The Consumer Financial Protection Bureau is sending a strong message to financial institutions that it will use whatever means possible to crack down on the industry and advance the agency's key priorities under Director Rohit Chopra.

Chopra, who took office in October 2021, has used a broad range of measures to further the aim of the Consumer Financial Protection Bureau, or CFPB, including lawsuits, announcements, reviews, advisory opinions, rules and enforcement initiatives. With momentum growing quickly, consumer advocates have welcomed the approach, but it has also raised industry concern about whether it goes too far.

"The bureau has been intent on using every tool in their toolbox, and every tool that the statute gives them, to meet their goals," Michael Gordon, a former senior CFPB official and now a partner at Ballard Spahr, said in an interview. "In many cases, they have been forgoing notice-and-comment rulemaking in favor of quicker policy announcements made in various forms."

Some CFPB projects include reviewing credit card company penalty policies, such as late fees, that the agency said cost consumers $12 billion yearly. It is also expanding discrimination policies for CFPB examiners to address potential unfair practices. Recent lawsuits and penalties against banks and financial services companies, such as TransUnion; ACE Cash Express, operated by Populus Financial Group Inc.; and Bank of America Corp., have sent waves through the industry.

Joseph Lynyak, a partner in the finance and restructuring group at Dorsey & Whitney LLP, said the CFPB has at times circumvented channels normally used by regulators.

"One of the things that I find concerning is that the current director has gone back to regulation by enforcement and regulation by the use of the bully pulpit," Lynyak told S&P Global Market Intelligence. "He has exhibited a tendency of reading statutes and coming up with interpretations that are pretty unusual, including avoiding the use of the Administrative Procedure Act to obtain public comment.”

In late April, the CFPB said it was invoking a "largely unused legal provision" under the Dodd-Frank Act to examine nonbank financial companies that pose risks to consumers, and it would potentially release some of its findings to the public. At the time, attorneys who specialize in CFPB issues said the public release of information was a departure from past practice and could hurt companies outed by the regulator.

Market Intelligence requested to interview Chopra, but the CFPB instead provided a statement quoting an agency spokesperson. "Under Director Chopra, the Consumer Financial Protection Bureau is focused on its statutory mission to ensure fair, transparent and competitive consumer financial markets for all," the statement said.

Chopra has stressed that the CFPB's goal is simpler rules to help the markets function well.

"The CFPB is seeking to move away from highly complicated rules that have long been a staple of consumer financial regulation and towards simpler and clearer rules," the agency director said in a June 17 blog. "In addition, the CFPB is dramatically increasing the amount of guidance it is providing to the marketplace, in accordance with the same principles."

Agency targeting fees

Consumer advocacy groups are applauding the agency's vigor.

"We need to press for making our financial system more equitable and fair and getting rid of predatory lending," Rachel Gittleman, financial services outreach manager at the Consumer Federation of America, told Market Intelligence. "We really support the work that the CFPB is doing to dig into some of these practices. We are hoping that this is the first step of many."

The consumer groups have especially touted the agency's pursuit of issues related to what it calls "junk fees." In one instance, the CFPB issued an advisory opinion at the end of June to affirm that debt collectors are legally prohibited from charging "payment-to-payment fees," such as convenience fees, unless those fees are expressly authorized by the underlying agreement or are affirmatively permitted by law. Convenience fees can often be charged for taking payments online or over the phone.

The agency is also looking at overdraft fee practices at more than 20 banks and said it intends "to use this information to identify institutions for further examination and review."

Ballard Spahr's Gordon said overdraft fees are complicated, and creating a rule would serve as a good regulatory approach. "In some cases, they are getting results through the bully pulpit," Gordon said.

More actions are expected, according to Chris Willis, co-leader of the Consumer Financial Services Regulatory Practice at Troutman Pepper.

"One would think that you would also see the bureau pay attention to all fees in supervisory and enforcement actions," Willis told Market Intelligence in an interview.

Crackdown on discrimination

The CFPB's crackdown on discriminatory lending has also caused concern.

The agency widened the rules that its examiners use to determine whether banks are in compliance with rules regarding unfair, deceptive, or abusive acts or practices. The CFPB also broadened other elements for examiners to use when considering whether banks have fair lending practices.

"Vigorous enforcement of the laws protecting against discrimination is essential for us to achieve broader equity and opportunity," the CFPB said at the time.

But the guidance has banks worried, attorneys said. The CFPB said its examiners will now look for unfair acts or practices in any financial services category, whether it be banking, including deposits; servicing; collections; credit reporting; payments; or money transfers and remittances. That represents broader testing than banks are currently required to do, lawyers said.

"The biggest issue is, where do you get the data?" Dorsey & Whitney's Lynyak said. "Banks have done an excellent job over several decades in the elimination of fair lending violations, but the CFPB has indicated that these efforts may not be sufficient."

More communication is needed with financial institutions before the CFPB takes action, John Coleman, former CFPB deputy general counsel who is now a partner at law firm Buckley LLP, said in written comments.

"The job of any regulatory agency is to explain the rules of the road to the companies it covers and to enforce them evenhandedly," Coleman said. "But in some cases, like recent changes to its [unfair, deceptive, or abusive acts or practices] exam manual, the CFPB has taken action without offering clear guidance or even explaining its legal authority. Greater attention to input from all stakeholders would ensure that it has fully considered the soundness and implications of the way it interprets its rules."

In recent weeks, the agency has taken increasingly vigorous actions against specific financial institutions, indicating that "they'd rather sue than settle," Willis said. "The bureau seems to indicate that it wants to litigate more. Never have you seen so many litigation cases."