Under the Hood: CFPB repository for lender offenses could spur enforcement surge

While the Consumer Financial Protection Bureau ’s stated reason for its latest initiative to create a consolidated registry of lender offenses is to deter repeat offenders, the project may devolve into an industrywide fishing expedition for potential infractions and inflated penalties. Come Sept. 16, the CFPB will require nonbank financial institutions to record in a centralized registry any public orders filed against them by courts or regulatory agencies. . These lenders will also be expected to file annual reports detailing their compliance with these orders. The CFPB contends that collecting these judgments in a single location will protect consumers. “A centralized, up-to-date repository of such public orders will provide valuable market-based insight that the bureau could use both to identify concerning trends in these markets that it otherwise might miss and to decide which of several different policy tools would best address the consumer risks presented by these trends,” the agency wrote in the 486-page final rule published June 3. “In short, the information sought will significantly increase the bureau’s ability to identify, understand and ultimately prevent harm in the markets for consumer financial products and services.” Keeping tabs and cracking down In a nutshell, the CFPB appears to be saying that it will crack down on widespread violations, either with new policies or with enforcement actions. Since the passage of the Consumer Financial Protection Act of 2010, the CFPB has brought nearly 350 enforcement actions . . But this registry will house any order set down by regulators other than the CFPB, along with federal, state and local courts. . Effectively, the number of records could reach tens of thousands, which would translate to an exponential increase in potential agency demands on nonbank lenders. The CFPB claims that the final rule is meant to keep tabs on repeat offenders. . To that end, the agency formed a Repeat Offenders Unit tasked with “actively ensuring that a company, its senior management and its board of directors are not treating any orders as suggestions,” the CFPB said in announcing the new supervisory team. Yet, the registry requirements apply even to nonbank lenders subject to single consent orders with which they are in full compliance. . Essentially, the CFPB is asking lenders to log every violation for which they have been penalized and update their progress in adhering to any related enforcement orders. Sharing the data The CFPB intends to make the registry available to other government agencies, as well as to consumers, shareholders and advocates, among other groups. . While the CFPB claims that “publication will enhance the ability of investors, research organizations, firms conducting due diligence and the media to locate, review and monitor orders enforcing the law,” practically speaking, distribution of the data will likely spawn a flurry of lawsuits. . The decisions in those cases will then further feed the registry. It is important to note that in most — if not all — auto finance-related CFPB enforcement actions , the lenders agreed to the consent orders without admitting wrongdoing. For instance, back in 2014, the CFPB fined Houston-based First Investors Financial Services Group $2.75 million for allegedly distorting customers’ credit. . The lender agreed to the consent order “to avoid the expense and business disruption” a court fight would entail, the company said at the time. . Yet, presumably, that fact will be excluded from the CFPB’s offense repository, and consumers or others who review the data will accept the charges as fact. An unlevel playing field Along those lines, cases listed in the registry related to disparate impact claims in auto finance would also likely be deemed veritable, despite longstanding disputes about the CFPB’s process for determining unfair lending violations. The House Financial Services Committee , for one, penned a series of reports several years ago that questioned the CFPB’s Equal Credit Opportunity Act (ECOA) enforcement actions against indirect auto financers. . The reports, which hinged on internal CFPB documents, showed that the CFPB’s ECOA actions against auto financers were knowingly premised on a fundamentally flawed statistical methodology for estimating borrowers’ ethnicities that would collapse under judicial scrutiny. Yet, again, chances are slim that consumers reviewing these consent orders would have any reason to doubt the veracity of the underlying claims. Further, while this new CFPB rule applies to nonbank financial institutions, it excludes insured depository institutions and credit unions, thereby creating an unlevel playing field in the industry. . As such, consumers might steer clear of lenders on the registry, putting these nonbanks at a disadvantage. Auto Finance Summit, the premier industry event for auto lending and leasing, returns Oct. 7-9 at Wynn Las Vegas. . To learn more about the 2024 event and register, visit www. .AutoFinanceSummit.com.

Under the Hood: CFPB repository for lender offenses could spur enforcement surge

Bureau to crack down on repeat offenders

Upcoming election drives uncertainty in the auto industry

Podcast: Retail POS lending is an opportunity for lenders

Related Posts

CFPB funding in jeopardy following DOJ decision

Porsche ABS deal reveals changes in luxury market (Under the Hood)

CFPB change to nonbank oversight could affect securitizations

Podcast: Retail POS lending is an opportunity for lenders

Stay Informed with Our Newsletters

The Roadmap Podcast

SPONSORED

Driving Innovation in Automotive Refunds: How Onbe and Allied Solutions Are Modernizing the Payment Experience

Navigating the Margin Squeeze: EVs, Tariffs & Pricing — A Q&A with Earnix

Enhancing credit approaches to boost conversion and dealer loyalty

Welcome Back!

Retrieve your password