CFPB Reduces Fines in Cases of Corporate Crime

Inside Subprime: Aug 2, 2018

By Ben Moore

Since taking over as acting director of the Consumer Financial Protection Bureau, Mick Mulvaney has acted towards deregulating the lending industry, siding with lenders and halting consumer protections. The CFPB has announced five civil settlements in cases introduced by Mulvaney’s predecessor. In some cases, Mulvaney reduced fines to the result of shrinking restitution to borrowers harmed by the violations, a process dubbed the “Mulvaney discount.”

Christopher Peterson, former enforcement counsel of the CFPB, noted that reduced fines were uncommon during previous years, when Richard Cordray served as director. In the rare cases that fine reductions did occur, the intent was to provide more money for those harmed by the misconduct. Under Mulvaney, the CFPB has not made clear the reasons for the softer punishments. “The thing for me that’s most puzzling is the bureau doesn’t seem to have an articulable justification for why it is that fines are being suspended,” Peterson said.

The “Mulvaney Discount” leaves little for victims

In a case against a debt collector, the enforcement order removed the CEO from the business and determined a $3 million civil penalty for the firm in addition to a $3 million penalty for the CEO. Yet these fines were reduced to $500,000 and $300,000 respectively. National Credit Adjustors had been involved in unlawful collection practices such as requesting more from borrowers than they were legally required to pay, threatening to take legal action against consumers without the authority to do so, and helping other companies achieve similar practices. The discounted penalty left no restitution for the victims of the firm’s crimes.

The CFPB also settled a case against a lender that issued payday and auto title loans. Triton charged borrowers thousands of dollars more than the lender had initially advertised, resulting in more than $1.5 million of excess profits for Triton that borrowers never expected to pay. Yet Triton was only required to pay $500,000, which the order said was based on Triton’s inability to repay the total amount. Essentially, Triton’s punishment was to earn only $1 million in additional income rather than $1.5 million, based on his financial circumstances at the time of the settlement. “My response to that is, many of the victims are also poor,” said Peterson.

The changing political environment

The Obama-era CFPB was tougher on corporate crime, even in cases where the defendant was unable to afford the fine. The bureau collected $162 million from Morgan Drexen and its CEO in a lawsuit against the debt relief company for imposing illegal fees and deceiving consumers. Even after Morgan Drexen went bankrupt, the CFPB pursued the company’s attorneys and executives to provide restitution for its customers.

According to a Public Citizen report, the soft punishment of corporate criminals is not uncommon across federal agencies under the Trump administration. Enforcement fines dropped at 12 separate agencies in 2017.

“Public Citizen’s new report marshals prodigious evidence demonstrating that Trump’s enforcers accord corporations impunity for misconduct,” said Bartlett Naylor, financial policy advocate at Public Citizen. “At the CFPB, if Mulvaney can’t conjure an excuse for reducing penalties, he reduces them anyway.”

Learn more about the dangers of payday loans in the United States in all of our Subprime Reports.