Compliance Blog

Earlier this week, Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra delivered a seemingly innocent speech regarding repeat offenders to a law school. Focusing on repeat offenders is a priority of the CFPB under Director Chopra’s leadership and this speech provided much more color regarding what supervised financial and non-financial institutions may expect from an enforcement perspective. Credit unions over the $10 billion threshold and subject to CFPB supervision will certainly want to pay close attention, but Director Chopra makes it clear that smaller financial institutions are not immune to violations.   

A repeat offender is not only someone who violates the law for the same offense or violates a court or agency order, but can also include those who violate the law across different business lines stemming from a common cause. The example Director Chopra provides is one where there are problematic sales practices or failing to properly integrate IT systems after a merger.

Director Chopra no longer seems interested in simply assessing monetary penalties against repeat offenders. To correct bad behavior, CFPB will looking at more “bright-line structural remedies,” as monetary penalties may be a drop in the bucket for larger financial institutions who may not correct bad behavior. The Dodd-Frank Wall Street Reform and Consumer Protection Act provides CFPB with several enforcement powers to remedy bad behavior. These options include the recission of contracts, assessing civil money penalties, returning real property, disgorgement or compensation for unjust enrichment, and limiting the activities or functions, among others. Director Chopra focuses on this last enforcement power, which differs in that it is more than just a monetary fine. This remedy can impact the structure of the financial institution, therefore CFPB will be looking at “limits on the activities or functions” of a firm for repeated violations of laws, regulations, and orders. Limitations on activities or functions may include:

• Caps on size or growth;
• Bans on certain types of business practices;
• Divestitures of certain product lines;
• Limits on leverage or requirements to raise equity capital; or
• Revocation of government-granted privileges, which could include the loss of access to federal deposit insurance.  

A case study of CFPB wielding a structural remedy is the enforcement actions taken against LendUp. LendUp violated a previous CFPB order and continued to violate various consumer financial protection laws. This repeated behavior led to further CFPB enforcement action, ultimately resulting in LendUp agreeing to cease making new loans, collecting on outstanding loans to harmed consumers, selling consumer information, and making misrepresentations when providing loans or collecting debt or helping others collect on the debts. Obviously, this remedy was a crushing blow to LendUp’s business model when compared a mere civil money penalty. It appears this is the sort of remedy Director Chopra is after.

In addition, CFPB intends on establishing dedicated units within the supervision and enforcement division to detect repeat offenders. This unit will ensure offenders follow CFPB, as well as any other agency orders. Director Chopra also alludes to individual liability for financial institution officials and directors who play a role in repeat offenses, as well as working with various state licensing officials for non-bank financial institutions.

This is certainly not the last we will hear from Director Chopra on enforcement. In fact, just a few days after making this speech, CFPB announced an enforcement action taken against Edfinancial Services, a student loan servicer. You can watch Director Chopra’s speech here.

If you have any questions, please reach out to me at kschafer@nafcu.org.