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By Failing to Prepare, You are Preparing to Fail

January 2, 2019

One of my all-time favorite quotes is attributed to Benjamin Franklin: “By Failing to Prepare, You are Preparing to Fail.” I’ll leave it to the historians to decide if he actually said those words and stick with the message it conveys. To me, the message is clear – if you don’t prepare for something, then you’re setting yourself up for failure. And, none of us like to fail, right?

In the compliance world there’s simply not enough bandwidth to prepare for every possibility; there are just too many moving parts and issues to nail down. But, you can hedge your bets a bit and look for trends and leanings. In preparing for 2019, here are some things you may want to be thinking about and plan for in the new year.

Federal activity
Let’s get the elephant out of the room for the dreamers – the BCFP/CFPB isn’t going anywhere. Notwithstanding the change at leadership late last year, the federal agency isn’t dead, it won’t be killed by newly sworn-in Director Kraninger or Congress and it’s here to stay. Sure, Director Kraninger may put her own stamp on the bureau but she’s a Mulvaney disciple and I think we can probably expect a similar approach under her leadership.

What does the bureau look like under a Kraninger tenure? Possibly fewer new rules being written, the same efforts on supervision (where issues are handled in the supervision process and not in enforcement) and a toss-up on whether we’ll see a temporary or permanent hold placed on enforcement actions or, possibly increased enforcement activity.

You can betcha’ we’ll see continued emphasis from the bureau being placed on add-on products, “wrongful” repossessions, protection of servicemembers and on practices they find deceptive. Take a look at the bureau’s latest supervisory highlights and you can see where they are placing their emphasis in examinations. And, don’t forget about Acting Director Mulvaney’s comments about the bureau wanting to give disparate impact another look.

However, unlike when Mulvaney took over the bureau, a Kraninger-led bureau will be faced with a Democrat-controlled House and a fired-up Rep. Maxine Waters – D-Calif., the presumed new chair of the House Financial Services Committee. She’s already promised to make things more interesting next year and signaled she plans to pursue aggressive oversight of Trump appointed regulators like Kraninger. While the House won’t be able to pass any rules, she can sure make waves if she decides to subpoena companies for information about their practices and hold Kraninger and the bureau to task for not doing their job in protecting consumers. She also introduced legislation in the House that would restore the bureau to pre-Mulvaney days, but that same bill is very unlikely to be passed in the Senate. Still, she could make a lot of stink in the news and potentially cause reputational damage to companies by holding public hearings.

That’s just the House, don’t forget about her colleagues in the Senate who are sure to make waves with Kraninger. Senator Warren considers the bureau her “baby” and she isn’t about to let Kraninger further de-fang the bureau like Acting Mulvaney did.

Finally, don’t forget about our friends at the Federal Trade Commission. In 2018 they conducted a compliance sweep of used car dealers in 20 cities for their Used Car Rule and sued four affiliated dealerships, their owners, president and a manager for allegedly falsifying consumers’ income and down payment amounts. I expect we’ll see continued compliance sweeps (they’ll be back!) and enforcement activity from the FTC on dealer print, TV, radio ads and YouTube ads that use “mouse type” or birdseed type disclosures.

State activity
As I’ve been telling our clients, state attorneys general across the country have been getting more aggressive about prosecuting cases in which financial fraud or discrimination are suspected and where consumers have been harmed. We’re handled AG investigations in at least 12 states, with some state AGs having multiple investigations open against the same parties. You see, the state AGs talk, and they like to share ideas and theories about their cases with their esteemed colleagues across state lines. Post-elections, we’ll have at least four more state Democratic AGs in the country, which could lead to increased state AG activity in those states.

What are they focused on? Much like their colleagues at the bureau, they’re focused on protections of military consumers and their dependents. While we may see a decrease in enforcement activity at the federal level, I don’t believe we can say the same about state AG enforcement activity in the coming year.

State regulators also have been more active of late and I think that trend will carry over into 2019. Some have been focused on collection calls and ancillary product refund issues. Others are passing more privacy protections for their consumers – the California Consumer Privacy Act is one such example. Finally, some states have added a security breach notice law. State regulators have ramped up their efforts to protect their citizens and consumers and this trend will likely continue in 2019.

These are just a few of the issues you may want to be thinking about and plan for in the coming new year. If you simply stick your head in the sand and not prepare for some or all of them, you’re just setting yourself up for failure.