Early-bird special: CFPB to reward firms that quickly fix violations
The Consumer Financial Protection Bureau is planning to give companies accused of wronging consumers a chance to get released early from consent orders.
The CFPB will announce a policy soon in which companies that have entered into settlements with the bureau can petition to have an order terminated ahead of schedule once terms of the agreement are met.
The move is seen as consistent with Trump administration efforts to reduce the costs of regulations and enforcement actions. Some also see the move as part of a broader effort by CFPB Director Kathy Kraninger to bring more transparency to the bureau’s processes.
“There have been some questions about how does this work?” said Lucy Morris, a partner at Hudson Cook and a former CFPB deputy enforcement director. “So Kraninger is now committing to some transparency about what the criteria will be, how the policy works, and what happens if they grant a request.”
Companies accused of violating consumer finance laws typically enter into consent orders with the CFPB without admitting or denying wrongdoing. An order typically lasts five years and can include paying a civil money penalty, remediation to consumers and corrective actions that must be completed before an order can be terminated.
Consent orders often come with compliance obligations such as sending reports to the bureau on what progress the company has made to resolve outstanding issues. Companies also can negotiate an early release or shorter time frames for such orders. Yet the agency has lacked a standardized process for terminating orders before they are scheduled to end.
Dave Pommerehn, a senior vice president and associate general counsel at the Consumer Bankers Association, said if the agency provides a clearer path to resolve consent orders, it could more effectively motivate companies to respond to concerns raised by a CFPB action.
"If ... you can show the bank has corrected its behaviors that the bureau thought was out of step, there should be some sort of automatic review in place or scheduled for termination,” Pommerehn said. “It would give banks an incentive to get it done quickly and right, to make sure they meet the review period and be able to terminate an order in a reasonable amount of time."
It is unclear how many companies have asked to have consent orders terminated early and how many have been granted by the bureau.
Morris said at least one bank, the $22.1 billion-asset First National Bank of Omaha, recently had its consent order terminated two years early without any public public fanfare by the CFPB. The bank had agreed to a settlement in 2016 regarding allegations of deceptive marketing of credit card add-on products, which at the time First National attributed to a third-party provider. Such cases lead to questions about how other orders can be terminated early, she said.
Companies subject to consent orders may struggle to raise capital, can be subject to additional scrutiny by regulators, and often cannot sell their business or be acquired by another firm until an order is terminated, lawyers said.
“It can be a big deal for a company that is reliant on investment capital to have a consent order hanging over their head and have to report to the bureau all the time,” Morris said.
Kraninger spoke briefly about making changes to the consent order process in a Nov. 22 speech in which she referred to orders issued after 2014, when former CFPB Director Richard Cordray led the agency. Cordray issued roughly 100 consent orders during his tenure from 2012 to 2017, and was criticized for assessing large fines against industry, returning $12 billion to consumers.
“Since 2014, the majority of the Bureau’s administrative consent orders have imposed five-year terms,” Kraninger said. “If an entity or individual is the subject of an order, they may request termination of a consent order.”
“The bureau has terminated a few consent orders in the past,” she continued. “We are currently identifying ways to improve this process to promote consistency, and we are also committed to ensuring consent orders remain in effect only as long as needed to achieve their desired effects. The ultimate goal here is to provide clarity and consistency in our policy related to consent orders.”
Companies typically are instructed in a consent order to contact either their regional director or the CFPB’s assistant director of enforcement, though some lawyers suggested that the CFPB contact person can make a difference in how a company is treated.
One approach the CFPB could consider is to have an examiner review a bank's adherence to a consent order during its standard consumer compliance review. If the exam determines that the order is satisfied, it can be lifted. Other agencies such as the Federal Deposit Insurance Corp. similarly combine the exam and consent order processes.
But coming up with a standard procedure is challenging since consent order policies vary by agency.
Consent orders issued by the Federal Trade Commission typically last for 20 years while those from the Department of Justice last three years. The Office of the Comptroller of the Currency has no average length, with orders determined by the facts and circumstances of each case, said an OCC spokesman.
It is unclear what impact a new policy on consent orders would have and whether the bureau is prepared to field a slew of requests from companies seeking to get out from under past orders. The change would come just after the CFPB in April updated its policy on the investigatory and enforcement processes that precede a consent order.
Banking trade groups have long sought to align the CFPB's procedures on consent orders with those of the prudential bank regulators to make them less subjective, said Pommerehn.
"With penalties, you see a wide range of inconsistency across the industry,” he said. “Some regional field offices have some wide-ranging penalties for behaviors that are similar from institution to institution."
Brendan Pedersen contributed to this article.