WASHINGTON — Richard Cordray, the director of the Consumer Financial Protection Bureau, defended the agency on Thursday from industry allegations that the CFPB engages in "regulation by enforcement."
In a half-hour speech to the U.S. Chamber of Commerce, Cordray said that when a company is hit with an enforcement action, other companies in similar situations are put on notice that they could be violating the law if they are acting in the same way.
"People say that's regulation by enforcement but if you don’t enforce with the principle of equal justice in mind then you're taking random enforcement actions here and there and it’s quite unfair and won't have any generalizable impact," Cordray said. "The principle of equal justice for similarly situated parties should mean that anybody else with the same facts and circumstances should also recognize that they are at significant risk for violation of the law and ought to be conforming their conduct accordingly."
The CFPB publishes detailed enforcement orders specifically to "give guidance to the rest of the market."
Cordray also gave notice to fintech companies, saying they also need to be aware that the CFPB expects them to abide by consumer financial protection laws.
"One message we are sending to the industry is, you are not going to be able to take advantage through arbitrage of our regulatory system," he said. "It's not fair for you to not have to meet the same expectations that banks have to meet. If you're trying to get an advantage by not meeting the same standards, that is not acceptable and we're trying to send that message loud and clear."
The CFPB also is trying to strike a balance in regulating fintech companies.
"We're trying to allow some leeway and not stifle innovation," Cordray said.
Fintech firms need to "understand we are looking over their shoulder and expecting them to be consumer friendly," he added.
Cordray, whose term ends in July 2018, may be limited in what he can accomplish going forward. Republicans have urged President Trump to oust Cordray but the administration has not shown any signs of an attempt to remove the director. (Cordray did not mention the Trump administration during his speech.)
In his remarks, Cordray sought common ground with the industry by saying the CFPB is looking to streamline and modernize regulations. Toward that end, the agency currently is conducting a review of its first rule, on remittances, and will eventually move on to reviewing mortgage rules that went into effect in 2014.
Cordray said the CFPB has shown a willingness to change some rules. The bureau also has tried to help industry avoid the unnecessary burdens of regulation while also being compliant, he said. The agency is required by Congress to conduct retrospective reviews to gauge the effectiveness of significant rules five years after they have been enacted.
However, Cordray said the CFPB is moving forward with rulemaking on issues that involve "substantial market failures," including payday lending and debt collection.
"The bureau is looking at products like payday loans because it believes that product structure and certain lender practices are interfering with consumer decision-making and trapping consumers in extended cycles of debt," he said. "And we are looking at markets like debt collection where the market structure makes it difficult for consumers to protect themselves from harmful practices."
