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U.S. consumer protection just got even worse

Ethan Wolff-Mann
Senior Writer

The Consumer Financial Protection Bureau, known as the CFPB, announced a fairly esoteric-sounding policy change on Wednesday, changing the way it issues investigational subpoenas.

But consumer advocate groups are very concerned that this is another kneecapping of the agency that was supposed to have the backs of ordinary Americans.

When investigating a company, the CFPB sends a Civil Investigative Demand, known as a CID, which is a type of subpoena that asks the company to turn over information and documents the company has. As one financial services lawyer put it to Yahoo Finance, all the incriminating evidence is typically in the defendant’s possession.

The new change will require the CFPB to provide more information to companies that are being investigated as to what exactly they are being investigated for, a measure that consumer advocates fear will result in the destruction of evidence from below-board companies.

The “FPB,” said F. Paul Bland, executive director at consumer group Public Justice, dropping the “Consumer” in disgust, “is setting itself up to be one of the weakest investigative agencies in the country by showing all of its cards to a target at the outset.”

The CFPB's teeth began to dull under Mick Mulvaney's tenure and have continued under Kathy Kraninger. REUTERS/Joshua Roberts

Christopher Peterson, who was a former senior counsel at the CFPB’s enforcement office and who now teaches law at the University of Utah, said that “the CFPB is tinkering with minor process revisions to make being investigated more convenient for debt collectors, banks, and other corporations suspected of breaking the law.”

In Bland’s view, “This is the kind of investigative approach a defense lawyer would have crafted.”

The CFPB, the brainchild of Sen. Elizabeth Warren (D-Mass.), who is now running for president, has lost its teeth when President Donald Trump appointed Mick Mulvaney, who had previously wanted to destroy it. The agency is now being run by Kathy Kraninger, Mulvaney’s former deputy at the Office of Management and Budget.

In the past, the CFPB tried to walk the fine line between accommodating companies too much and evidence gathering, and occasionally got burned.

As one recent comment from consumer groups read, “While some investigation subjects are forthcoming and cooperative in investigations, other subjects may engage in spoliation of evidence, concealment, and obfuscation in order to frustrate the federal government’s legitimate law enforcement goals.”

For example, Payday Lender Cash America destroyed records after being contacted by the Bureau in 2013.

The Financial Services industry has had it out for CIDs for years

In the Obama era, when it was led by Richard Cordroy, the CFPB executed regular enforcement actions of companies that did not play by the rules, and used CIDs liberally, much to the chagrin of financial services companies that had to respond to them.

CIDs can be very broad and must be responded to quickly, and often at great cost — over $1 million in some cases to compile and format documents — which critics say can damage small businesses. They can be fought or negotiated formally or informally, but petitions to alter the demands rarely budge.

FILE - In this March 26, 2015, file photo, former Consumer Financial Protection Bureau Director Richard Cordray speaks during a panel discussion in Richmond, Va. (AP Photo/Steve Helber, File)

In an interview, one lawyer for the financial services industry who wished to remain anonymous called CIDs "fishing expeditions" and lamented the low bar needed for the agency to issue these expensive demands. A common criticism in the industry is that the demands themselves are akin to punishment in and of themselves.

Another lawyer who represents the Financial Service Industry who also agreed to speak on the condition of anonymity, had a much milder take, telling Yahoo Finance that nearly all the CIDs issued resulted in enforcement actions, and that the industry’s narrative that describes CIDs as a vindictive tool did not match up to the lawyer's experience.

Incidents of innocent bystanders that happen to possess useful documents to the CFPB and get hit with CIDs, the lawyer added, are extraordinarily rare.

Peterson, the former CFPB enforcement counsel, said the relative expense is specific to the case, noting that some of the companies the CFPB investigates are “fly-by-night companies that are on the brink of going out of business.” But others, he said, “are gigantic banks that have total assets larger than most countries.”

“The CFPB’s enforcement track record during Director Crorday’s term was overwhelmingly successful,” Peterson added. “They oversaw two hundred cases that produced nearly 12 billion dollars in consumer restitution while suffering only a handful setbacks.”

Going forward, consumer advocates see this as another victory for those who wish to protect corporations, not people.

“In the meantime,” said Peterson, “the Trump Administration it is doing nothing to stop suffering caused by exploitative payday lenders or fix mismanagement in student loan collections."


Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.

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