US CFPB Director: Repeat Offenders Should Face Significant Structural Remedies
In a charged speech delivered on March 28, 2022,1 the director of the Consumer Financial Protection Bureau (“CFPB” or “Bureau”), Rohit Chopra, announced that the Bureau will begin pursuing significant non-monetary, structural remedies against financial service providers who are found to have committed repeated legal violations. Director Chopra indicated that these remedies are required to deter corporate recidivism that is the result of large financial institutions viewing monetary penalties as simply the cost of doing business.
The announcement should be viewed as a warning for financial service providers due to the potential severity of the remedies suggested by the Director. Specifically, Director Chopra signaled that the Bureau will use its statutory authority to seek “limits on the activities or functions of persons”2 to punish repeat offenders and suggested that such powers, whether exercised by the Bureau alone or in concert with other financial regulators, might include “put[ting] limits on business or product lines,” “clos[ing] business lines” or “charg[ing]” and “disqualifying” individuals who “play a role in repeat offenses and order violations.” Further, the director encouraged other financial regulators to use similar non-monetary remedies at their disposal.
The Director’s focus on this issue can be traced back to his time as a commissioner at the Federal Trade Commission (“FTC”), where he sought to impose similar remedies on repeat offenders. And even prior to this speech, under Director Chopra’s leadership, the Bureau has taken multiple actions to punish entities that violated CFPB consent orders.
Below we outline the most critical aspects of Director Chopra’s speech. We then briefly highlight the director’s previous statements and actions that provide context to this development and a recent CFPB action that demonstrates the practical effects of this announcement.
Speech Highlights
Types of “Repeat Offenders”
In his speech, Director Chopra described two different types of repeat offenders. The first type are companies or individuals who violate a formal court or agency order resulting from a prior violation. This might include, for example, a company that enters into a consent order with the CFPB and is later found to have violated the terms of that consent order. The second type of repeat offenders are those who commit multiple violations of law across different business lines, which the director suggested likely stem from a common cause (e.g., problematic sales practices). Large financial institutions—the primary target of the director’s speech—are more likely to fall into this category.
Coordination Between Financial Regulators
The director also highlighted the need for coordination between financial regulators to identify, punish and deter repeat offenders. For example, the director stated that the Bureau will work with partner agencies to ensure that each agency’s orders are “not treated as suggestions” by the entities or individuals subject to those orders. This engagement will be facilitated by new units the Bureau plans to establish within its supervision and enforcement divisions to focus on detecting and punishing repeat offenders.
Non-Monetary, Structural Remedies
In addition to citing the Bureau’s statutory authority to seek “limits on the activities or functions of persons,” the director cited a number of specific non-monetary, structural remedies that financial regulators should consider when dealing with repeat offenders. Those remedies include:
- Capping a company’s size or growth
- Limiting or banning specific company business lines or practices
- Requiring a company to divest certain product lines
- Limiting a company’s leverage or requiring the company to raise equity capital
- Revoking government-granted privileges such as registrations
While some of these remedies arguably could fall within the Bureau’s authority to seek “limits on the activities or functions of persons,” others would require other federal or state financial regulators to take action—either independently or in concert with the CFPB. The director acknowledged this fact and, as an example, cited the Bureau’s intention to deepen its collaboration with state licensing officials so that states can ascertain whether licenses held by repeat offenders should be suspended.
In addition to seeking remedies against entities, the director also emphasized the importance of holding individuals accountable for repeat offenses, regardless of the size of the related institution:
Where individuals play a role in repeat offenses and order violations, it may be appropriate for regulatory agencies and law enforcers to charge these individuals and disqualify them. Dismissal of senior management and board directors, and lifetime occupational bans should also be more frequently deployed in enforcement actions involving large firms . . . When it comes to individuals, we also need to pay close attention to executive compensation incentives. Important remedies for restoring law and order may include clawbacks, forfeitures, and other changes to executive compensation, including where we tie up compensation for longer periods of time and use that deferred compensation as the first pot of money to pay fines.
Although the CFPB has held individuals accountable for corporate violations in the past, the actions have generally involved smaller companies.3
Director Chopra’s Prior Statements and Actions
As is the case with other recent CFPB actions (e.g., the recent announcement that the CFPB believes UDAAP encompasses discriminatory conduct),4 the planned use of non-monetary, structural remedies to punish and deter repeat offenders is consistent with positions and actions Director Chopra has taken in the past. Within his first two weeks as a commissioner at the FTC, Director Chopra issued a memorandum encouraging the FTC to take a position that closely mirrors that which he called for in his March 28 speech:
. . . the Commission should seek to correct both the miscalibrated incentives and the management deficiencies through structural remedies, including the dismissal of senior management and board directors, changes to executive compensation, outright bans on adjacent business practices, and closure of appropriate business lines.5
Later in his tenure, in one of his final acts at the FTC, he voted to direct agency staff to use compulsory methods such as subpoenas to investigate specific enforcement priorities, including repeat offenders.6 He also highlighted the issue in recent testimony given before the US Congress.7
Recent CFPB Action
The Bureau already has taken action consistent with the director’s speech. In December 2021, two months after Director Chopra’s confirmation, the CFPB announced a proposed settlement agreement with an installment lender to resolve claims that the lender, among other things, engaged in illegal and deceptive marketing in violation of a 2016 CFPB consent order.8 The terms of the proposed settlement included prohibiting the lender from (1) making new loans, (2) collecting on outstanding loans to harmed consumers, (3) selling consumer information and (4) making misrepresentations when providing loans or collecting debt or helping others that are doing so.
Conclusion
While Director Chopra’s speech specifically targeted large financial institutions, any financial service provider that has been the subject of enforcement or supervisory actions initiated by the CFPB (or any other financial regulator) should take note. The Bureau is dedicating resources to identify repeat offenders and has demonstrated the willingness to impose remedies that may significantly impact company operations and viability. Entities operating under an agency or court order—in particular, those involving the CFPB—should ensure they understand the requirements of the order and have implemented the necessary controls and remedial steps to ensure compliance.
1 Rohit Chopra, Director, CFPB, Lecture at University of Pennsylvania Law School: Reining in Repeat Offenders (March 28, 2022), available at https://files.consumerfinance.gov/f/documents/cfpb_reining-in-repeat-offenders_cited-lecture_2022-03.pdf.
3 See, e.g., CFPB v. Genuine Title, LLC, No. 1:15-cv-01235-JFM, 2015 WL 13696938 (D. Md. May 5, 2015).
4 For more information on the CFPB’s UDAAP announcement, please read our full analysis, available at https://www.mayerbrown.com/en/perspectives-events/publications/2022/03/us-cfpb-seeks-to-extend-ecoa-like-antidiscrimination-provisions-broadly-to-all-consumer-finance-activities.
5 Rohit Chopra, Commissioner, FTC, Memorandum to Commission Staff and Commissioners on Repeat Offenders (May 14, 2018), available at https://www.ftc.gov/system/files/documents/public_statements/1378225/chopra_-_repeat_offenders_memo_5-14-18.pdf.
6 Rohit Chopra, Commissioner, FTC, Prepared Remarks Regarding the Adoption of Repeat Offender Enforcement Resolution (July 1, 2021), available at https://www.ftc.gov/system/files/documents/public_statements/1591590/prepared_remarks_of_cmr_chopra_on_repeat_offender_resolution.pdf.
7 Rohit Chopra, Director, CFPB, Written Testimony Before the U.S. House Committee on Financial Services (Oct. 27, 2021), available at https://financialservices.house.gov/uploadedfiles/hhrg-117-ba00-wstate-choprar-20211027.pdf.
8 Proposed Stipulated Final Judgment and Order, CFPB v. LendUp Loans, LLC, No. 3:21-cv-06945-JSC (N.D.C.A. Dec. 21, 2021), available at https://files.consumerfinance.gov/f/documents/cfpb_lendup_proposed-stip-final-jdmt-and-order_2021-12.pdf.
