Led by Trump appointee, CFPB is back in the enforcement business

The Consumer Financial Protection Bureau has ratcheted up investigations and enforcement actions in the past few months, an apparent shift by the agency under Director Kathy Kraninger, who had initially signaled that supervision would be the primary focus in her tenure.

Kraninger has called more attention to enforcement in recent speeches and public comments. And financial firms are receiving more civil investigative demands and notices alerting them of possible enforcement actions, lawyers say. The notices are similar to those issued under former CFPB Director Richard Cordray.

“If you get a subpoena from the CFPB, it’s going to be as intense as it was in the early days,” said Anthony DiResta, a partner and co-chair of consumer protection defense at Holland & Knight and a former regional director at the Federal Trade Commission. “They aren’t as aggressive in their agenda, but in their ways of conducting their investigations and supervisory exams, they are equally as intense."

In an example of the agency's tougher approach, Kraninger recently denied a petition by Bank of America for the agency to end its probe into whether the bank broke the law by opening credit card accounts without customer authorization.

Yet the CFPB currently faces a leadership vacuum in its enforcement unit. Kraninger is expected to announce soon a successor to Kristen Donoghue, the bureau's former assistant director of enforcement. Donoghue resigned in May less than a week after Eric Blankenstein — a political appointee who was the agency's policy director for supervision, enforcement and fair lending — also resigned.

In April, Kraninger outlined her vision for the CFPB and listed enforcement last among the bureau’s top four priorities. At the time, she said the agency would focus on supervising financial institutions and protecting consumers rather than issuing enforcement actions or big financial penalties.

A career civil servant, Kraninger gave signals that she would continue many of the deregulatory stances of Mick Mulvaney, the agency's former acting director, whom she previously worked for at the Office of Management and Budget. (Mulvaney is now acting White House chief of staff.)

Mulvaney initially put a halt to all CFPB enforcement actions in 2018 by stopping the collection of electronic data at the bureau, citing data security shortcomings, although the agency did eventually penalize firms under his watch.

In testimony before Congress, Kraninger had said that enforcement tools are for "those true bad actors who have no intention of complying" with the law.

"When Kraninger took over, it took a while for that hold on enforcement to be lifted," said Christopher Willis, a partner and practice leader at Ballard Spahr.

But Kraninger has also gone her own way on several issues. She ended Mulvaney's prior efforts to rebrand the CFPB. And, recently, Kraninger has asserted that enforcement is a tool that can prevent consumer harm and mitigate fraud. CFPB enforcement actions have shot up by more than 60% this year compared with 2018.

"The level of activity of enforcement has noticeably picked up this year," said Willis.

In the case of the BofA investigation, the bank and the CFPB have wrangled over information the bureau is seeking related to allegedly unauthorized account openings. The bank has claimed the agency's March 2019 demand for emails and other records was overly burdensome, but the agency in July refused to end the probe.

Kraninger articulated an aggressive stance on stamping out fraud in a recent cable television interview.

"There is a lot of fraud, there are a lot of scams," Kraninger said on CNBC's "Squawk Box" earlier this month. "It really is a buyer-beware situation from the front end of things. We’re there. We’re actually taking action and enforcement actions and we’re vigilant."

So far this year, the CFPB has filed 18 enforcement actions under Kraninger compared with six under Mulvaney, and 27 under Cordray during the same period, according to the CFPB's enforcement docket page. Mulvaney issued a total of 11 enforcement actions in 2018, while Cordray issued 36 in 2017, the docket shows.

Experts caution not to read too much into the numbers, however, because often one complaint or judgment may involve several companies or individuals.

The biggest change under Kraninger is that many violations are being resolved as part of the CFPB's supervisory work, which is non-public. Under Cordray, a high incidence of violations were referred from supervision to enforcement.

"The supervision channel isn’t feeding enforcement with the regularity it did before," Willis said. "But we’re seeing the activity pick up with enforcement doing its stuff on their own."

The CFPB publicly reports instances in which it obtains information from local, state or federal law enforcement partners that contributes to the bureau actions and investigations. In 2018, under Mulvaney, the CFPB listed 68 requests for information compared with 177 in 2017 under Cordray, according to the bureau's 2019 annual performance plan.

The CFPB was criticized under Cordray for not giving enough information to companies when it issued notices asking for information before launching a full investigation. Last year, Mulvaney initiated a request for information focused on how the bureau handles so-called civil investigative demands as part of a full review of all the CFPB’s processes.

CIDs also are on the upswing.

“I am seeing quite an uptick in enforcement activity in general at the CFPB both in terms of aggressiveness and more CIDs being issued,” said Allyson Baker, a partner and co-head of the consumer financial services practice at Venable LLP. “CIDs that are coming in are in some ways more onerous and narrower, which is easier for the bureau to defend, and harder to attack. Cases that people thought were going to get dismissed, haven’t been dismissed.”

Some lawyers said they are trying to alert financial firms about the increase in enforcement actions because many companies are less fearful of getting hit with a notice or action under Republican leadership.

“There’s a misimpression that somehow the CFPB has been laid back,” said DiResta. “Investigations under Director Kraninger are as intense and complex as they’ve ever been. From a post-Cordray perspective, enforcement is alive and well.”