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The Consumer Financial Protection Bureau (CFPB) may have yet another new director in Jonathan McKernan, but the bureau is still effectively shut down thanks to actions taken by McKernan’s two most recent predecessors, Scott Bessent and Russell Vought, who both served as acting director.
While enforcement experts believe the current CFPB freeze is not a license for real estate, lending and settlement service providers to ignore federal regulations enforced by the bureau, such as the Real Estate Settlement Procedures Act (RESPA), they do feel that a prolonged freeze would compel state regulators such as attorneys general or departments of real estate to step up their own enforcement of these statutes.
“Given that the AGs know the CFPB, at least for a while, will not be looking at potential violators in their state, they will ramp up oversight, investigations and enforcement actions,” Francis Riley, a partner at Saul Ewing LLP, wrote in an email.
Prior to the creation of the CFPB via the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act in 2011, RESPA, which was promulgated in 1974, was enforced by the Department of Housing and Urban Development (HUD).
“One of the major complaints about HUD was that they didn’t seem to do very much in regard to RESPA enforcement and when they did, it was fairly toothless,” said Chuck Cain, a title industry attorney and the president of Alliance Solutions. “There would be fines of $15,000 to $20,000 for someone who had been doing something illegal that they were making hundreds of thousands of dollars off of. They basically just wrote HUD a check and would more forward.”
It is unclear who would enforce RESPA if the Trump administration succeeds in getting rid of the CFPB, which would require an act of Congress, but Cain believes that task may again fall back on HUD.
“If the Bureau isn’t there to administer this stuff, someone has to and it might move back to HUD, but this job was taken away from HUD for a reason,” Cain said.
It is due to this uncertainty that enforcement experts believe state regulators will step up their efforts to enforce both the federal RESPA statute and any state-level RESPA rules that are in place.
“I think we are going to see some of the state attorneys general get involved to try to circumvent the loss of power that the bureau has,” Marx Sterbcow, a RESPA attorney and the managing partner of Sterbcow Law Group, said.
Holly Spencer Bunting, an attorney at Mayer Brown who also specializes in RESPA, believes we’ll see attorneys general in democratic states be especially active in enforcing RESPA if the CFPB is not.
“I definitely think that the regulators in those states are the ones that are more likely to try to fill the gap,” Bunting said.
But leaving it up to states to enforce RESPA does have the potential to make things a bit messy.
“The problem is, is that you don’t get uniformity,” Cain said. “What the New York attorney general thinks, the Pennsylvania attorney general, Colorado and California think may all be different things, and so it becomes very difficult to operate a business across multiple states. You’ll cross a state line and it could be a whole new set of rules.”
RESPA attorney Rich Andreano of Ballard Sphar says a situation like this would be incredibly troubling.
“You may see more of that where state regulators have their own views of what they think is permissible or not permissible under RESPA and then we end up with 30 different views on the statute and that would not be a good thing,” Andreano said. “There are already differences in state laws and we acknowledge that, but there is one RESPA, but to then have so many different interpretations of the same statute, I think the industry would be pleading with the federal government to step forward and regulate things.”
While leaving RESPA enforcement up to state regulators certainly has its drawbacks, enforcement experts also see some positives.
“A positive for industry participants who are doing their very best to comply and are growing concerned that with less federal enforcement the bad actors will increase and further disadvantage them in the marketplace, is that there is still someone enforcing these statutes,” Bunting said. “I think that will provide some comfort to those folks.”
Bunting also noted that something the industry may view as a positive that consumer groups may view as a negative is that state regulators may not have the same expansive enforcement penalty authority as the CFPB.
“So state enforcement might result in fewer civil money penalties or less extensive penalties than if the CFPB were bringing those actions,” she said.
While state regulators may lack the same penalty authority as the CFPB, Andreano believes they are better equipped to find the small bad actors.
“Sometimes the small players think they can get away with violations because they are so small they don’t think they’ll be found, but the states are the ones who can find the small guys,” Andreano said. “So, with state involvement, we may see a more level playing field within certain states.”
With the CFPB now coming under the direction of McKernan, pending his confirmation hearing, it remains to be seen if the CFPB will resume its oversight and rule-making activities. His record shows that when McKernan served as a board member of the FDIC, he pushed for stronger oversight of large asset managers, suggesting that the CFPB may again become an active regulator.
According to Sterbcow, the CFPB’s top individuals in the enforcement and regulation divisions were pleased with the news of McKernan’s nomination.
But regardless of who is in charge, Bunting is expecting the CFPB to eventually become unfrozen and for enforcement to resume.
“I think we are going to see enforcement that is similar to under the first Trump administration, where it focuses on very clear-cut violations of law, as well as issues that have direct consumer harm and where restitution can be provided,” she said. “I feel like that is where we will be headed regardless of who leads the CFPB.”
English (US) ·