For years, the financial services industry worried the federal government, especially the Consumer Financial Protection Bureau (CFPB), was pushing the envelope through its investigations and enforcement, leading to consent orders that were touted as guidance.
But now that the CFPB has reduced that type of activity under its new leadership, the states have started to assume the mantle of consumer watchdog, said Francis X. Riley III, partner at Saul Ewing Arnstein & Lehr and co-chair of the firm’s Consumer Financial Services Litigation Group.
Riley’s comments came while speaking in New Orleans at the Louisiana Land Title Agency (LLTA)’s “Regulatory Compliance and Government Enforcement” session.
Riley noted that New Jersey, Pennsylvania and New York have each started divisions within their attorney general’s office focused on consumer financial protection.
“In fact, in Pennsylvania, the director of that division came directly from the bureau,” he said. “In New Jersey, the lawyer who is heading the consumer financial services division came from (New York City) Mayor (Bill) de Blasio’s office, where he ran New York’s consumer financial services protection division. In New York, many, many actions and investigations are coming out of New York’s Department of Financial Services (NYDFS) – like the ones focused on Ocwen and many other servicers – and it is also directing its attention on the title industry. Specifically, how much of the premium, the premium splits, and what are the agencies doing with respect to marketing.”
For instance, the NYDFS recently asked some of the largest title agencies in the state to provide documents for the last 10 years regarding their marketing efforts.
“Really what it wanted to see was, whether they were paying for referrals? So consumer protection activity is very, very active at the state level,” Riley said. “The state actors know the CFPB isn’t pushing the envelope. The states are perfectly happy to do that. They have a lot of incentive to do so. Many of these attorney generals are looking to move up and run for governor, run for Congress, run for other positions or get appointed to other positions, and to do that they have to be responsive to those constituents who are consumers.”
In addition, every state attorney general has the authority to bring an unfair, deceptive or abusive acts or practices (UDAAP) action under the Dodd-Frank Act, and states without resources are hiring private law firms to conduct investigations.
“That’s the worst thing, because what the private law firms see is money at the end of the day or engagements by the state,” he said.
Lenders, title companies and other mortgage industry professionals also must watch out for consumer advocacy groups doing their own investigations, he said.
Riley recommended paying attention to media reports to learn of important enforcement trends and to be proactive by asking industry group leaders to introduce themselves to your state attorney general and talk to them about the complaints they’re seeing.
“Talk to them about how your company doesn’t want to be a target for their investigations. What should we be doing to protect consumers?” he said.
Other tips were to always investigate every complaint and make sure it has been resolved internally, make sure you have trained staff on updated policies, retain documents for at least seven years and make sure your vendors have the same consumer protection policies.
Charles Cain, executive vice president of agency at WFG National Title Insurance Co., also spoke at the session. Cain addressed the changes to the regulatory atmosphere since Rep. Maxine Waters (D-Calif.) was named the new chairwoman of the House Financial Services Committee and since Kathy Kraninger became the new CFPB director.
“Most lenders and entities that have been regulated by the bureau – while you are seeing a relaxation of the type of almost Draconian enforcement by the bureau – realize that pendulum could swing back,” Cain said. “And so we could once again have someone at the bureau who decides to be activist and by the way – through the lookback provisions of RESPA – could look back as much as five and six years in transactions.
“The transactions that happen today – even assuming Director Kraninger serves a five-year term and is booted out by a Democratic nominee – if Maxine Waters is still around, we would still have a very activist director. They could start looking back at things that happened this year, potentially under RESPA.”