What has the change of leadership in Washington meant for regulation of consumer financial products – and what will it mean in the future?
The federal government is stepping back, and the states are stepping up, according to a new report.
“Fewer federal enforcement actions and deregulation could be the new norm for the foreseeable future,” the Goodwin law firm wrote in its annual Consumer Finance Year in Review. “This, combined with federal agencies continuing to adjust their enforcement and regulatory priorities as they transition away from their financial crisis-era focus and confront new technology, products, and services, means that it is more important than ever that consumer finance companies monitor this shifting landscape.”
The consumer financial services landscape remains very uncertain, given that the federal agency that sits at the heart of the space, the Consumer Financial Protection Bureau, may not survive, Goodwin noted.
Here are some specific takeaways from the past year, as well as a look ahead.
In 2017, federal and state entities filed 49 enforcement actions, the same as in 2016, but down sharply from 2015. Goodwin thinks that signals two things: Crisis-era issues are receding, and that regulators and industry participants are coming to an understanding after years of tussling.
Many of the mortgage-related regulator actions last year were related to Federal Housing Administration lending, a practice that’s pushed many banks out of participating in FHA programs and riled many lenders.
Goodwin also noted that mortgages – particularly servicing – were the second-most-complained-about topic to the CFPB. The firm expects regulators to continue to focus on servicing complaints. But it thinks the CFPB may abandon a Dodd-Frank requirement that lenders document borrowers’ ability to repay loans, as it has already signaled that industry participants find the rule too “burdensome.”
The CFPB brought eight enforcement actions relating to credit reporting or credit repair services, while the FTC brought one in 2017.
Goodwin expects the CFPB to continue to focus on holding companies accountable for accurate credit record-keeping and reporting. But the firm also expects to see an expansion of the Fair Credit and Reporting Act to be applied to firms that aren’t traditionally credit-reporting bureaus, such as health insurers.
Meanwhile, it’s worth noting that one of the biggest credit-reporting stories of 2017 — the Equifax
data breach and its repercussions — may end up in the hands of lawmakers, rather than regulators.
Most enforcement actions relating to student lending came from the federal government in 2017, the reverse of 2016, when states took the lead. As with mortgages, the focus shifted to servicing, such as the CFPB’s lawsuit against Navient, the largest student-loan servicer, for improper practices such as failing to alert borrowers to payment deadlines and providing false information about repayment options.
That’s likely to continue into 2018, Goodwin said. The CFPB has flagged two issues: servicers receiving incorrect information about students’ enrollment status, causing them to terminate deferment status prematurely, and the practice of providing misleading information about how interest is handled.
But some action may shift to the states. More states are adopting student-loan bills of rights, which may provide state agencies some cover for holding servicers accountable.
Debt collection and settlement
Goodwin counted 47 federal and state enforcement actions on debt settlement and relief in 2017. While that number was not much different than in 2016, the increased presence of the states, even as the federal government stepped aside, was.
Most regulator actions focused on misleading or harassing communications, including making false promises to reduce debts, and collecting on debts without trying to verify they were actually owed. Goodwin expects the CFPB to start the process of setting new rules in late 2018 or early 2019 which could, as Goodwin put it, “foreshadow a renewed effort by the CFPB to increase its regulation and enforcement of the debt collection process.”
What will 2018 bring, more broadly? Goodwin expects more action from states, including those it calls “vocal opponents of the Administration” and those that have become more active. Since 2015, the firm noted, nearly 50% of all state enforcement actions have taken place in Massachusetts, New York, and Florida.
Another battleground may be over the future of fintech companies. In 2016, the Office of the Comptroller of the Currency, a bank regulator, said it was considering granting special bank charters to such enterprises in order to regulate them more uniformly. But some state groups have sued, arguing that such a step would weaken existing consumer protections.