Even if they are able to avoid monetary penalties doled out by the Consumer Financial Protection Bureau (CFPB), all companies subject to its oversight will likely face higher costs, worldwide ratings agency Fitch Ratings said this week.
Recently carrying out its first enforcement action, the CFPB took action against Capital One Bank for deceptive marketing practices costing the company upwards of $200 million in customer refunds and penalties.
“A year after its creation, the CFPB now appears willing and able to levy penalties against firms that the agency believes are not operating in accordance with consumer protection laws and regulations,” Fitch writes. “We expect this to push compliance and marketing costs higher for all companies subject to CFPB oversight, even if they are able to avoid penalties.”
The Capital One enforcement action may signal what is to come from the CFPB, Fitch says, with other companies in the credit card arena increasing their expense allocations in preparation.
“American Express and Discover Financial Services have increased litigation reserves in recent quarters in response to notifications about joint enforcement actions from regulators, including the CFPB, related to the assessment of late fees and/or marketing practices of fee-based products,” Fitch writes.
While the agency has yet to take any enforcement actions in the mortgage sector, the agency recently conducted a thorough study of the reverse mortgage industry and has submitted its findings to Congress. Some lenders are preparing for increased costs as a result.
“While we already spend an exorbitant amount on the cost of compliance, I do expect that cost to increase to ensure that we remain fully compliant and able to satisfy the aggressive demands of the CFPB,” says Ken Klawans, president of iReverse Home Loans. “While I can’t quantify these additional future expenditures, I believe the biggest cost will be the time we spend reading, understanding and implementing measures to comply with the 2,300 page Dodd-Frank Wall Street Reform and Consumer Protection Act…This is time that is being taken away from growing and/or managing our business.”
All companies should prepare to face higher costs overall, Fitch says.
“The newly created CFPB is taking a more active role in carrying out its regulatory mandate under Dodd-Frank, leading Fitch Ratings to conclude that financial firms will likely face higher costs as a result of CFPB enforcement actions.”
Written by Elizabeth Ecker