Column: With CFPB sidelined, can other consumer lawsuits fill the watchdog void?

By Jenna Greene

March 13 (Reuters) - As the U.S. Consumer Financial Protection Bureau in recent days has moved to dismiss at least 10 cases accusing companies of cheating consumers and paused about two dozen others pending internal review, it doesn’t mean defendants are off the hook — at least not entirely.

Plaintiffs' lawyers and state attorneys general are also going after some of the same alleged misconduct as the CFPB, I found in reviewing the agency’s docket.

This includes multidistrict litigation predating the CFPB’s now-scuttled suit accusing Capital One of bilking customers out of more than $2 billion in interest payments and a proposed class action against lender SoLo Funds for allegedly imposing deceptive fees on borrowers.

In other cases, states that had teamed up with the CFPB are now left carrying the load, for example in ongoing litigation targeting debt-relief services by StratFS. State AGs are also pursuing their own cases against CFPB targets, such as a suit by the New York State Attorney General’s Office against rent-to-own company Acima.

Still, consumer advocates tell me the CFPB leaves an enforcement void that will be hard to fill.

Bartlett Naylor, a financial policy advocate at Public Citizen, which is co-counsel in a case against CFPB acting director Russell Vought and the CFPB challenging the dismantling of the agency, likened it to “taking the major league team out of play and relying on the minor league." Plaintiffs' lawyers and state AGs may be skillful and dedicated, but they’re just “not as well-funded and muscular,” he said.

A CFPB spokesperson did not respond to requests for comment on behalf of the agency or from Vought specifically.

The watchdog agency, which was created by Congress in the wake of the 2008 financial crisis, is tasked with protecting consumers from unfair, deceptive or abusive practices. Since the CFPB opened its doors in 2011, its enforcement and supervisory work has returned more than $21 billion directly to consumers, according to Democratic members of the U.S. Senate Banking, Housing and Urban Affairs Committee, including billions from big banks for mismanagement of auto loans, mortgages and checking accounts.

But as my Reuters colleagues have reported, the Trump administration and Republican critics of the agency argue it has overstepped its authority in the past and should be drastically curtailed.

In dropping the pending cases, CFPB lawyers in court filings offered no explanation, instead submitting one-sentence motions.

For example, when the agency on Feb. 27 quit its case against Capital One in U.S. District Court for the Eastern District of Virginia, CFPB lawyers merely invoked Federal Rule of Civil Procedure 41(a)(1)(A)(i) and statedthat “the Plaintiff, Consumer Financial Protection Bureau, dismisses with prejudice this action against all Defendants.”

A Capital One spokesperson in an email said the company welcomed the decision and “strongly disputed” the underlying case.

That the CFPB is withdrawing its cases with prejudice alarms Erin Witte, director of consumer protection at the Consumer Federation of America, which is not involved in any of the cases.

“That means that the CFPB can never pursue them again, which is an absolutely unprecedented move,” Witte said via email. “The Bureau has never permanently dismissed an enforcement action without providing relief to the harmed consumers.”

Witte also noted that private plaintiffs, unlike the CFPB, cannot typically impose civil penalties intended to deter future violations, nor do they have the authority to enforce all of the same laws.

Still, Capital One customers aren’t entirely without recourse. A year and a half before the CFPB filed its lawsuit in January, plaintiffs' lawyers sued the financial services company, alleging that it “surreptitiously created” an alternate savings account with a similar name to an existing option “in the hopes that customers would not realize that they were not being paid the high interest rates previously promised to them.”

The factual basis for the CFPB’s case was “nearly identical” to the class action complaint, lead plaintiffs' counsel Wolf Popper said in court papers. However, the causes of action varied and would have required different elements of proof.

In November, U.S. District Judge David Novak in Richmond, Virginia, refused to dismiss Wolf Popper’s case. Trial is set for July.

Like the Capital One case, a proposed class action in Los Angeles federal court against lending platform SoLo mirrors allegations in a now-dismissed CFPB suit – but it may still hit a major roadblock.

Plaintiffs say California-based SoLo misleads borrowers by falsely claiming its loans have zero interest and no surprise fees “when, in fact, it charges consumers interest and fees deceptively labeled as ‘tips’ and ‘donations’ that result in an exorbitant and unlawful total cost of credit.”

SoLo did not respond to a request for comment but denies wrongdoing in court papers.

In defending the class action, SoLo also says the plaintiffs are bound by an agreement to arbitrate any disputes – an argument that it could not have been made against the CFPB, which had standing as a law enforcer, not a customer.

Plaintiffs' lawyers from Siri & Glimstad did not respond to a request for comment.

The motion to arbitrate is pending. If granted, individual consumers might still get redress, but more sweeping relief would likely be precluded.