The Trump administration has stripped enforcement powers from a Consumer Financial Protection Bureau unit responsible for pursuing discrimination cases, part of a broader effort to reshape an agency it criticized as acting too aggressively.
That unit now will move inside the office of the director, where staffers will be focused on “advocacy, coordination and education,” according to an email Mulvaney sent them this week. They will no longer have responsibility for enforcement and day-to-day oversight of companies, he wrote.
The reorganization comes as Mulvaney looks to remake the agency into one that shows far more restraint than it did under his Democratic predecessor, Richard Cordray.
Beyond moving the fair-lending office, Mulvaney has also dropped a lawsuit against payday lenders and said the agency will reconsider rules the financial industry complained would be particularly onerous. He also updated the bureau’s mission statement to include addressing “outdated, unnecessary, or unduly burdensome regulations.”
In a memo to staffers last week, Mulvaney said the CFPB would still look to protect consumers but would not try to “push the envelope.”
“Bringing the full weight of the federal government down on the necks of the people we serve should be something that we do only reluctantly, and only when all other attempts at resolution have failed. It should be the most final of last resorts,” he wrote.
Civil rights and consumer groups said separating the fair-lending office from its enforcement power weakens its power to pursue cases.
“These changes . . . threaten effective enforcement of civil rights laws, and increase the likelihood that people will continue to face discriminatory access and pricing as they navigate their economic lives,” Lisa Donner, executive director of Americans for Financial Reform, said in a statement.
Mulvaney’s spokesman dismissed the criticism, saying the agency would continue to pursue fair-lending cases.
“By elevating the Office of Fair Lending to the Director’s Office, we have enhanced its ability to focus on its other important responsibilities,” spokesman John Czwartacki said in a statement. “By combining these efforts under one roof, we gain efficiency and consistency without sacrificing effectiveness.”
The Office of Fair Lending and Equal Opportunity has headed up some of the CFPB’s most high-profile cases, including a 2015 settlement against Hudson City Savings Bank, a New Jersey-based bank accused of racially discriminating against minority mortgage borrowers. The bank was required to provide $25 million in loan subsidies in what the CFPB called the country’s largest settlement in a redlining case.
The office’s work in the auto lending market has been among the bureau’s most controversial.
In 2013, it led the CFPB case that resulted in Ally Financial, one of the nation’s largest automobile lenders, paying $98 million to settle charges that it systematically allowed minorities to be charged more for car loans than whites. Ally was accused of discriminating by charging 235,000 minority borrowers higher rates. On average, black, Hispanic and Asian American customers paid between $200 and just over $300 more for auto loans than whites who were equally creditworthy, federal officials charged.
Then-Attorney General Eric H. Holder Jr. called the decision the “largest-ever settlement in an auto-loan discrimination case.”
Critics accused the CFPB of going after companies such Ally Financial because it was barred under the law from regulating auto dealers directly. Ally does not lend directly to consumers and does not receive information about borrowers’ race or ethnicity and, consequently, does not discriminate, Republicans and the auto financial industry said.
“The controversy around the office really surrounds its very aggressive pursuit of legal theories that were extremely unpopular in the industry and had weak factual bases,” said Christopher J. Willis, a lawyer with Ballard Spahr who has worked on fair-lending cases against the CFPB. The auto lending cases highlighted those problems, he said. “They were really out on a limb in those cases.”
Mulvaney took charge of the agency after Cordray stepped down after Thanksgiving. Cordray attempted to install his chief of staff, Leandra English, as acting director, but the White House argued it had the power to name an acting director. A federal judge initially sided with the administration in a case that is still winding its way through the courts.
Many of Mulvaney’s initial efforts to overhaul the CFPB have gained broad approval among conservatives and the financial services industry. As a Republican congressman, Mulvaney once called the CFPB a “joke” and his supporters say he is bringing a rogue agency under control.
But critics worry Mulvaney’s move to reduce the powers of the fair-lending office reflects the administration’s resolve to hobble an agency created after the global financial crisis to protect consumers against the financial industry.
“If you remove enforcement power from an office, you are essentially gutting its power,” said Vanita Gupta, who is president of the Leadership Conference on Civil and Human Rights and was the chief of the Justice Department’s civil rights division during the Obama administration. “What we’re seeing in this move is a push to erode the federal civil rights machinery.”
In another sign of the CFPB’s light touch under the Trump administration, the agency has recently taken several steps to dial back pressure on payday lenders — one of the chief targets of the CFPB during the Obama administration. Mulvaney has called for a review of wide-ranging rules finalized by the CFPB last year targeting the billions of dollars in fees collected by payday lenders. The agency also called off a four-year investigation into World Acceptance, a South Carolina-based lender that targets subprime borrowers, and dropped a lawsuit against a group of four online payday lenders associated with an American Indian tribe.
“We’re finding it easier to have our voice heard on the staff level,” said Dennis Shaul, chief executive of the Community Financial Services Association of America, which represents the payday lending industry. “ . . . The CFPB staff is more interested in talking to us about what we find difficult.”
The lobbying group was considering a lawsuit to block the agency’s payday lending rule from being implemented but says that may no longer be necessary. The agenda set out by Mulvaney demonstrates there may be a “new beginning for the agency,” Shaul said. “I think he wants to signal that the agency is not going to be as ideologically bound as before. The agency was not very attuned to hearing a free-enterprise or capitalist voice.”