Writer: Eric Bank
Editor: Lillian Guevara-Castro
Reviewer: Adam West
Key Takeaways
The CFPB is making big changes, including recently announcing a new “humility pledge.” It said that examiners had to be more polite during exams. Some former regulators said this could weaken enforcement.
In addition, the CFPB is running out of money. Laws prevent it from getting more funding from the Federal Reserve. The agency may shut down some programs next year, ands many staff may face furloughs. This could change how lenders prepare for exams.
The agency’s ability to operate is looking bleak.
The Reaction
The humility pledge was meant to calm criticism. But many experts worry it may do the opposite. The pledge may add outside pressure. Examiners may become unsure about how firm they should be during reviews.
Lenders need to know what to expect. They will likely be confused by the new direction, which could lead to different decisions. Subprime lenders will have to face the changes first.
The DOJ Takeover
The CFPB will move almost all of its cases to the DOJ. The agency will run out of operating funds shortly. Reports say more than 100 enforcement staff may be furloughed.
DOJ lawyers may do things differently. Case timelines may change. What they ask for may change, too. Lender compliance plans had to conform to CFPB rules. They may now have to adjust quickly.
Staff were told that certain dormant cases may move forward again. It is not known how these cases fit into the DOJ move. Lenders will need to watch both agencies now.
Leadership Questions
The Vacancies Act enables an acting director to stay in place for 210 days and keep the reins during a pending nomination. The nomination of Stuart Levenbach will allow Acting Director Russell Vought to run things a wee bit longer. This adds more uncertainty for lenders.
The nomination of Levenbach may have little policy impact. The acting leadership may stay on the job longer. This only adds to the murk.
Lenders will need to know how exams, guidance, and enforcement will work next year. Leadership delays add to the problem. It makes the funding crisis and DOJ takeover overwhelmingly important.
What This Means for Lenders
Lenders should strengthen documentation and record the reasoning behind each underwriting decision more clearly. DOJ teams are unlikely to have the same exam experience as the members of the CFPB staff. This puts them at higher risk for legal claims that say their lending patterns treat groups of borrowers unfairly.
Lenders depend on clear exam standards, and they will now have to deal with new risks. They may see slower enforcement and uneven exam outcomes. They may also see new rules from the DOJ.
Subprime lenders will have to deal with the changes almost immediately. They depend on clear rules to manage lean budgets as well as evolving credit problems. Lenders will need to keep an eye on updates from the CFPB, and they also must watch DOJ actions and exam behavior.
The future of the CFPB doesn’t appear to be very solid. Lenders should prepare by keeping better records and staying alert to DOJ actions. Some solid advice to subprime lenders: Hold onto your hats!
