How to Tie CFPB Enforcement Up in Knots

While Acting Director Mick Mulvaney is apparently on a tear to defang the Consumer Financial Protection Bureau, some of his actions have flown under the radar. In this and future guest blog posts, I will shine light on one key initiative that largely has gone unnoticed:  namely, the twelve Requests for Information that Mr. Mulvaney launched on January 26. These notices, dubbed "RFIs," seek public comment on scaling back every core function of the CFPB, from enforcement and supervision to rulemaking and consumer complaints. 

Although the RFIs provide the veneer of public participation, in reality they are slanted toward industry. Many are couched in such vague language that consumers and consumer advocates cannot tell which rollbacks are gaining traction behind closed doors. Just last week, Mr. Mulvaney raised new concerns that the RFI process is infected with bias when he personally pressed bankers attending a meeting of the National Association of Realtors to file responses to the RFIs. 

To inject some balance into this RFI process, financial regulation and consumer law scholars have been working over the past three months to draft responses to the RFIs. Three of those responses have been filed to date and more are on the way. In this post, I talk about the first response, involving civil investigative demands (CIDs) by the Bureau.

First, some background: In the Dodd-Frank Act, Congress gave the Bureau broad powers to enforce federal consumer financial protection laws. As part of those powers, Congress bestowed on the Bureau the authority to issue CIDs, which are requests for documents and information issued during CFPB investigations. These CIDs have contributed to the Bureau's stellar enforcement track record and resulted in $11.8 billion in ordered relief for over 29 million consumers to date.

In its first RFI, the Bureau invited past recipients of CFPB CIDs and their lawyers to comment on whether the current CID process is too burdensome to industry. The questions in the RFI give a glimpse into Mr. Mulvaney's agenda. They ask whether whether the CFPB should tip off CID recipients by improving their "understanding of investigations" and disclosing investigation documents to the public, contrary to settled practice. The RFI hints at hampering the Bureau's ability to collect evidence by asking whether the "nature and scope of requests included in Bureau CIDs" was too broad. And it asks whether the timeframes for responding to CIDs should be shortened.

In their response, Professors Prentiss Cox at Minnesota and Christopher Peterson at Utah, both seasoned former enforcement regulators, explain why the CFPB has exercised its CID powers wisely and argued against curtailment. As they pointed out, nothing in the CFPB's CID authority is new. That authority closely tracks the longstanding CID powers of the Federal Trade Commission and state attorneys general. Courts, moreover, have repeatedly stressed that agencies need broad and flexible CID authority, because CIDs are directed at those who are best in the know and least interested in providing information. Since the CFPB cannot know the exact nature of possible violations in advance--witness the shocking breadth of misconduct at Wells Fargo--the Bureau needs to be able, when circumstances dictate, to issue CIDs on a broad range of topics to a wide set of subjects. Rigid limits on how many topics can be raised, how many documents can be sought, or how many CIDs can be issued in a single investigation would hamstring the CFPB's ability to protect American consumers through large, complicated investigations. This is especially alarming because the CFPB's enforcement priority to date has been to obtain large amounts of relief from large offenders. In Cox' and Peterson's view, "[l]imits on the complexity and number of topics in CIDs could have the unintended consequence of privileging the entities most determined to obfuscate responses so as to prevent the Bureau from discovering the worst abuses."

Laws that are not enforced are laws only in name. We can learn a lesson from Wells Fargo, which even Mr. Mulvaney deemed important enough to hold to account. However the Bureau's new leaders recalibrate their enforcement priorities, they should leave the CID process alone, so that the Bureau can mount full, effective inquiries whenever leadership does deem a case worth investigating.