Consumer watchdog office loses power in discrimination cases

By Renae Merle / The Washington Post

The Trump administration has stripped enforcement powers away from Consumer Financial Protection Bureau office that specializes in pursuing cases against financial firms for breaking discrimination laws, according to two people familiar with the matter and emails reviewed by The Washington Post.

The move comes about two months after President Donald Trump installed his budget chief Mick Mulvaney at the head of an agency that has long been in the cross-hairs of Republicans. The Office of Fair Lending and Equal Opportunity had imposed penalties on lenders that it said had systematically imposed higher interest rates on minorities than whites.

Now that office, which had been part a powerful CFPB division, will move inside the office of director, where staffers will be focused on “advocacy, coordination and education,” according to an email Mulvaney sent them this week. They will no longer have responsibility for enforcement and day-to-day oversight of companies, he said.

Instead, those responsibilities will remain with the division of Supervision, Enforcement, and Fair Lending, which conducts oversight and enforcement actions in a wide range of cases of financial wrongdoing. The Office of Fair Lending had previously been part of this division.

In his email, which was reviewed by The Post, Mulvaney added that “I do not expect that staff changes in employment status but it is possible that some may experience changes in jobs and duties.” The two individuals describing the changes spoke on the condition of anonymity because they were not authorized to disclose internal discussions.

Civil rights and consumer groups said that separating the Office of Fair Lending from its enforcement power weakens its power to pursue cases.

“These changes … threaten effective enforcement of civil rights laws, and increase the likelihood that people will continue to face discriminatory access and pricing as they navigate their economic lives,” Lisa Donner, executive director of Americans for Financial Reform said in the statement.

Mulvaney’s spokesman dismissed the criticism.

The Office of Fair Lending will now be part of the director’s office as part of the Office of Equal Opportunity and Fairness. “By elevating the Office of Fair Lending to the Director’s Office, we have enhanced its ability to focus on its other important responsibilities,” John Czwartacki said in a statement. “By combining these efforts under one roof, we gain efficiency and consistency without sacrificing effectiveness. ”

The CFPB added that the agency will continue to pursue fair lending enforcement and supervision cases.

Beyond moving the Office of Fair Lending, Mulvaney has also dropped lawsuits against payday lenders and said the agency would reconsider aggressive rules the industry complained would cripple it. In a memo to staff last week, Mulvaney said the CFPB would no longer attempt to “push the envelope” in enforcement cases. “We are government employees. We don’t just work for the government, we work for the people: those who use credit cards and those who provide them,” he said.

Critics say these moves collectively could hobble an agency created after the global financial crisis to protect consumers against the financial industry.

“If you remove enforcement power from an office, you are essentially gutting its power,” said Vanita Gupta, the former head of the Civil Rights Division at the Department of Justice during the Obama administration. “What we’re seeing in this move is a push to erode the federal civil rights machinery.”

The Office of Fair Lending has pursued some of the CFPB’s most high-profile cases, including a 2015 settlement against Hudson City Savings Bank, a New Jersey-based bank accused of racially discriminating against minority mortgage borrowers. The bank was required to provide $25 million in loan subsidies in what the CFPB called the country’s largest redlining cases.

“The office has been really important in enforcing the country’s fair lending laws,” said Gupta, president of The Leadership Conference on Civil and Human Rights.

But the office’s work in the auto lending market has been among the agency’s most controversial.

In 2013, it led the CFPB case that resulted in Ally Financial, one of the nation’s largest automobile lenders, to pay $98 million to settle charges that it systematically allowed minorities to be charged more for car loans than whites. Ally was accused of discriminating by charging 235,000 minority borrowers higher rates than whites. On average, black, Hispanic and Asian American customers paid between $200 and just over $300 more for auto loans than whites who were equally creditworthy, federal officials charged.

Then-Attorney General Eric H. Holder Jr. called the decision the “largest-ever settlement in an auto-loan discrimination case.”

Critics accused CFPB of going after companies such Ally Financial because it was barred under the law from regulating auto dealers directly. Ally does not lend directly to consumers and doesn’t receive information about borrowers’ race or ethnicity, and, consequently, does not discriminate, Republicans and the auto financial industry said.

“The CFPB was squeezing the auto lending companies” because they could not pursue cases directly against car dealers, said Christopher J. Willis, an attorney with Ballard Spahr LLP, who has worked on fair lending cases against the CFPB. “They were trying to change an auto industry practice and it didn’t work.”

Willis said that he was hopeful that Mulvaney could usher in changes to the office. “The controversy around the office really surrounds its very aggressive pursuit of legal theories that were extremely unpopular in the industry and had weak factual bases,” said Willis. The auto lending cases highlighted those problems, he said. “They were really out on a limb in those cases.”