WASHINGTON — The Consumer Financial Protection Bureau is receiving more pushback than fellow financial regulators from companies it hits with enforcement orders, likely as a result of the stronger wording the agency uses to publicize the actions.
An increasing number of companies that have been cited by the CFPB are either challenging the agency in court or through public statements, even after signing a consent agreement. That is in contrast to how banks and other companies usually respond to actions by the prudential regulators, where firms rarely get publicly combative after agreeing to an order.
Industry observers say the reasoning may be due to how the CFPB promotes its enforcement actions. The agency's press releases frequently use tough language and even expound on the allegations cited in the agreement. Many firms, particularly nonbanks that may never have been regulated before, aren't used to that kind of treatment.
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"There's a feeling in the industry that the CFPB consent orders, complaints and press releases are too one-sided and don't acknowledge efforts by companies that have made an effort to fix the problems," said Lucy Morris, a partner at Hudson Cook and a former deputy enforcement director at the CFPB. "The other aspect of this is that the bureau is still new and is testing its authority and not everyone agrees with that. Even companies that settle don't always agree with the way the CFPB is using its authority."
The CFPB, for example, recently cited the law firm Frederick J. Hanna & Associates over allegations that it illegally filed debt collection lawsuits against consumers. The Georgia-based firm battled the case in district court for more than two years, requesting a judge dismiss it partly on grounds that the agency did not have jurisdiction over law firms. The court rejected that motion in July 2015 and later denied its request to appeal. The CFPB announced a proposed settlement agreement in December.
Even after the firm lost and negotiated a $3.1 million settlement with the CFPB, Hanna still issued a statement denying the CFPB's allegations.
"In spite of the Bureau's allegations about our firm, we did not institute any pattern or practice with the intent to deceive or harm consumers, and there has been a robust and substantial compliance management system with redundant levels of due diligence in place at FJH for many years," the company said. "At all times, FJH followed the spirit of the Professional Rules of Conduct and complied with the Georgia Civil Practice Act."
A common complaint from companies about CFPB enforcement actions is that the wording in the press release is stronger than what is in the consent agreement. Press releases strongly imply a firm has been found guilty when the actual consent order stipulates that the company did not admit or deny wrongdoing.
"There is incongruity between the consent order, where typically there is no admission that the company did anything wrong . . . but the CFPB press release and blog post read like an indictment," said Bill Himpler, executive vice president of legislative affairs at the American Financial Services Association. "It continues to be a point of a lot of consternation for companies that are subject to these consent orders."
For example, several observers pointed to the 2013 case against Ally Financial in which the CFPB and Department of Justice charged that Ally discriminated against minorities for allowing its partnering auto dealers to mark up the interest rate on loans. Ally agreed to an $80 million settlement without admitting or denying the allegations. But the CFPB's press release announcing the agreement concretely referred to "Ally's discriminatory pricing" without noting the company did not acknowledge that had occurred.
In the Hanna case, the press release included a comment from CFPB Director Richard Cordray indicating that the law firm was guilty despite the fact that the company never stipulated to that in its order.
"The Hanna firm relied on deception and faulty evidence to coerce consumers into paying debts that often could not be verified or may not be owed," Cordray said in the release. "Debt collectors that use the court system for purposes of intimidation should reconsider how their practices are harming consumers."
In a statement to American Banker, Cordray defended the agency's methods for announcing enforcement actions.
"The detailed descriptions in our orders and our messaging around the outcomes are fair and balanced," he said. "The detail contained in our orders is the result of a comprehensive and thorough investigation into the conduct at issue and reflects considerable evidence to support our findings. We also believe our transparency sends an important signal to the marketplace so that other companies can scrutinize their own practices and make sure they are in full compliance with the law."
To be sure, agencies like the Federal Trade Commission and the Justice Department will also expound more on their press releases in announcing an order or settlement than what some financial companies are used to with the prudential bank regulators. And some consumer groups have argued for years that the existing banking regulators are too light in taking action against banks, in part because they do not force them to admit guilt.
Still, observers said the CFPB's press releases strongly influence how the media covers the order and have a real effect on public perception, even if the company continues to deny the allegations.
"The adverse risk companies can face from the CFPB's storytelling is real. A company's stock can drop, their credit lines can get pulled or a state attorney general can open up its own investigation," Morris said. "That doesn't mean the CFPB isn't allowed or can't tell its story. In fact, it's required to do so, but the folks on the other side are trying to manage the fallout as well."
Companies have also complained that the CFPB does not acknowledge in the press release that the problem has already been corrected or the program in question has long since ended.
"Moreover, many of the requirements outlined in the settlement agreement with the bureau are reflective of policies and procedures that have been in place at FJH for a period of years, together with many additional layers of mature policies and procedures in place to comply with consumer protection laws," Hanna said in a statement.
Several observers said the companies being cited often do not see the press release ahead of time whereas the consent order is typically negotiated before it's released. Because the language is often stronger in the press release than in the consent order, companies feel they must defend themselves in public statements.
"By and large, the advice we give [to financial companies] is to try and get out ahead of it," Himpler said. "Get your side of the story out and to the extent you can have a look at the press release, try to make that part of the negotiations."
