions, under the leadership of Kathy Kraninger, have slowed compared to the tenure of former Director Richard Cordray. Monetary penalties and consumer compensation amounts have also decreased under Kraninger, in part because the CFPB has targeted smaller businesses that in many cases cannot pay.
“When you’re cleaning around the edges, the relief you get for consumers will not be significant,” said Diane Thompson, a member of the Open Society Foundation and a former CFPB senior regulator.
The CFPB did not respond to a request for comment. But Kraninger has told lawmakers that it is more profitable to settle a few smaller cases than to conduct extensive litigation.
Let’s make a Deal
The CFPB has filed a total of 11 enforcement actions since mid-March, when the coronavirus pandemic completely took hold in the US.
Nine of them were administrative settlements, consent orders, and proposed sentences filed in US district courts.The CFPB assessed about $ 22.8 million in civil penalties and reparations orders in those nine cases.
But the total amount actually collected in those cases was closer to $ 5.6 million. In three of the cases, the CFPB determined that the defendant company was unable to pay the fine imposed and reduced the total judgment by millions of dollars.
On July 13, the CFPB assessed a monetary judgment of $ 11.8 million against GST Factoring Inc. and four attorneys for violating the Telemarketing Sales Rule. The fine was reduced to $ 25,000 based on the defendants’ inability to repay the judgment, and the company and attorneys were ordered to pay an unspecified amount of compensation to harmed consumers.
A civil penalty of nearly $ 3.8 million issued against Timemark Inc., a student loan debt relief company, on July 7 was reduced to $ 22,000.
The CFPB also settled with Harbor Portfolio Advisors LLC, a real estate deed contract firm, for just $ 35,000 in June, even though the company is subject to several lawsuits and a years-long investigation by the office.
Create a pattern
Since Kraninger became director of the CFPB in December 2018, the CFPB has collected around $ 860 million in civil penalties and compensation, but after the suspension of several sentences, the total is approaching $ 800 million.
The CFPB under Cordray collected $ 12 billion in penalties and consumer compensation during its roughly six years on the job through November 2017. That included hundreds of millions of dollars in penalties against large banks such as Wells Fargo & Co., JPMorgan Chase & Co., Discover, Bank of America Corp. and the mobile phone company Sprint.
While Kraninger’s office has focused on large companies, in particular a $ 575 million data breach settlement with Equifax that also involved the Federal Trade Commission and 50 state attorneys general, most of the CFPB sanctions they have been against smaller payday lenders, debt collectors, and other companies.
Many of those enforcement actions began as investigations under Cordray.
A significant portion of the 39 enforcement actions under Kraninger have seen companies pay far less than the headline amounts in CFPB press releases, Sen. Catherine Cortez Masto (D-Nev.) At a Banking Committee hearing from the Senate on July 29.
Kraninger defended the reduced judgments by saying that career personnel made those judgments based on a number of factors.
“It is an estimate of how much time we want to spend continuing to litigate, which of course is our resources, and how much effort it would take to pursue an entity that does not have the funds to pay,” Kraninger told the senators. .
Even in an instance where the CFPB assesses a $ 1 civil money penalty, the CFPB can provide redress to consumers through its civil penalty fund, Kraninger added.
You are rescuing [companies] get away with this civil monetary penalty fund, ”Cortez Masto said.
The CFPB has forced some larger companies to pay fines. Kraninger’s first enforcement action in January 2019 was a $ 15.5 million settlement with the USAA Federal Savings Bank to resolve allegations that the bank failed to stop automatic debit card payments at the request of customers and reopened accounts closed without your consent. The bureau also sued Citizens Bank in January for alleged credit card billing errors and Fifth Third Bank in February for allegedly opening unauthorized customer accounts.
Kraninger has also allowed a Cordray-era investigation to proceed into the possible generation of fake accounts against Bank of America Corp., rejecting a motion to modify or vacate a civil investigation lawsuit against the bank.
But in general, the CFPB has focused on smaller companies.
“There’s basically a much higher proportion of scammers” rather than focusing on big systemic issues at big financial institutions, said Craig Cowie, a professor at the University of Montana School of Law and a former senior enforcement attorney. of the CFPB law.
Anthony Alexis, a CFPB chief compliance officer under Cordray, said he tended to divert attorneys from smaller cases during his tenure.
But he also defended the focus on somewhat smaller operations.
“Many of these companies can do a lot of harm to the type of people that the CFPB defends, which are consumers. In many cases, consumers with difficulties, ”he said.
In many cases, the smaller cases involve companies that the CFPB does not directly supervise because they are too small.
The CFPB may be using tools other than enforcement actions, such as the oversight process, to address issues at larger financial institutions, said Stephanie Robinson, a partner at Mayer Brown LLP.
“It looks like the CFPB is going after what they really see as the really bad actors, and in many cases, it is driving these companies out of business entirely,” he said.
The prosecution of actions against smaller bad actors has its place, but quietly solving cases against larger actors removes one of the CFPB’s most powerful tools: shaming bad actors, Thompson said.
“If you don’t have consequences for wrongdoing, there is no reason not to play fast and easy,” he said.