The adjustments are part of an annual requirement and rulemaking process to review and update civil penalties related to enforcement actions by the bureau. Editor’s note: This article is available for members only.
2/8/2021 9:00
The Consumer Financial Protection Bureau recently issued its annual adjustments for inflation to the civil penalty amounts.
The changes are outlined in a final rule posted on the Federal Register and are based on a “cost-of-living-adjustment,” which is defined as the percentage increase (if any) in the Consumer Price Index (CPI) for the month of October preceding the date of the adjustment over October of the prior year.
The CPI “is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services,” according to the Department of Labor.
The director of the Office of Management and Budget is required to issue guidance to federal agencies on implementing the annual civil penalty inflation adjustments.
Civil penalties collected from the bureau’s regulated entities are deposited into its Civil Penalty Fund, which is used for consumer redress.
“In accordance with the Dodd-Frank Act and the bureau’s Civil Penalty Fund rule, the fund can only be used for two purposes: to compensate eligible harmed consumers and, to the extent that victim payments are not practicable, to provide funding for consumer education and financial literacy programs,” according to the CFPB. “If victims cannot be located or it is otherwise not practicable to pay victims, the bureau may keep the money in the fund for victims in future cases, or the bureau may use money in the fund for consumer education and financial literacy programs.”
According to a recent report from American Banker (a subscription may be required to view this article), industry observers are speculating how a new director of the CFPB will use the civil penalty fund for consumer relief.
Kathy Kraninger resigned as CFPB director in January, and President Joe Biden has named Rohit Chopra, a commissioner with the Federal Trade Commission and former bureau employee, as his unofficial pick to lead the bureau. Chopra’s nomination is awaiting a hearing before the Senate Committee on Banking Housing and Urban Affairs. David Uejio was appointed acting director by Biden.
As of the end of September 2020, according to American Banker, the bureau had $576 billion in the civil penalty fund.
“There is a lot of confusion about the penalty fund,” Lucy Morris, a partner at Hudson Cook and a former CFPB deputy enforcement director, told American Banker. “It is not a slush fund. It can only be used for two purposes and the bureau largely uses it to provide relief to consumers who otherwise wouldn’t get it.”
Morris’s interview is outlined in a blog post from Hudson Cook, a member of ACA International in Hanover, Maryland.
American Banker reports Chopra, if appointed permanent director of the bureau, could take a more robust approach to the use of the civil penalty fund.
“One of the things Kraninger pointed to in defending her record was that the CFPB was able to get relief to consumers through the use of the penalty fund even where companies were not able to pay,” Morris said in the blog post. “It’s not the bureau’s job to put companies out of business and they are supposed to consider a company’s financial resources and other factors in assessing penalties.”
Morris will be a featured speaker during the Feb. 24 ACA Huddle for ACA members, along with Vaishali Rao, a partner at Hinshaw & Culberston LLP. Morris and Rao will discuss how, if appointed, Chopra’s leadership will impact CFPB regulations and the accounts receivable management industry.
Members can click here to complete a one-time registration for the ACA Huddle and stay tuned for more speaker announcements.
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Remember, if you missed any of our webinars on the CFPB’s debt collection rule, the ACA Huddle CFPB Rule Series website has all the resources to help you understand both parts of the rule and start to build compliance plans before the Nov. 30, 2021, effective date.