Lenders are facing renewed regulatory scrutiny at both the state and federal levels. The Consumer Financial Protection Bureau (CFPB) is intensifying its oversight of auto finance, following a recent US Supreme Court ruling that upheld the CFPB's funding mechanism as constitutional under the Dodd-Frank Act.
The CFPB has embarked on a hiring spree initiated last fall, aiming to increase its enforcement division by 50% and add staff in legal, operations, research, monitoring, and regulations divisions. Eric Halperin, CFPB enforcement chief, stated in a memo: "These additional resources will enable us to open more investigations, including matters with significant market impact and against large market actors, consistent with the Bureau’s priorities. We also will be in a better position to meet resource demands from our increasing number of matters in contested litigation."
Jonathan Pompan, partner and chair of the consumer financial services practice group at Venable LLP, indicated that this expansion would allow the CFPB to undertake 25 to 30 additional investigations along with more enforcement actions stemming from examination findings.
Despite this increased capacity for enforcement, clarity around compliance with Unfair Deceptive or Abusive Acts or Practices (UDAAP) remains elusive. AFSA President and CEO Bill Himpler remarked: "The CFPB is allowed to supervise companies that it decides 'pose risk to consumers.' The agency for the first time recently began using this authority except it has never attempted to define what 'risk' means. Declaring a company 'risky' without defining risk ahead of time is like a highway patrol running a speed trap pulling over cars for speeding without posting let alone setting the speed limit."
In light of these developments, lenders must ensure they have compliant processes in place for all aspects of their operations. Maintaining auditable and borrower-centric processes can help mitigate potential penalties.
The upcoming election introduces uncertainty regarding the future activities of the CFPB. Industry experts suggest that if there is a change in the governing party, current CFPB Director Rohit Chopra might lose his position. However, it is anticipated that the vision and legislative momentum of the CFPB will persist regardless of leadership changes.