The CFPB Has More Power Than You Think

One of the most important things for anyone trying to influence government policy, whether you are a lobbyist for a major defense contractor or a board member for a $50 million credit union, is the distinction between an organizational chart and reality. In government, titles matter. But it’s much more important to know who is ultimately going to be in the room when the decision is being made. It’s not a coincidence that Lin Manuel Miranda grew up around politics. He understood what real power is and how it is exercised.

So, what does this have to do with the CFPB?

After all, everyone knows how powerful it is and there is no shortage of credit union executives who grumble about its exploits. That’s because its current director, Rohit Chopra, has emerged as a master of the game who has pushed the statutory framework given to the CFPB director to its limits, and in so doing, has had an even greater impact on all financial institutions, including credit unions, than could have been anticipated.

Take, for instance, the division of labor between banks and credit unions with more than $10 billion in assets and those with less than that amount. Since the prudential regulator of financial institutions such as the NCUA, for example, has “exclusive authority” to enforce federal consumer protection laws against smaller institutions, a less aggressive regulator might be content to concentrate almost exclusively on the big boys on the block. Instead, Chopra has nudged and encouraged even primary regulators to act more aggressively.

For example, he raised eyebrows in June of 2022 when the Bureau issued an interpretative rule explaining state authority to enforce consumer protection laws. In this guidance, the Bureau pointed out not only that state and prudential federal regulators had the authority to enforce the eighteen federal consumer protection laws overseen by the CFPB, but also that state regulators could exercise the expanded Unfair Deceptive Acts and Practices (UDAAP) powers given to the Bureau by Congress under the Dodd Frank Act. This is quite the proposition since certain blue state regulators, such as New York State’s Department of Financial Services, lack UDAAP authority.

Since its inception, the Bureau has made clear that its enforcement actions should be considered statements of regulatory policy. But in recent years, the Bureau has expanded its use of circulars, which provide informative overviews of the Bureau’s interpretation of existing regulations. Although the Bureau insists that these are tantamount to informational pamphlets to help coordinate their interpretation of federal regulations, they sure don’t feel that way and I would suggest that you not treat them that way, because whether you are a state or federally chartered institution, the Bureau seems to be saying that this is an area of compliance you may want to consider.

Then there’s the speed with which the Bureau goes about its business. If the motto of the modern-day wunderkind is to hurry up and break things, it seems to be the motto of the 42-year old Chopra – an elderly man by Silicon Valley standards – to hurry up and regulate things. I have used these pages more than once to complain about the Bureau’s aggressive interpretation of its power to outlaw practices it deems to be unfair, deceptive or abusive. Chopra maximizes the enormous power already given to the Bureau by eschewing the formal regulatory and rule making process whenever possible. For instance, just this week the Bureau issued guidance explaining that certain collection methods in relation to the collection of medical debt violate the Fair Debt Collection Practices Act (FDCPA). Advisory guidance such as this take effect the minute they are passed as opposed to those regulations promulgated under the stodgy comment period approach favored under the Administrative Procedures Act.

A third example of how he maximizes his authority is through enforcement and litigation. He has been quite frank in explaining that, given the staff size of the CFPB, it makes more sense for the Bureau to go after larger institutions than it does relatively small ones, after all, the bigger the fish, the larger the ripple. In addition, every time the CFPB releases another opinion, guidance or UDAAP violation, it is providing a blueprint to the plaintiff’s bar about potential lawsuits they can bring against defending institutions. This litigation is undertaken, of course, without regard to a credit union’s asset size. In fact, it is not uncommon for class action complaints to prominently mention the CFPB.

Last but not least, the CFPB under Chopra has adopted the sharp-edged tone, which is so expected in today’s modern politics. After all, what sounds more important, regulating alleged violations of Regulation E by failing to properly disclose the circumstances under which consumers may be charged an overdraft fee? Or protecting the American public against junk fees? In fact, when the Biden Administration is over, it will be interesting to find out whether Chopra followed the White House’s lead, or the White House simply followed Chopra’s lead in highlighting unpopular banking practices.

The bottom line is, regardless of whether you are a $12 billion credit union, a CUSO offering mortgage services or a $350 million state-chartered credit union, the CFPB has used all its powers to shape not only your compliance obligations, but your legal and operational ones as well.

Chopra has done precisely the job he was appointed to do, and now we can only hope that the courts, and ultimately Congress, reassess the Bureau and realize that it has way too much power to vest in one person.

Henry Meier is the former General Counsel of the New York Credit Union Association, where he authored the popular New York State of Mind blog. He now provides legal advice to credit unions on a broad range of legal, regulatory and legislative issues. He can be reached at (518) 223-5126 or via email at henrymeieresq@outlook.com.