Acting Consumer Financial Protection Bureau Director Mick Mulvaney has stripped the agency's fair-lending office of enforcement powers in a sign that many consumer advocates see as trying to reduce oversight and penalties for firms that discriminate against borrowers.
The move appeared to be a demotion for the fair-lending division, which was previously an equal division alongside supervision and enforcement, and which is now part of the office that handles internal agency concerns about employees.
"The Fair Lending Office will continue to focus on advocacy, coordination, and education, while its current supervision and enforcement functions will remain in SEFL," Mulvaney wrote in a memo sent to staff on Tuesday, referring to the Office of Supervision, Enforcement and Fair Lending. "I do not expect that staff will experience changes in employment status, but it is possible that some may experience changes in jobs and duties."
The move was part of a broader restructuring effort by Mulvaney, who also moved the agency's consumer response division to a separate office of education and engagement.
The Mulvaney memo was first reported by the Intercept, an online news publication. The CFPB confirmed the memo's accuracy on Thursday.
What impact the restructuring will have is open for debate. Under the Dodd-Frank Act, the CFPB's Office of Fair Lending and Equal Opportunity provides "oversight and enforcement of federal laws intended to ensure the fair, equitable, and nondiscriminatory access to credit for both individuals and communities that are enforced by the bureau."
Given that enforcement of fair-lending laws is mandated by the 2010 financial reform law, it is unclear what happens now that Mulvaney has stripped enforcement from the division, lawyers said.
"In some ways, having separate supervision and enforcement staff in the Office of Fair Lending is duplicative, because there was already staff in the Offices of Supervision and Enforcement," said Richard Horn of Richard Horn Legal, a former CFPB senior counsel and special adviser. "But if the current staff handling supervision and enforcement in the Office of Fair Lending are moved with the office to handle only education, this could signal that there will be less of a focus on fair-lending examinations and enforcement under Mulvaney. Also, resources in SEFL will now be spread over a larger area, and this could signal a slowdown in enforcement activity generally."
Sen. Elizabeth Warren, D-Mass., saw it as one more sign that Mulvaney was attempting to gut the agency. She noted that the fair-lending office will now technically be under the "director's office," along with Office of Equal Opportunity and Fairness, giving Mulvaney greater control.
"Mulvaney is putting the Office of Fair Lending under his control so that he can weaken it — leaving neighborhoods and consumers across the country more vulnerable to bias,” Warren said in an emailed statement. “For years, Mick Mulvaney opposed CFPB’s efforts to fight discrimination in the consumer financial marketplace even as the agency returned $400 million from discriminatory financial institutions to American families who had been overcharged or denied credit."
The division came under criticism from House Republicans several years ago, who accused the CFPB of overreach in extracting settlements from indirect auto lenders for possible discrimination against minorities.
Moving fair lending to another division is also seen as a way to sideline Patrice Ficklin, the assistant director of fair lending, who has been instrumental in enforcing the Equal Credit Opportunity Act and other fair-lending laws.
The CFPB characterized the move as helping make the bureau more efficient and said it will continue to perform supervision and enforcement of fair-lending laws and regulations.
"The fact is, it never made sense to have two separate and duplicative supervision and enforcement functions within the same agency — one for all cases except fair lending, and the other only for fair-lending cases," said John Czwartacki, a senior adviser to Mulvaney. "By announcing our intent to combine these efforts under one roof, we gain efficiency and consistency without sacrificing effectiveness. And by elevating the Office of Fair Lending to the Director’s Office, we have enhanced its ability to focus on its other important responsibilities.”
But consumer advocates didn't see it that way.
"Gutting the office’s enforcement powers is the latest example of interim CFPB Director Mick Mulvaney unashamedly working on behalf of big banks and predatory lenders instead of consumers," said Lisa Gilbert, vice president of legislative affairs at Public Citizen. "The Office of Fair Lending and Equal Opportunity has been crucial in protecting consumers, especially people of color and low-income borrowers."
Advocates questioned why Mulvaney, who is also the head of the Office of Management and Budget, would reorganize the agency without waiting for a permanent director to make the changes.
They wondered if the moves might also have an impact on how the CFPB treats consumer complaints. The CFPB's consumer response unit takes complaints firsthand directly from individuals and identifies harmful patterns and practices that may be used in enforcement and supervisory actions against companies.
Three consumer groups — Americans for Financial Reform, Consumer Action and U.S. PIRG — raised questions about the CFPB's changes, arguing they will hurt the agency's effectiveness.
"Is this transfer designed to diminish the Consumer Response unit’s important role in helping all units of the agency collect and understand the ongoing complaints that consumers raise?" the consumer groups said in an emailed statement. U.S. PIRG. "Why make changes to some of the bureau's most consumer-oriented offices at all?"
But observers said Mulvaney is free to make these changes because the agency's director has broad latitude to restructure it.
"Obviously, fair lending is part of the bureau's mission, but where you put that office and how they carry out the mission is left to the discretion of whoever is in charge," said Lucy Morris, a partner at Hudson Cook and a former deputy enforcement director at the CFPB.