Backlog Forces CFPB to Slow Down New Investigations

Mortgage & Real Estate









WASHINGTON — The Consumer Financial Protection Bureau’s enforcement attorneys have pulled back on new investigations in order to clear out a slew of pending cases, according to multiple current and former officials at the agency.

The officials say the agency essentially bit off more than it could chew when it began ramping up investigatory efforts three years ago, and has struggled to clear through the backlog of investigations as hundreds of referrals are also coming in. As a result, the agency is slowing the opening of new cases within enforcement while it works through its existing caseload.

In 2014, “they started slowing down in a sense that they’re trying to bring down the cases to a more manageable level,” said one former CFPB employee who, like others for this story, declined to speak on the record for fear of alienating the agency. “And it’s good that they’re trying to recalibrate that. They took on too much in the beginning and it became difficult to get through those investigations in a reasonable amount of time. They overestimated what the staff was capable of handling.”

Sam Gilford, a spokesman for the agency, acknowledged that new investigations are slowing down, but attributed that to a natural shift because the agency inherited “a number of investigations” when it opened its doors in 2011.

“Because we have transitioned out of that initial start-up phase, we are necessarily opening new investigations at a slower pace than we did during our first couple of years,” he said in response to questions from American Banker. “We are also resolving more matters — completing the early, inherited work allows for more strategic and impactful decisions about what cases to pursue.”

Some cases are now more than two years old, which can be problematic both for the agency and the financial institutions involved.

For companies, an open investigation into a public firm can bring added scrutiny from shareholders and potentially interfere with possible mergers and acquisitions.

For the agency, there is a political dimension to prolonged delays. Unresolved cases that go past two years must be reported to Congress under the Government Performance and Results Act. Some lawmakers are more likely to criticize the agency if it appears it cannot handle the cases it opens.

As a result, current and former employees said there has been added pressure for enforcement attorneys to quickly resolve outstanding investigations, effectively clearing the decks.

“There’s definitely pressure from the top to move these cases along and resolve them faster,” said one source familiar with the matter.

The push to resolve cases also puts the industry on high-alert because financial institutions scrutinize enforcement actions to ensure they aren’t engaging in activities that the CFPB may target.

“For the industry, it means that there will be more consent orders and sources of guidance for them to follow,” said Chris Willis, a partner at the Ballard Spahr office in Atlanta. “It seems like the CFPB is putting a high priority on bringing existing investigations to a close and pushing enforcement cases to a resolution. The pace of new investigations seems to have slowed.”

The CFPB’s Gilford said that in the agency’s early days, the focus was “almost exclusively on opening new matters.”

“That focus has now expanded and shifted to developing and resolving those matters already ongoing,” he said. “That said, we are still regularly opening new investigations where we believe we can have the greatest impact in protecting consumers.”

The slowdown of new cases is already evident in the CFPB’s most recent strategic report, which was released in February. The number of new supervision activities that were opened in fiscal year 2013 jumped 7% to 160, but fell 21% in fiscal year 2014 to 127.

Sources said the CFPB had more than 100 investigations still open, a figure that the CFPB’s Gilford confirmed.

“Each enforcement investigation is different and merely counting the number of open investigations may not be an appropriate measure of the CFPB’s ongoing enforcement work,” Gilford said. “Matters can vary in size, scope and level of consumer harm.”

The CFPB has made public more than 80 enforcement actions in the past three years, an aggressive pace for most financial regulators. In its latest strategic report, the CFPB said it had either settled or filed a case on 75% of the investigations it opened in the last two years. It expects to settle or file a case on 65% of its investigations within two years for the 2015 and 2016 fiscal years.

Sources gave several reasons why the agency is facing a backlog. For starters, the enforcement division immediately began launching investigative inquiries at a rapid pace when the agency first got itself up and running in 2011 and before it had fully established systems, according to multiple sources.

“The CFPB started out with guns blazing and they didn’t wait around to create a lot of architecture before they began the functions of rulemaking, supervision and enforcement,” said an outside source familiar with the matter. “They were aggressive from the start in sending out hundreds of CIDs [Civil Investigative Demand] that sometimes targeted whole industries.”

It was also easier for enforcement attorneys to launch new investigations at the very beginning since they were not yet getting referrals from CFPB examiners. But it gradually became more difficult to close those cases — which were sometimes complex and new terrain for the CFPB — as more referrals started coming in the last two years.

“The cases that are referred from supervision are also farther developed and closer to settlement or suit so it’s more efficient for the enforcement attorneys to take on those matters,” said a second former employee.

Staffing has also contributed to the problem as the agency is still building out its supervision, enforcement and fair lending groups while simultaneously facing turnover. The CFPB added more than 100 people in fiscal year 2014 within those three groups, reaching 633 full-time employees. But that’s down from the agency’s original 742 target figure for that time period. The agency is now hoping to reach 691 employees within those groups by the end of fiscal year 2015, according to its strategic review.

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