February 20, 2020

And the Rest(itution) Is History: Absence of Consumer Redress from Recent CFPB Settlements Criticized by Democrats

4 min

In a series of recent cases, the Consumer Financial Protection Bureau (CFPB) has entered into settlements that contained no requirement that the respondent provide restitution to consumers. Congressional Democrats have pressed for further investigations and reforms, claiming that these cases, and the overall sharp downturn in consumer restitution obtained by the CFPB during the Trump administration reflect the heightened influence of political appointees at the CFPB. At the same time, CFPB leadership has defended the recent settlements and pointed to other types of relief secured by the Bureau in recent cases.

On January 13, 2020, fifteen Senate Democrats led by senators Catherine Cortez Masto (D-Nev.) and Sherrod Brown (D-Ohio), sent a letter to Mark Bialek, the Inspector General (IG) for the Federal Reserve Board and the CFPB, requesting an investigation into several CFPB settlements that "provide limited or no restitution to harmed consumers." The letter highlighted a recent settlement involving a debt collector, in which the consent order required the collector to pay $36,800 in restitution, along with a $200,000 civil money penalty, but limited restitution to consumers who affirmatively "complained about a false threat or misrepresentation." As noted in a report prepared by the Majority Staff of the House Financial Services Committee, this limitation is a departure from prior consent orders issued by the CFPB against debt collectors, which "did not require consumers subject to illegal debt collection practices to have affirmatively complained in order to be eligible for redress." In addition, the letter cited three other settlements entered into by the CFPB in early 2019 in which consumers received no restitution.

The three settlements entered into in early 2019 had already drawn criticism from Democrats on the House Financial Services Committee, who questioned CFPB Director Kathleen Kraninger about them when she appeared before the committee for her semi-annual review in October 2019. Committee members pointed to the report prepared by the committee's Majority Staff, which found that, in the Enova and Sterling Jewelers cases, career CFPB enforcement attorneys had recommended that consumer refunds be part of the settlement but had been overruled by political appointees.

The CFPB has offered several explanations for declining to seek refunds in these cases. At the October hearing, Kraninger observed that disgorgement "also comes into play," adding that, in the case of Enova, "the funds that were taken in an unauthorized manner were actually funds that were owed by the consumers, and that's something the consumers did not dispute." As noted in the Senate Democrats' letter, the CFPB has also stated that it did not seek restitution in the early 2019 cases because it could not determine "with certainty" which consumers had been harmed or the amount of the harm.

However, the congressional letter rejects the CFPB's suggestion that its settlements without restitution were justified by any inability to establish "with certainty" the consumers who had been harmed or the amount of the harm. It observes that the CFPB's concern regarding its ability to identify the harmed consumers was contrary to the IG Office's January 2016 report on the CFPB's Civil Penalty Fund. The IG report had found that the Bureau "had the internal controls needed to find and locate victims in a manner that is 'generally effective and efficient.'" The letter's signatories further argued that in each of these cases, the CFPB had departed from the established standard for restitution. The letter quotes the Ninth Circuit's decision in CFPB v. Gordon, in which that court stated that restitution is "'a form of ancillary relief' that a court can order '[i]n the absence of a proof of actual damages,'" and that it is measured by "the full amount lost by consumers" or the amount that "reasonably approximates the defendants' unjust gains."

The signatories of the letter asked the IG to investigate several issues, including the legal standard applied by the CFPB in deciding restitution-related issues in the relevant cases, whether that standard differed from the standard applied by courts and in prior CFPB settlements, and the roles played by career enforcement staff, political appointees, and Kraninger herself in making decisions regarding restitution. In addition, the Financial Services Committee Majority Staff's report called upon Congress to pass the Consumers First Act (H.R. 1500), a bill introduced by committee chairwoman Maxine Waters (D-Calif.) that would limit the number of political appointees at the CFPB.

Despite the letter, a preference for CMPs and disgorgement remedies over restitution is likely to stay in Kraninger's CFPB, although the effect on consumers may not be immediately clear. Even in the absence of direct restitution, consumers can obtain monetary relief via the CFPB's Civil Penalty Fund. This fund, into which money collected by the CFPB through civil penalties is pooled, can be used to compensate consumers who have not received full compensation for their harm through redress paid by the defendant in their case. For industry participants, this may mean small dollar figures and more targeted monetary relief in CFPB enforcement actions. However, similar to the move away from "envelope pushing" through its UDAAP authority, this shift may be more akin to a balancing exercise than purely industry-friendly change.