With a new Democratic president set to take office in January, the biggest question facing the Consumer Financial Protection Bureau heading into 2021 is: how far will the pendulum go?

After three years of Trump-appointed officials in the office overriding much of the agency’s policies during the Obama era, the CFPB’s attention could quickly return to strict enforcement and aggressive rule-writing, have said. some officials said.

Now that a Supreme Court decision has facilitated the task of presidents To install the CFPB chiefs of their choice, President-elect Joe Biden is expected to appoint a new interim CFPB director on January 20 or shortly after January 20. legal battle on who would succeed him.

With a change in leadership, many predict that the agency’s agenda for the New Year could quickly resemble that pursued by former CFPB director Richard Cordray under the Obama administration.

“Everyone expects a more aggressive and active CFPB on a number of fronts,” said Eamonn Moran, lawyer at the Morgan Lewis law firm and former lawyer for the CFPB’s Bureau of Rules.

The focus will immediately be on helping consumers who have suffered financial harm during the COVID-19 pandemic, observers said. Mortgage repairers, credit bureaus, debt collectors and auto lenders should land in the crosshairs of the CFPB.

“There will likely be more mortgage related inquiries and a laser beam will focus on what service agents are doing so as not to harm consumers,” Moran said.

The coming year will present many challenges for those who run the agency, some immediate and others longer term.

Kraninger’s response to the pandemic has been to offer regulatory relief to financial companies. For example, she promised not to issue enforcement actions to credit card issuers or cite them in supervisory reviews as long as they are making good faith efforts to resolve consumer billing disputes during the process. pandemic. A new interim director would likely reverse these policies.

“Consumer debt is going to be a huge problem and a lot of work needs to be done around credit reporting,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. “A new interim director will use the bully’s chair to go out there and tell consumers that CFPB will protect them in many of these areas.

A new director should also quickly decide to keep two recent final rules revise the definition of an “eligible mortgage”. The so-called QM rule is one of the most important CFPB rules, affecting the types of “safe” mortgages that can be granted by banks and lenders.

The two quality management rules could radically affect the booming housing market by redefining certain underwriting conditions for obtaining a home loan.

Of immediate concern is that in July Fannie Mae and Freddie Mac lose an exemption that allowed them to purchase loans with debt-to-income ratios above 43%, an exception that the mortgage industry has been pushing hard for. ‘it be maintained. The first QM rule replaced DTI with a new set of factors based on the price of a loan, which was seen as a way to ease the transition to Fannie and Freddie’s exemption.

The second rule of quality management allows “seasoned” loans held on bank balance sheets for an extended period of time to receive quality manager status if they meet other criteria.

But consumer advocates have doubts about the rules for managing quality and are likely to hear the new acting director’s ear. It is not yet clear to what extent QM’s rules will be reassessed, changed or delayed by a Biden CFPB, experts have said.

More penalties to come

Among all the expected changes, financial firms are gearing up for stronger enforcement and a return to tougher penalties and fines. When Kraninger took over CFPB two years ago, she made law enforcement last among her priorities. A new interim or permanent director could make law enforcement a top priority.

Since then, coercive measures have been in full swing, a sign that Kraninger is determined to sanction institutions for violations. In a press release in December, Kraninger touted the $ 1.45 billion in total consumer assistance and $ 270 million in civil penalties resulting from the 66 CFPB enforcement actions issued in 2019 and 2020 combined.

Despite this, Democratic lawmakers accused Kraninger Year of failing to extort sufficient financial penalties from bad actors.

The CFPB application was halted for a year under former interim director Mick Mulvaney, who the Trump administration installed in late 2017 to succeed Cordray. Numerous lawsuits brought by Kraninger – including lawsuits against Citizens’ Financial Group and Fifth third Bancorp – were originally filed under Cordray.

Tony Alexis, a partner at the Goodwin law firm, which leads the firm’s consumer financial services enforcement practice, said enforcement action could increase simply because of the CFPB’s likely focus on mortgage management issues.

“There are many more non-bank mortgage originators than banks in CFPB jurisdiction and historically executing agencies take a hard line when there are more entities to enforce perceived violations,” he said. said Alexis, a former deputy director of CFPB who headed the Enforcement Office. “It takes about a quarter to start these surveys, and I think next year will be quite active.”

Equitable loans and student loans could also be high on the agenda for a Democrat-appointed director.

“Equitable loans will be a top priority,” said Lucy Morris, partner at Hudson Cook and former deputy director of CFPB law enforcement.

Under new leadership, the CFPB could also have a facelift. A new director could hire senior executives. Many expect a change of guard within middle management, as some of Kraninger’s key employees lack union protection.

“Democrats believe in empowering staff to do the job and believe in career public servants and a sense of mission,” Morris said. “It has been a real struggle to get things done with law enforcement.”

Under Mulvaney, political appointees were integrated into the agency. He also realigned some agency offices, which had the effect of reducing the power of the Fair Loans Office – a restructuring that would likely be undone under a Democratic nomination.

“They have a bureaucracy in place that has been depressed and demobilized, so they will have to rebuild trust and structure,” Rheingold said.

A new CFPB interim director would likely be chosen from a short list of candidates who all have the backing of the office’s architect, Senator Elizabeth Warren, D-Mass. employment or have held a managerial position in the office for at least 90 days.

One of the main candidates is Rohit Chopra, commissioner of the Federal Trade Commission and former deputy director of the CFPB. Chopra was the former CFPB student loans ombudsman and, if he gets the job, he will likely reverse Kraninger’s policy of having this office focus solely on the private student loan market.

U.S. consumers owed $ 1.55 trillion in student loans in the third quarter, with federal loans representing 90% of the total. Warren and Sen. Bernie Sanders, I-Vt., Want Biden to forgive up to $ 50,000 in student loan debt per borrower.

“It’s a big deal for Warren, and there hasn’t been much from the office on student loans, which will be a priority for a new acting director of CFPB,” Moran said.

The CFPB is also expected to work more closely with other regulators, including other banking regulators, the Ministry of Education, and state attorneys general. The office is also expected to partner with state agencies, including the recently renamed California Department of Financial Protection and Innovation.

Rule inversion

On the rules, consumer advocates are pushing for the repeal of the payday loan and debt collection rules.

An interim manager may seek to overturn Kraninger’s final salary rule that eliminated repayability standards imposed in a 2017 settlement under Cordray. One complication, however, is that the rule continues to be subject to ongoing dispute in Texas, it could prevent an outright repeal. Meanwhile, two recent debt collection rules that are widely supported by the industry could be reassessed and amended.

“Both of these rules, since they’re fresh, are probably worth reconsidering,” Moran said.

Among other changes, the CFPB could also seek to extend its supervisory authority in other markets. The Dodd-Frank Act gave the office the power to oversee the “biggest participants,” and some expect the office to move forward with a rule covering installment loans, an area that was set aside under Mulvaney. . Such a move would bring fintech lenders back under the CFPB umbrella.

“They can come up with a proposal that covers the largest installment loan participants and after a 60-day public comment period, they finalize it,” Morris said. “It is not as difficult as regulation because it is not as controversial and the statute provides for additional supervisory authority.”