Lenders are facing renewed regulatory challenges at both state and federal levels, as the Consumer Financial Protection Bureau (CFPB) is expected to increase its activity following a recent U.S. Supreme Court ruling affirming the constitutionality of its funding mechanism under the Dodd-Frank Act.

The CFPB's potential for increased enforcement is evident in its recent hiring spree, which began last fall. The agency has revised its estimate for increasing the number of attorneys in its enforcement division by about 40%. Eric Halperin, CFPB enforcement chief, stated, “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.” He added that this would better position the CFPB to meet resource demands from an increasing number of contested litigation matters.

Jonathan Pompan, a partner and chair of the consumer financial services practice group at Venable LLP, noted that this ramp-up in hiring would allow the CFPB to take on 25 to 30 additional investigations, along with more enforcement actions and litigation stemming from exam findings.

Despite this increase in resources, there remains a lack of clarity around compliance with Unfair, Deceptive, or Abusive Acts or Practices (UDAAP). AFSA President and CEO Bill Himpler remarked in a recent blog post that “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.”

Given these uncertainties, lenders must be prepared for unknowns by maintaining compliant, auditable processes from product cancellation to repossessions. In this borrower-centric regulatory environment, it is crucial for lenders to be proactive and ready to demonstrate that all lending practices comply with UDAAP regulations.

The upcoming election adds further uncertainty regarding the CFPB's future regulatory approach. Whether through a second Biden term or a change in administration leadership at the CFPB may shift; however, lenders should remain vigilant and committed to compliance.