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And the rest is history: lack of consumer redress in recent CFPB regulations criticized by Democrats

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In a series of recent cases, the Consumer Financial Protection Bureau (CFPB) entered into settlements that contained no requirement that the respondent provide restitution to consumers. Congressional Democrats have pushed for further investigations and reforms, saying these cases and the sharp overall drop in consumer restitution achieved by the CFPB under the Trump administration reflect the increased influence of those appointed by politicians to the CFPB . At the same time, CFPB management defended recent regulations and highlighted other types of relief obtained by the Bureau in recent cases.

On January 13, 2020, fifteen Senate Democrats, led by Senators Catherine Cortez Masto (D-Nev.) And Sherrod Brown (D-Ohio), sent a letter to Mark Bialek, the Inspector General (IG) of the Federal Reserve and CFPB, calling for an investigation into several CFPB regulations that “provide limited or no restitution to aggrieved consumers”. The letter highlighted a recent settlement involving a debt collector, in which the consent order required the collector to pay $ 36,800 in restitution, as well as a civil fine of $ 200,000, but limited restitution to consumers who claimed to “complain about a false threat or misrepresentation”. As stated in a report Prepared by majority staff of the House Financial Services Committee, this limitation is a departure from prior consent orders issued by the CFPB against debt collectors, which “did not require consumers to be subjected to illegal collection practices. of claims have complained affirmatively in order to be eligible. for redress. ”In addition, the letter cited three other agreements concluded by the CFPB in early 2019 in which consumers had not received any compensation.

The three deals struck in early 2019 had already drawn criticism from Democrats at the House Financial Services Committee, who questioned CFPB director Kathleen Kraninger about them when she appeared before the committee for its biannual review in October. 2019. Committee members highlighted the report prepared by majority committee staff, which found that in the Enova and Sterling Jewelers cases, career lawyers at CFPB recommended that consumer refunds be part of the settlement, but had been canceled by people appointed by politicians.

The CFPB has offered several explanations for refusing to request reimbursements in these cases. During the October hearing, Kraninger observed that restitution “also comes into play”, adding that, in Enova’s case, “the funds which were taken in an unauthorized manner were in fact funds which were owed by consumers, and this is something that consumers did not dispute. ” As noted in the letter from Senate Democrats, the CFPB also said it did not seek compensation in early 2019 because it could not determine “with certainty” which consumers had been harmed or the amount of the damage.

However, the congressional letter rejects the CFPB’s suggestion that its non-restitution settlements were justified by any failure to establish “with certainty” which consumers had been harmed or the amount of the harm. He observed that the CFPB’s concern regarding its ability to identify aggrieved consumers was contrary to the IG Office report of January 2016 on the CFPB Civil Sanction Fund. The IG report found that the office “has the internal controls necessary to find and locate victims in a manner which is” generally effective and efficient “. The signatories of the letter further argued that in each of these cases the CFPB had abandoned the standard set for restitution. The letter cites the decision of the Ninth Circuit in CFPB c. Gordon, in which that court stated that restitution is “” a form of ancillary reparation “which a court may order”[i]n the absence of proof of actual damage ”, and that it is measured by“ the total amount lost by consumers ”or the amount that“ reasonably approximates the unfair gains of the defendants ”.

The signatories of the letter asked the IG to investigate several issues, including the legal standard applied by the CFPB to decide restitution-related issues in the cases concerned, if that standard differed from the standard applied by the courts and in previous CFPB regulations, and the roles played by career execution staff, political appointments and Kraninger herself in making decisions about restitution. Additionally, the Financial Services Committee Majority Staff report called on Congress to pass the Consumers First Act (HR 1500), a bill introduced by committee chair Maxine Waters (D-Calif.) That would limit the number of people appointed by politicians to the CFPB.

Despite the letter, a preference for CMPs and restitution remedies over restitution is likely to remain in Kraninger’s CFPB, although the effect on consumers may not be immediately clear. Even in the absence of direct restitution, consumers can obtain monetary relief through the CFPB Civil Sanctions Fund. This fund, in which the sums collected by the CFPB for civil penalties are pooled, can be used to compensate consumers who have not been fully compensated for their damage through compensation paid by the defendant. in their business. For industry participants, this can mean small dollar amounts and more targeted monetary relief in CFPB enforcement actions. However, like dropping the ‘envelope push’ through its UDAAP authority, this change may be more of a balancing act than a purely industry-friendly change. .


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