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Jonathan McKernan, nominee to be director of the Consumer Financial Protection Bureau, listens to the opening statement of ranking member Sen. Elizabeth Warren (D-MA) during his Senate Banking Committee confirmation hearing earlier today.
The Consumer Financial Protection Bureau spent much of Thursday moving to dismiss cases against companies accusing of illegally steering mortgage borrowers, issuing improper loans, and cheating depositors out of billions of dollars.
The blitz of dropped cases happened while Jonathan McKernan, the nominee to run the agency, faced senators in his confirmation hearing. Sen. Elizabeth Warren (D-MA), the ranking Democrat on the Senate Banking Committee, interjected during the hearing to give McKernan the news.
“Literally while you’ve been sitting here and you’ve been talking about the importance of following the law, we get the news that the CFPB is dropping lawsuits against companies that are cheating American families, or alleged to be cheating American families,” Warren said. “It seems to me the timing of that announcement is designed to embarrass you and to show exactly who is in charge of this agency right now: Elon Musk and his little band of hackers.”
Here are the details on the five cases the CFPB dropped this morning:
• Rocket Mortgage: This case involved an alleged kickback scheme whereby Rocket Homes, the biggest mortgage lender in America, gave incentives like referrals to real estate brokers in exchange for steering customers to its mortgage lending products, eliminating the kind of comparison shopping that could get borrowers a better deal. Jason Mitchell and his real estate brokerage firm, JMG Holding Partners LLC, was also sued in the case, for accepting the kickbacks and steering borrowers. Mitchell gave out $250 gift cards to its brokers for pushing customers to Rocket Mortgage. This was alleged to have violated the Real Estate Settlement Procedures Act.
“At a time when homeownership feels out of reach for so many, companies should not illegally block competition in ways that drive up the cost of housing,” former CFPB director Rohit Chopra said when the suit was filed in December.
• PHEAA: The Pennsylvania Higher Education Assistance Agency (PHEAA) was sued in May over pressuring student loan borrowers to pay debts that were already discharged in bankruptcy, and reporting incorrect information to credit reporting bureaus. The CFPB had warned PHEAA and other student loan servicers two years ago that they were returning loans to collections that had been discharged and that borrowers no longer owe.
It is quite difficult for a student debtor to discharge a loan in bankruptcy; they must claim financial hardship and go through a number of steps. Certain “non-qualified” loans are discharged more routinely, but PHEAA was marking all loans as not discharged unless it received a court order, forcing borrowers to pay thousands of dollars on these loans that were no longer active.
“Russ Vought and Donald Trump sided with a lawless and corrupt student loan company at the expense of borrowers across the country—another sign that powerful financial interests are driving the capture and demolition of the federal consumer watchdog,” said Mike Pierce, a former CFPB official and executive director of the Student Borrower Protection Center.
• Capital One: In January, the CFPB sued the financial institution over deceiving depositors out of $2 billion in interest payments. Capital One changed its primary interest-bearing account from 360 Savings to 360 Performance Savings, without informing depositors that they needed to shift their money into the new account to get interest. Capital One previously called its 360 Savings product its “highest interest” account. But 360 Performance Savings was yielding as much as 4.35 percent interest, while 360 Savings fell to 0.30 percent.
• Vanderbilt Mortgage: This is Warren Buffett’s manufactured-home company. In January, the CFPB sued Vanderbilt for issuing mortgages without determining a borrower’s ability to pay, ignoring signals that borrowers could not afford the loans. In one instance, Vanderbilt approved a mortgage for a family with 33 different debts in collection.
The loans were given based on Vanderbilt’s estimate of living expenses that were about half as much as those of similarly situated families in the same area. Even with these improper calculations, the estimates would project that families would be drained of nearly all of their income, and in some cases would not have enough money to cover expenses. Yet Vanderbilt still approved the loans. Many families went into default within months of signing the papers.
• Heights Finance: This case, filed back in August 2023, involves a short-term installment loan conglomerate that does business under several names, which would entice borrowers with small loan offers and then encourage them to refinance, earning fees on each refi. This churning of loans made up the bulk of the revenue of the company, and the CFPB alleged that it violated unfair and deceptive practices statutes.
IN ALL OF THE CASES, the CFPB dismissed the lawsuits with prejudice, meaning that they would not be able to bring up the case again.
The agency had already paused all litigation in active cases and asked for a continuance. Last week, it dropped a case against SoLo Funds where it accused the small-dollar lender of deceiving borrowers into thinking they were getting interest-free loans while forcing them to provide “tips” that raised the effective interest rate on the loans to over 1,000 percent in some cases.
The CFPB had also closed out contracts with expert witnesses who would have testified in these cases, a sign that they were not interested in moving forward on them.
McKernan said in his confirmation hearing that “I’m fully committed to following the law fully and faithfully.” The developments happening while he uttered those words made a mockery of this promise.
Julie Morgan, a former top official at the CFPB, told the Prospect that investors in financial firms will take clear lessons from the clearing of enforcement at the agency. “One thing that was obvious to us, it wasn’t always about the company that offers the scammy loan, it was the private equity firms and the investors keeping an eye on the regulatory regime, looking for regulatory arbitrage,” Morgan said. “To me, the Trump administration has given a complete green light to these companies and their investors.”
