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The Supreme Court ruled yesterday that the president is free to fire the director of the Consumer Financial Protection Bureau without cause, the New York Times reported. The ruling puts to rest a decade of doubt over whether the bureau and its leadership structure, in which the director is appointed by the president to a five-year term and cannot be dismissed without a substantial reason, were constitutional. While the narrow decision validates the agency’s existence, it could also open it to greater politicization, effectively turning its director into something akin to a cabinet member who serves at the pleasure of a president. The vote was 5 to 4, with the court’s five more conservative justices in the majority. Chief Justice John G. Roberts Jr., writing for the majority, said that the Constitution did not allow powerful agency officials to be insulated from some kinds of executive oversight. “The C.F.P.B. director has no boss, peers or voters to report to,” the chief justice wrote. “Yet the director wields vast rule making, enforcement and adjudicatory authority over a significant portion of the U.S. economy. The question before us is whether this arrangement violates the Constitution’s separation of powers.” He said that it did, but he stopped short of stripping the agency of its other powers, which include setting rules, conducting investigations and bringing enforcement actions.

To help financial service providers assist struggling borrowers during the coronavirus pandemic, the Consumer Financial Protection Bureau on Friday issued two no-action letter (NAL) templates that are intended to help institutions make their own NAL applications for certain consumer financial products and services, as allowed under the CFPB’s innovation policy, the ABA Banking Journal reported. The first NAL template — which is intended for mortgage servicers seeking to offer foreclosure prevention and other loss mitigation efforts — was requested by Brace Software, Inc. It would enable servicers to use Brace’s online loss-mitigation platform, an online version of the Fannie Mae Form 710. The bureau noted that “digitizing the loss mitigation application process has the potential to improve a process that is experiencing an increase in loss mitigation requests from consumers due to the COVID-19 pandemic.” The CFPB issued a second NAL template on small-dollar lending — requested by the Bank Policy Institute — that insured depository institutions may use to apply for a NAL covering their small-dollar credit products. The NAL template comes as financial regulators, including the CFPB, have encouraged banks to offer responsible small-dollar lending products to help meet consumers’ financial needs during the pandemic.

Santander Consumer USA Inc. has reached a $550 million deal with nearly three dozen states to settle charges of predatory auto lending to low-income and subprime borrowers, the Wall Street Journal reported. The settlement, announced yesterday, resolves charges that one of the largest subprime auto lenders in the U.S. made loans borrowers couldn’t afford to repay. The states also claim that Santander failed to monitor dealers that falsified borrowers’ incomes and other information when submitting loan applications. “Over the last several years, we have strengthened our risk management across the board — improving our policies and procedures to identify and prevent dealer misconduct, and tightening standards to ensure affordability,” Santander said in a written statement. Thirty-three states and the District of Columbia accused Santander of extending loans that were too big relative to borrowers’ incomes, charging excessive fees and failing to monitor dealership loan-approval practices. The settlement includes $65 million of restitution for consumers. It also involves some $433 million in loan forgiveness, including for customers who have had cars repossessed but still owe money to Santander. The lender also agreed to waive balances for customers who have very low credit scores and who had stopped paying their loans as of the end of last year.

Consumer Financial Protection Bureau Director Kathy Kraninger said that she is pressing ahead with a revised payday lending rule despite criticism from Senate Democrats who accused the CFPB’s political appointees of interfering with the rule-making process, according to a letter obtained by Morning Consult from Sen. Sherrod Brown’s (D-Ohio) office. “Upon my determination, the Bureau will issue a final rule on the basis of the record before the agency,” Kraninger wrote in the letter, dated Monday. “And upon that basis, I will defend the agency’s action.” The letter answers one dated May 4 sent by Brown, the Senate Banking Committee’s ranking member, Sen. Elizabeth Warren (D-Mass.) and other Senate Democrats that asked the CFPB to stop work on revamping an Obama-era payday lending rule that would unwind a provision that requires lenders to determine if borrowers have the ability to repay a loan. The agency had expected to revise the rule by the end of April, but it hasn’t yet been issued. The rule-making process drew fresh scrutiny from the Democratic senators after The New York Times reported April 29 that a career economist at the agency had alleged in a memo that political appointees at the agency had manipulated the agency’s research to support the revamp of the 2017 payday lending rule. The memo also said Trump administration appointees had pressured staff economists to alter their findings to underplay harm to consumers if the payday rule was changed.

The Consumer Financial Protection Bureau has come to a settlement with Specialized Loan Servicing LLC (SLS), a mortgage-loan servicer based in Colorado, NationalMortgageProfessional.com reported. The consent order requires SLS to pay $1.275 million in monetary relief to consumers in the form of redress and waiver of borrower deficiencies, pay a $250,000 civil money penalty, which will be paid to the Bureau and deposited into the Bureau’s Civil Penalty Fund, and implement procedures to ensure compliance with the Real Estate Settlement Procedures Act (RESPA) and its implementing regulation, Regulation X. The CFPB’s found that since January 2014, SLS violated RESPA and Regulation X by taking prohibited foreclosure actions against mortgage borrowers who were entitled to protection from foreclosure, and by failing to send or to timely send evaluation notices to mortgage borrowers who were entitled to them. These violations also constitute violations of the Consumer Financial Protection Act of 2010. In some cases, SLS’s violations of Regulation X short-circuited the protections against foreclosure for consumers whose homes were ultimately foreclosed upon.

Last summer, on his final day of work at the nation’s consumer finance watchdog agency, a career economist sent colleagues a blunt memo. He claimed that President Trump’s appointees at the Consumer Financial Protection Bureau had manipulated the agency’s research process to justify altering a 2017 rule that would have sharply curtailed high-interest payday loans, the New York Times reported. The departing staff member, Jonathan Lanning, detailed several maneuvers by his agency’s political overseers that he considered legally risky and scientifically indefensible, including pressuring staff economists to water down their findings on payday loans and use statistical gimmicks to downplay the harm consumers would suffer if the payday restrictions were repealed. Political appointees at the bureau, led by its director, Kathleen Kraninger, have pressed forward with the Trump administration’s deregulatory drive despite the logistical hurdles posed by the coronavirus pandemic. This week, the agency is expected to release the revised payday rule, which will no longer require lenders to assess whether customers can afford their fees before offering a loan.

California this year sought to banish high-cost lenders. OppLoans was undeterred. A new state law this year capped interest rates — currently at about 37 percent a year — for some consumer loans, the Wall Street Journal reported. But OppLoans is charging 160 percent on a typical loan in California, according to its website, using a partnership with a Utah bank to continue selling in the state despite the new rules. OppLoans isn’t the only lender charging triple-digit rates in California. The Wall Street Journal ran 25 online searches in February within the state for loans for a financially stressed borrower. The top results included several companies pitching consumer loans with rates over 100 percent to borrowers browsing from California. OppLoans and its partner FinWise Bank are in what is called a rent-a-bank partnership, which allows high-cost lenders to skirt interest-rate caps in dozens of states. Rent-a-bank arrangements are the focus of a fierce battle pitting state regulators and consumer advocates against the credit industry.

The U.S. Consumer Financial Protection Bureau (CFPB) said on Monday it charged Fifth Third Bank, National Association, with creating fake client deposit and credit-card accounts and transferring clients’ funds to those accounts without consent, citing an abuse of fair lending and savings laws, Reuters reported. “Despite knowing since at least 2008 that employees were opening unauthorized consumer-financial accounts, Fifth Third took insufficient steps to detect and stop the conduct and to identify and remediate harmed consumers,” the CFPB said. It also alleged that the program “created incentives for employees to engage in misconduct in order to meet goals or earn additional compensation” at least until 2016. Calling the CFPB’s suit “unnecessary and unwarranted,” the Cincinnati-based lender acknowledged “a limited and historical event” but said it was addressed and involved a small number of accounts. The CFPB’s charges follow the pursuit of U.S. financial regulators to stamp out fair lending and savings abuses by another national lender, Wells Fargo & Co. Wells Fargo agreed last month to pay $3 billion to resolve criminal and civil probes of fraudulent sales practices and admitted to pressuring employees in a fake-accounts scandal.

Discover Financial Services is being investigated by a federal regulator over student loan-servicing practices and its compliance with a 2015 consent order involving the business, Bloomberg News reported. Discover is cooperating with the Consumer Financial Protection Bureau, according to its annual regulatory filing posted yesterday. The lender said that it is enhancing the compliance plan it submitted to the CFPB in response to the consent order. Discover in 2015 agreed to refund $16 million to consumers and pay a $2.5 million fine to resolve allegations of illegal loan-servicing practices. The CFPB said at the time that the bank overstated minimum amounts due on billing statements and denied consumers information needed to obtain income tax benefits. The latest investigation could lead to a supervisory action or fines and cause Discover to change business practices, the firm said.