The “Mulvaney Discount”: Trump’s Consumer Protection Czar Is Shrinking Fines for Law-Breaking Companies

There’s a hot new trend in Donald Trump’s Washington: the “Mulvaney discount.”

After pausing enforcement work when Acting Director Mick Mulvaney took over, the Consumer Financial Protection Bureau has been on a relative tear, announcing five civil settlements of cases begun under Mulvaney’s predecessor, Richard Cordray. But in at least three of them, CFPB has explicitly reduced the fine handed down against corporate offenders to a fraction of the initial amount. The smaller fines mean softer punishment for violations of law and, in some cases, less restitution to victims of the misconduct.

In two of the cases, CFPB claimed that the companies and individuals in question didn’t have the financial means to pay the fine. That’s an excuse more commonly reserved for the types of indigent populations the CFPB is supposed to protect from financial predators, though the American justice system rarely treats impoverished defendants with such mercy.

“A pattern is emerging of greater willingness [to discount fines] than we saw in bureau cases in the past,” said Christopher Peterson, former enforcement counsel of the CFPB during the Obama administration, who now teaches law at the University of Utah.

“The bureau doesn’t seem to have an articulable justification for why it is that fines are being suspended.”

Peterson could only remember a couple of cases during the previous five years of the bureau’s existence when fines were reduced. And in those rare cases, CFPB did so to maximize restitution to victims of fraud and abuse — the smaller fine left more money for victims. Here, those victims are often being shortchanged. Transparency as to why has been lacking. “The thing for me that’s most puzzling is the bureau doesn’t seem to have an articulable justification for why it is that fines are being suspended,” Peterson said.

CFPB declined to articulate any justification in response to questions from The Intercept. Mulvaney, in an interview with the Wall Street Journal, did confirm that the bureau was using a “more collaborative approach” with financial institutions than in the past and that he would “reward” companies for self-reporting violations. Of course, all of the settled cases here came from before Mulvaney took the reins at the bureau; in these cases, he’s giving the discounts for more charitable reasons.

A look at publicly available settlements reveals the Mulvaney discount. For example, on July 13, CFPB settled with debt collector National Credit Adjusters and its CEO Bradley Hochstein in a case involving “unlawful debt collection acts and practices that harmed consumers.” This included overstating the amounts owed by borrowers; threatening them with legal action without the authority to do so; and assisting other companies that engaged in similar illegal conduct.

The enforcement order kicked Hochstein out of the debt collection business and assessed two civil money penalties: $3 million to National Credit Adjusters and $3 million to Hochstein. However, those penalties were suspended, with National Credit Adjusters ordered to pay $500,000 and Hochstein $300,000.

The discount was made after a review of National Credit Adjusters’s and Hochstein’s financial statements, and presumably a determination that they couldn’t afford the full fine. CFPB added an addendum stating that if they later found the financial information to be false, they could go to court for the full amount. The civil money penalty did not stipulate any restitution for victims of the misconduct, meaning those victims will receive nothing.

The Mulvaney discount was back in action on July 19, in a case against Triton Management Group, a payday and auto title lender based in the South. According to the order, Triton offered Mississippi customers auto title loans — where an individual gives up the right to repossess their car as collateral if they don’t pay — while advertising finance charges that ended up being thousands of dollars less than what the company actually charged. CFPB argued that this violated the Truth in Lending Act.

CFPB calculated that borrowers paid $1,522,298 more than they expected to based on Triton’s erroneous disclosures. However, the bureau again suspended the fine. “Based on financial statements and supporting documentation … and [Triton’s] demonstrated inability to pay the Total Excess Finance Charge Amount,” the order reads, Triton was “ordered to pay $500,000.”

In other words, for the crime of overcharging auto title loan borrowers in Mississippi, Triton was sentenced to making only $1 million in excess profits, instead of $1.5 million. All because Triton pleaded poverty and got put on a “pay-what-you-can” plan for corporate crime.

“My response to that is, many of the victims are also poor,” said Peterson.

The friendly accommodation of corporate criminals reflects a pervasive tendency across the Trump administration.

In the past, CFPB handled cases with insolvent defendants quite differently. The bureau completed a successful $162 million lawsuit against debt relief company Morgan Drexen and its CEO Walter Ledda for charging illegal upfront fees to customers and falsifying evidence. This drove Morgan Drexen into bankruptcy, yet CFPB continued to chase the liquidated assets of the company as a creditor, and went after Morgan Drexen’s executives and attorneys to return money to customers.

On July 20, CFPB inked another settlement, this time with TCF National Bank, a regional financial institution based in Wayzata, Minnesota. CFPB sued the bank in 2017, charging it with deceitfully forcing customers to opt into its overdraft services for debit and ATM card transactions, subjecting them to costly fees when they went below their balance. This policy was so tied to the bank’s fortunes that the former CEO named his yacht Overdraft.

The settlement, in which TCF neither admitted nor denied wrongdoing, did force the bank to set aside $25 million for restitution to those affected by overdraft fees. But the civil money penalty of $5 million was cut significantly. CFPB agreed to remit $3 million of that amount to its federal partner on the case, the Office of the Comptroller of the Currency, to satisfy their separate enforcement order against TCF. The bureau ended up with only $2 million.

TCF carries $23.4 billion in total assets and earned $73 million in the first quarter of the year, so being able to afford a $5 million fine wasn’t an issue. CFPB’s press release calls it a $5 million fine, but that’s only true if you put the settlement together with the OCC’s action. “The rationale seems to be wanting to make it look like a bigger number,” said Peterson.

The Mulvaney discount goes back to before the July orders. In June, Reuters reported that the bureau fined South Carolina payday lender Security Finance $5 million, when former director Cordray wanted to impose $11 million in penalties. Wronged customers again received no restitution in the case.

Mulvaney and CFPB can point to the $1 billion fine against Wells Fargo as a testament to their willingness to get tough on bad corporate actors. Even in that case, however, customers must traverse what critics describe as unnecessary hurdles to get their money back. Wells Fargo, not CFPB, got to design the terms for customer restitution.

The friendly accommodation of corporate criminals reflects a pervasive tendency across the Trump administration. At 12 different federal agencies, enforcement actions and fines fell sharply in 2017 relative to the final year of the Obama administration, according to a Public Citizen report released last week.

“Public Citizen’s new report marshals prodigious evidence demonstrating that Trump’s enforcers accord corporations impunity for misconduct,” said Bartlett Naylor, financial policy advocate at Public Citizen. “At the CFPB, if Mulvaney can’t conjure an excuse for reducing penalties, he reduces them anyway.”

Kathy Kraninger, a midlevel official at the Office of Management and Budget with no background in consumer protection or financial regulation, has been nominated to replace Mulvaney at the CFPB, and she could get a vote in the Senate Banking Committee as early as next week.

Mulvaney, currently also running the Office of Management and Budget, could be tapped to replace John Kelly as White House chief of staff. A White House adviser perhaps gave away the game as to Mulvaney’s true intent at the CFPB, telling Politico, “His mission was to blow that up, which he has.”

Top photo: Mick Mulvaney attends a lunch meeting for Republican lawmakers at the White House on June 26, 2018.