Former CFPB counsel: Agency is doing more than you think

The Consumer Financial Protection Bureau is still impacting the mortgage industry, despite a lack of examinations or investigations and the threat of a mass firing.

The regulator under Acting Director Russell Vought has continued to provide regulatory guidance to financial institutions, and even defended some actions put forth by the prior Chopra-led bureau. Richard Horn, co-managing partner of Garris Horn LLP and a former CFPB senior counsel, suggests the industry has an opportunity to see real regulatory reform from the rulemaker.

"They're not just out there trying to gut all the rules and have the consumer finance industry be the wild wild west again," he told National Mortgage News. "They're actually supporting some of the old rules in these proposals, which is just crazy to me. But they have a great regulation staff."

Richard Horn of Garris Horn LLP

Tina Kraemer Pure in Art Photography

Those moves include recently defending a rule that opponents said would make certain lending more expensive; and quietly upholding a legal argument in a controversial redlining case. Still, Horn cautioned that the lack of regular activity could lead to an uneven lending field.

National Mortgage News spoke with Horn this week about how the bureau is working a year into the Trump administration, and how its actions are affecting lenders.

This interview has been edited for length and clarity.

Is the bureau conducting any examinations or investigative activity?

I haven't seen it. I've had mortgage clients that had pending exams that never ended up being finished. I doubt that there's really any real investigative work going on at the CFPB currently, just because they're trying to fight for the ability to (lay off) most of the staff.

Depending on how the lawsuit plays out, they might have to show the district court that they are actually conducting exams to satisfy their statutory mandate. They did put out that humility pledge that seemed to indicate that they were at least putting some policies in place to conduct exams, so I wouldn't be surprised if they did.

There has been some reporting that said that they were going to start exams this spring. That might be an effort for the lawsuit to show that they are still conducting some of their statutory mandates. That's probably a smart move on their part, because there's nothing the court can say about how many exams they have to conduct. It's not part of Dodd-Frank.

They also have a couple of significant proposed rules that either they need to finalize or they haven't really gotten the true proposed rule out. The work that was on their agenda, loan officer compensation and servicing rules, we haven't seen anything on that yet. It seems like they're trying to shift remaining attorneys to work on those rules. I doubt they're tasking a bunch of enforcement attorneys to do a ton of work on investigations.

What is working at the bureau?

The Regulation Office is still working because I dealt with them on a couple of issues, and they're actually very responsive. That office serves an important function for the industry, aside from drafting the rules. They also answer regulatory inquiries from the industry. So if there's an unclear part of a rule, they're charged with interpreting it. That's an important function, I'm glad that they're still doing that.

Has the majority of CFPB activity been deregulatory work?

I would call it a regulatory reform agenda, because they're not completely gutting all of the rules. They actually haven't gone as far as I thought they would. They've actually landed in some pretty reasonable places in their proposed rules.

For example, the Regulation B proposal under ECOA, they didn't propose to get rid of the discouragement provision. That was the provision at issue in the Townstone case, which Acting Director Vought really disagreed with and wanted to overturn that settlement.

In the Townstone case (Horn represented Townstone), we argued that the discouragement provision, which says creditors can't discourage applicants or prospective applicants, was unlawful because it went further than the statute, because the statute only applies to applicants.

Under Vought, when they had the chance to get rid of this unlawful provision of Reg B, they actually said that this provision is supported, and cited an appeals court opinion (against Townstone). So Vought isn't out there gutting every single rule willy-nilly, just for the sake of gutting the CFPB's rules. They seem to be engaged in regulatory reform, but they're not doing it in an overly aggressive way.

Do you think any mortgage companies are skirting the rules?

A lot of folks might be thinking, the most aggressive agency is not on the beat anymore, and my state regulator is not going to really look at this, so I can push the envelope in this area. We are seeing that. But there are a lot of companies who realize they're still examined by a number of states. The CFPB can come back one day, and their exams are essentially lookbacks, and there's a long statute of limitations.

I'm sure that there are companies who think the CFPB is off the beat, now we can do whatever we want here, which is unfortunate. I don't even think you need an enforcement office as much. I think just the risk of very thorough examinations is enough. Having a strong supervisory agency helps to create a level playing field.

A lot of companies might be seeing others try and skirt the rules to try and get more market share, to maybe engage in more risky activities under RESPA Section 8, or push the envelope under the LO comp rule, to get more higher-producing loan originators. It can create an unlevel playing field and make it harder for compliant businesses to do well. That's one downside for the industry of having this CFPB sidelined for this long.

Will the CFPB survive?

I think so, because I can't see legislation getting through Congress to get rid of it. The question is, will it be on life support for seven more years, or will it come back in some reasonable form, if not as active as before.

There's so many things that could be going on at the bureau that would be good for the public and the industry, and they're just not being done. It seems like all of the effort is being placed on firing the staff, but not doing what the industry would actually benefit from. So it's just unfortunate.

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