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Such efforts illustrate the continuing necessity of CFPB reform — to bring essential sunlight, objectivity and a core focus on consumers' financial needs and protections through a fairly regulated financial services marketplace.
As a stark example of indirect regulation by investigation, over the last year and a half, multiple companies in our industry — including members of INFiN, the national association for state-licensed operators — have been unexplained targets of the CFPB's investigations, receiving extensive and aggressive civil investigative demands, or CIDs, that threaten the future of their business and the vitality of our industry.
CIDs — effectively, subpoenas for information as part of a CFPB investigation into potential violations of consumer financial law — are a valid investigatory tool in the bureau's toolbox. As such, they require a clear statement of purpose outlining the nature of the alleged violation under investigation, including the related legal provision. In the case of our industry, the CIDs served on multiple companies feature an identical, vague statement of purpose, along with far-reaching, burdensome information requests. The CIDs require companies to turn over virtually every document and communication around their consumer lending business, comprehensive data about every loan made, email records, organizational charts, audited financial statements, personnel files for many current and former employees and other sensitive business information, sometimes reaching back as far as ten years.
Further, multiple companies in our industry have been targeted with back-to-back CIDs, fully complying with one CID without any indication of specific legal issues or violations, only to receive a second, even more sweeping demand. In the case of one member company — a small, woman-owned regional operator — the CFPB had declared the company did not need to perform ongoing reporting following an exam. Yet, they were subsequently served a second CID with no explanation, less than three months after meeting with the CFPB about the first CID. When the company petitioned the CFPB to amend or set aside the second CID, they outlined not only their positive exam history but the financial toll the CIDs are taking on their business. Complying with the second CID as written is not merely "disrupt[ing] or seriously hinder[ing] normal operations of a business" — the stated legal standard for modifying a CID — but likely could put the company out of business altogether.
Judge Mark T. Pittman sided with the Consumer Financial Protection Bureau in ordering the case be moved from Texas to the District of Columbia due to "forum shopping."
The only avenue for challenging CIDs — in whole or in part — is by appealing to the CFPB through the director's office. The bureau denied this small operator's petition, continuing a shocking pattern of outright rejecting such appeals.
From its founding, the CFPB has been positioned as the cop on the beat, meant to follow the evidence — and data — to address the issues most impacting consumers. To that end, Director Chopra has regularly said the bureau's focus is on large market participants and "repeat offenders." Our members, including those that have received these CIDs, are neither. Further, the director has claimed to members of Congress that the CFPB seeks to "tailor" CIDs to the investigation, recognizing that "responding to a CID can impose burdens on the recipients, especially small businesses." For our industry, these claims fall flat amid identical statements of purpose, expansive requests and overall inflexibility.
Our industry is committed to serving and protecting our customers, and ensuring they have access to regulated, dependable, equitably regulated credit solutions from licensed providers. That's why we have consistently sought to be responsive to the bureau. The current unfounded, unaccountable approach to CIDs demonstrates a complete lack of consideration for the business implications and downstream consequences for consumers, and suggests a regulatory process not rooted in evidence or good faith.
We are particularly concerned that the CFPB may be using CIDs to fish for information to invent new violations while also attempting to bleed reputable companies dry with "death by a thousand cuts" requests.
Members of Congress have raised important questions about the accountability and practices of the CFPB, resulting in a range of reform proposals. If the bureau is to live up to its mission as an independent financial regulator dedicated to protecting consumers, at the very least its expansive investigatory and enforcement powers, including CIDs, should be appealable not to the director's office — a position inherently political — but to a neutral arbiter, whether within the bureau or reasonably independent. The CFPB can revise this process on its own — it recently updated its supervisory appeals process.
Maintaining the status quo only adds to the CFPB's reputation — and the reputation of its director, regardless of who it is — as an unaccountable, rogue agency that bends the rules to advance a partisan agenda. We urge the CFPB to revisit its approach to CIDs and the appeals process and implement a regulatory agenda oriented toward transparency and collaborative — not combative — stakeholder engagement, including with the industries it regulates. And if the CFPB will not act to bring itself in compliance with the spirit and intent of the law that created it, Congress must act to do so, to bring real protection to consumers and the financial providers that serve them.
