Financial Companies Push CFPB To Undo More Settlements

The Consumer Financial Protection Bureau’s unprecedented attempt to rescind a settlement with a Chicago mortgage lender is spurring more companies to push the regulator to undo their own accords.

After moving to roll back that agreement and at least four others in recent months, the CFPB is fielding requests from additional companies that settled cases during the Biden administration and are now seeking to reverse or weaken their own deals, according to multiple people inside and outside the agency who are familiar with the situation and requested anonymity to avoid retaliation.

Marx Sterbcow, one of the attorneys representing the Chicago lender, Townstone Financial Inc., said multiple companies approached him looking for help to unwind their settlements. Sterbcow, the managing attorney at Sterbcow Law Group LLC in New Orleans, said he asked the companies to identify “the most outrageous things that took place in your case.”

Federal regulators typically review pending enforcement actions, investigations, and rulemaking priorities when the White House changes hands. But previously finalized settlements usually go untouched.

“It’s extraordinary,” said Joann Needleman, the leader of Clark Hill PLC’s financial services regulatory and compliance practice. “I’ve never seen a situation where an incoming agency head cancels consent orders of its predecessors.”

Cara Petersen, the CFPB’s acting enforcement chief who was with the agency for nearly 15 years, stepped down June 10, citing among other reasons the “terminations of negotiated settlements that let wrongdoers off the hook,” according to an email obtained by Bloomberg Law.

The CFPB didn’t respond to a request for comment.

‘Very Disturbing Message’

The CFPB and Townstone jointly moved in March to vacate the $105,000 settlement they reached just months earlier.

In that case—the only fair lending action the CFPB initiated during President Donald Trump’s first term—the agency alleged the mortgage lender engaged in redlining partly by using racist language in advertising and podcasts designed to discourage Black borrowers from applying. The US Court of Appeals for the Seventh Circuit upheld the CFPB’s approach last July, finding that statements discouraging borrowers from applying for loans violated the Equal Credit Opportunity Act.

But the CFPB under acting Director Russell Vought conducted its own probe into the Townstone investigation and determined the agency improperly targeted the lender and its president, Barry Sturner, for political speech, among other irregularities, according to the joint filing seeking to undo the settlement.

Since attempting to unwind the Townstone deal, the CFPB has moved to vacate a $2.25 million settlement with the National Collegiate Master Student Loan Trust for violating debt collection laws. It also terminated a consent order with Toyota Motor Credit Corp., allowing the auto lender to escape repaying $40 million to customers, and slashed a $2 million civil penalty for remittance company Wise Plc down to around $45,000.

It also moved, alongside the Justice Department, to vacate a redlining settlement with Trustmark National Bank. A federal judge granted the agencies’ request in May.

The CFPB didn’t provide explanations for reopening those additional settlements. But the rollbacks and the requests for more reversals give the air of potential corruption, CFPB veterans agreed.

“It’s extraordinarily irregular and sends a very disturbing message about the ability of connected defendants to undo their negotiated agreements,” said Chris Peterson, a professor at the University of Utah’s S.J. Quinney College of Law and a former CFPB enforcement attorney.

“Companies lining up to get backroom deals from the CFPB should be embarrassed,” former Enforcement Director Eric Halperin said.

Toyota declined to comment. Wise and counsel for the National Collegiate Master Student Loan Trust didn’t respond to requests for comment.

‘Legitimate Fear’

By reopening the Biden-era orders, Vought and his team may be giving a competitive advantage to companies looking to skirt the law over those that want to comply, said Craig Cowie, a professor at the University of Montana’s Alexander Blewett III School of Law and a former CFPB enforcement attorney.

“There’s a legitimate fear that the people who are getting relief are people who have something to trade or have someone they know,” Cowie said.

Companies now are watching and wondering how they can operate in the new environment, Needleman said.

“My clients and I are trying to read the tea leaves to try and anticipate what comes next,” she said. “They want consistency.”

None of Needleman’s clients have asked her to approach the CFPB to reopen an existing consent order, she said.

Sterbcow didn’t say which companies approached him about getting out of an existing settlement. “There was nothing that I heard from those companies” that rose to the level of pushing for a settlement to be undone, he said.

Reopening settlements will have a long-term impact on the CFPB’s reputation, particularly after Vought’s claims related to the Townstone matter, said Diane Thompson, the deputy director and chief advocacy officer at the National Consumer Law Center and a former top CFPB official.

“It becomes very hard to ever rebuild the public’s confidence in that agency,” Thompson said.

The NCLC is a co-plaintiff in the National Treasury Employees Union’s lawsuit challenging the Trump administration’s efforts to dismantle the CFPB.

New Headaches

Escaping a settlement with the CFPB may in some cases wave a red flag for other parties looking to sue over consumer finance violations, Sterbcow said.

“The second you do that, unless it’s an extreme case, you’re going to attract scrutiny of the state attorneys general,” he said. “And they are going to be sending you subpoenas.”

Private litigants can also bring similar cases, depending on whether a mandatory arbitration clause is in place on the contract consumers signed.

But companies looking to get out from under a consent order may take that risk, Peterson from the University of Utah said.

“The largest and most important enforcer of consumer finance law is now being sidelined and is acting in an idiosyncratic and perhaps even corrupt way,” he said.