Com­pli­ance & Reg­u­la­tion

The CFPB has filed 21 en­force­ment ac­tions through May — the most to date at this point in the year since it was cre­ated — and one-third are be­ing chal­lenged in fed­eral court.

National Mortgage News - - Contents - By kate berry

Is CFPB be­ing stretched thin by lit­i­ga­tion?

lit­i­ga­tion is soak­ing up a sig­nif­i­cant share of re­sources at the Con­sumer Fi­nan­cial Pro­tec­tion Bu­reau, which faces at least a dozen cases chal­leng­ing its con­sti­tu­tion­al­ity and a surg­ing num­ber of le­gal dis­putes to its en­force­ment ac­tions.

Many smaller com­pa­nies that tra­di­tion­ally would have rolled over and set­tled with the agency ap­pear em­bold­ened to fight given the po­lit­i­cal and le­gal un­cer­tainty hang­ing over the CFPB. Firms are hop­ing to get en­force­ment ac­tions dis­missed or, pos­si­bly, re­lief from the Trump ad­min­is­tra­tion.

The CFPB has filed 21 en­force­ment ac­tions through May — the most to date at this point in the year since it was cre­ated — and one- third are be­ing chal­lenged in fed­eral court.

“Lit­i­ga­tion takes a toll, it’s a strain on re­sources,” said Lucy Mor­ris, a part­ner at Hud­son Cook and a former deputy en­force­ment direc­tor at the CFPB.

The CFPB does not pro­vide a break­down of how it spends the $565 mil­lion it re­quested in funds for fis­cal year 2016, but the agency main­tains it has enough re­sources to tackle the roughly three dozen sig­nif­i­cant cases it has in the works.

But out­siders and former agency em­ploy­ees ar­gue that the agency is be­ing taxed.

“We’re reach­ing a water­shed mo­ment for the CFPB,” said Amy L. Hanna, a cred­i­tors’-rights at­tor­ney in At­lanta at Baker, Donel­son, Bear­man, Cald­well & Berkowitz. Even small com­pa­nies are chal­leng­ing the agency’s con­sti­tu­tion­al­ity, she said. “I have to think they are stretched thin and will be stretched thin­ner if their bud­get is im­pacted.”

While all agen­cies face some le­gal chal­lenges, the CFPB has at­tracted a sig­nif­i­cant num­ber since its cre­ation in 2011. Iron­i­cally, part of its predica­ment now may be a re­sult of its early suc­cesses when it was first cre­ated and big banks quickly agreed to mil­lion-dol­lar set­tle­ments. Those wins fos­tered a cul­ture that en­cour­aged big set­tle­ments and a re­fusal to ne­go­ti­ate that now is back­fir­ing in this changed po­lit­i­cal cli­mate, ac­cord­ing to ob­servers.

“As a new agency, the CFPB may not have fig­ured out how to change their ap­proach and set­tle more cases,” Mor­ris said. “The more strict their po­si­tion, the less likely [they are] to set­tle, and the more cases they have to lit­i­gate.”

Its big­gest case so far, PHH Corp. v. CFPB, also paved the way for other com­pa­nies to chal­lenge the agency’s sin­gle-direc­tor struc­ture as un­con­sti­tu­tional. More big com­pa­nies are push­ing back, in­clud­ing Navient, the largest stu­dent loan ser­vicer; Ocwen Fi­nan­cial, the largest subprime mort­gage ser­vicer; and TCF Na­tional Bank, a $21 bil­lion-as­set bank in Wayzata, Minn.

In the past month or so, the CFPB has also been forced to go to trial on sev­eral cases.

“Ob­vi­ously, lit­i­ga­tion soaks up re­sources that could be used to be­gin and pro­ceed with in­ves­ti­ga­tions,” said Eric Mogilnicki, a part­ner at Cov­ing­ton & Burl­ing LLP.

Some lawyers said the CFPB was not re­ally built for lit­i­gat­ing.

Though the CFPB earned its rep­u­ta­tion as a tough en­force­ment agency, the bu­reau has fewer at­tor­neys with lit­i­ga­tion or trial ex­pe­ri­ence than other agen­cies. Each trial that ne­ces­si­tates sig­nif­i­cant dis­cov­ery typ­i­cally re­quires three or more at­tor­neys, a para­le­gal and tech­nol­ogy, ac­count­ing or other sup­port staff.

Still, at­tor­neys who have fought the bu­reau still ex­pressed cau­tion about do­ing so.

Randy Miller, a part­ner at Ven­able, spent four years lit­i­gat­ing against the CFPB on be­half of the debt re­lief com­pany Mor­gan Drexen, which was sued in 2013 for charg­ing con­sumers il­le­gal fees. The com­pany chal­lenged the CFPB’s con­sti­tu­tion­al­ity but ended up fight­ing two law­suits in sep­a­rate ju­ris­dic­tions.

“They pur­sued a two- front strat­egy to mus­cle us to the ground,” Miller said. “With other fed­eral agen­cies there is usu­ally a lit­i­ga­tor you can talk to and they’re not com­ing at you with tanks and nu­clear weapons.” The CFPB “brings over­whelm­ing force, so the tar­get can­not rea­son­ably de­fend them­selves.”

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