On March 31, 2021, the Consumer Financial Protection Bureau (“Bureau” or “CFPB”) announced the rescissions of a range of policy statements issued under the leadership of former Director Kathleen L. Kraninger. These rescissions rolled back one policy statement regarding communications between institutions subject to CFPB supervision and their examiners, and seven policy statements issued in the early days of the COVID-19 pandemic to provide regulatory relief to affected institutions. Below, we describe the state of play prior to these rescissions, the effect of each rescission, and what these developments tell us about the CFPB under new leadership.
Discontinuation of Supervisory Recommendations
From September 2018 until the March 2021 announcement, CFPB Bulletin 2018-01 provided the rules of the road regarding the CFPB’s communication of its supervisory expectations. Under the Bulletin, the CFPB could include in examination reports and supervisory letters two distinct categories of findings to convey supervisory expectations:
- First, the CFPB could issue Matters Requiring Attention (“MRAs”), which were tied to a violation of federal consumer financial law and would provide directions for correcting the violation, remediating affected consumers, and addressing relevant weaknesses in the institution’s compliance management system (“CMS”). Covered persons receiving an MRA would be required to provide periodic reporting to the Bureau regarding the status of corrective actions, as well as the timeframes for completing such corrective actions.
- Second, the CFPB could provide Supervisory Recommendations (“SRs”), which would recommend action in light of supervisory concerns related to CMS. Unlike MRAs, SRs would arise from perceived weaknesses in CMS, rather than actual violations of federal consumer financial law.
On March 31, 2021, the Bureau rescinded CFPB Bulletin 2018-01 and replaced it with CFPB Bulletin 2021-01. The new Bulletin ends the use of SRs outright, instead instructing examiners to “continue to rely on [MRAs] to convey supervisory expectations” in examination reports and supervisory letters. Under the new CFPB Bulletin 2021-01, MRAs no longer must be tied to a violation of federal consumer financial law, but may also result from “risk of such violations or compliance management system (CMS) deficiencies.” In effect, the function of SRs under Bulletin 2018-01 has been merged into the function of MRAs under Bulletin 2021-01.
The rescission represents a sudden and significant alteration to the supervisory relationship between the CFPB and the industry. As a practical matter, the change limits examiners’ ability to give feedback to institutions in a constructive, non-adversarial manner. SRs provided examiners with a middle ground between informal feedback and MRAs that could convey concrete recommendations to institutions, without legal sanction, while inviting further dialogue on achieving compliance goals. The gravity accompanying MRAs raises the stakes for institutions subject to CFPB examinations, and institutions may lose the ability to pursue innovative compliance approaches because MRAs impose specific, prescriptive remedial actions. Further, the Bureau’s statement that it may now issue MRAs even without a finding that an institution has violated the law could foreshadow operational micromanagement by examiners, requiring changes in CMS even when an institution has not deviated from the requirements of applicable laws.
Reversing Industry-Focused Pandemic Relief
Following the onset of the COVID-19 pandemic in the United States in early 2020, the CFPB (under the leadership of former Director Kraninger) issued a number of policy statements to offer relief to the financial industry, which was grappling with the practical realities of the pandemic. These industry-relief measures included the suspension of certain filing deadlines, relaxing of timeframes for certain responses to consumers, and the consideration of pandemic-rooted staffing changes in supervisory and enforcement determinations. Last month’s action by the Bureau included the rescission of seven statements that provided such industry-relief measures:
- Statement on Bureau Supervisory and Enforcement Response to COVID-19 Pandemic: This statement had provided that the CFPB would take pandemic-related disruption into account in supervisory and enforcement activities, and encouraged the industry to pursue “prudent efforts undertaken in good faith that are designed to meet the exigent needs of financial institutions’ borrowers and other customers.” In rescinding this policy statement, the Bureau also withdrew from the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus and the Interagency Statement on Appraisals and Evaluations for Real Estate Related Financial Transactions Affected by the Coronavirus.
- Statement on Supervisory and Enforcement Practices Regarding Quarterly Reporting Under the Home Mortgage Disclosure Act: Under this statement, the CFPB had indicated that it would not initiate supervisory or enforcement action for an institution’s failure to timely submit quarterly HMDA data. The Bureau’s rescission instructs institutions required to submit HMDA data quarterly to do so beginning with data for first quarter 2021, due by May 31, 2021.
- Statement on Supervisory and Enforcement Practices Regarding Bureau Information Collections for Credit Card and Prepaid Account Issuers: This policy statement had provided that the CFPB would not initiate supervisory or enforcement action based on an institution’s failure to timely submit certain information relating to credit card and prepaid account products required under the Truth in Lending Act (“TILA”), Regulation Z, and Regulation E. The rescission instructs institutions to resume this reporting, generally imposing an April 30, 2021 submission deadline.
- Statement on Supervisory and Enforcement Practices Regarding the Fair Credit Reporting Act and Regulation V in Light of the CARES Act: Under this policy statement, the CFPB had described the responsibilities of furnishers under the CARES Act, stated that it would not take supervisory or enforcement action based on a consumer reporting agency or furnisher’s failure to timely resolve consumer reporting disputes so long as the institution “mak[es] good faith efforts to investigate disputes as quickly as possible,” and encouraged institutions to provide payment relief options to consumers. The Bureau’s rescission undoes much of the policy statement’s regulatory relief and flexibility for conduct after March 31, 2021, stating the CFPB’s “intent to exercise its supervisory and enforcement authority consistent with the Dodd-Frank Act and FCRA and with the full authority afforded by Congress consistent with the statutory purpose and objectives of the Bureau.” However, the rescission leaves intact provisions that encourage voluntary payment relief efforts and that provide that the CFPB will not take supervisory or enforcement action against an institution that furnishes information accurately reflecting such relief.
- Statement on Supervisory and Enforcement Practices Regarding Certain Filing Requirements Under the Interstate Land Sales Full Disclosure Act and Regulation J: This statement had indicated that the CFPB would not initiate supervisory or enforcement action based on a land developer’s failure to timely submit annual reports and financial statements required under the Interstate Land Sales Full Disclosure Act and Regulation J. The Bureau’s rescission instructs covered land developers to resume regular reporting and submit any delayed submissions by April 30, 2021.
- Statement on Supervisory and Enforcement Practices Regarding Regulation Z Billing Error Resolution Timeframes in Light of the COVID-19 Pandemic: This statement had provided that the CFPB would not take supervisory or enforcement action against a creditor that failed to timely resolve a billing error notice under Regulation Z, so long as the creditor complied with all other applicable requirements and made a good faith effort to obtain the necessary information and make a determination as quickly as possible. The Bureau’s rescission lifts this regulatory relief effective April 1, 2021, stating that the CFPB “intends to exercise its supervisory and enforcement authority consistent with the Dodd-Frank Act and with the full authority afforded by Congress consistent with the statutory purpose and objectives of the Bureau.”
- Statement on Supervisory and Enforcement Practices Regarding Electronic Credit Card Disclosures in Light of the COVID-19 Pandemic: This statement had provided flexibility from requirements under the Truth in Lending Act and Regulation Z that lenders obtain certain consumer consents in writing before providing required disclosures electronically. The rescission states that the Bureau will exercise its full supervisory and enforcement authority for violations of the written consent requirements of TILA and Regulation Z occurring after April 30, 2021.
These seven rescissions show a clear shift in focus from the pandemic response of the Bureau under Director Kraninger. The initial policy statements targeted the effects of the pandemic on the financial industry, such as the need to shift to remote work in light of stay-at-home orders. While the Bureau encouraged institutions to work with consumers facing hardship as a result of the pandemic, such encouragement was voluntary only.
In contrast, the rescissions pivot the CFPB’s efforts towards ameliorating the effects of the pandemic on consumers through robust supervision and enforcement. In doing so, the Bureau points to changed circumstances for the industry in the time since the policy statements were issued, such as the successful transition to remote work, the ability to resume in-person work in certain limited capacities, and the lifting of stay-at-home orders in some jurisdictions. The CFPB portrays different circumstances for consumers than those in effect at the time the statements were issued: Acting Director David Uejio, in announcing the rescissions, opined that “[t]he virus has affected industry as well as consumers, but individuals and families have been hardest-hit by the pandemic’s health and economic impacts.”
Lessons from the Rescissions
The rescissions of these policy statements illustrate a number of changes at the Bureau under the direction of Acting Director Uejio. The undoing of the pandemic-centered regulatory relief aligns with an increased focus on consumers experiencing financial distress as a result of the pandemic. Acting Director Uejio has described this as a top priority of the CFPB since his first days on the job, and the Bureau has demonstrated a focus on housing insecurity amid the pandemic through a proposed rulemaking, a joint statement, and a research report.
More generally, these rescissions mark a conscious change in direction—in supervision, enforcement, regulation, and general tone from the top—from that of the CFPB under Director Kraninger. Much like the Bureau’s March 11, 2021 rescission of a Kraninger-era policy statement setting parameters around the Dodd-Frank prohibition on abusive acts or practices, these shifts send the message that the CFPB is acting to dissolve Kraninger-era roadblocks on its discretion to interpret and enforce the law. Taken together, these actions suggest that the Bureau under Acting Director Uejio (and, if confirmed, Director Rohit Chopra) will move forward with a far-reaching approach to consumer protection, even at the cost of reduced clarity for the industry.