Kate (Larson) Prochaska
Former Vice President Regulatory Counsel, Center for Capital Market Competitiveness, U.S. Chamber of Commerce


May 08, 2018


The great movie – Twelve Angry Men, depicts the titanic struggle between Henry Fonda and Lee J. Cobb as two members of a jury set to the task of determining the guilt or innocence of a defendant. The movie jury’s debate of the evidence, contains many twists and turns, upending the conventional wisdom and swaying the jury to reverse its initial view and ultimately find the defendant innocent.

This example proves why the presumption “innocent until proven guilty” is a cornerstone of our legal system. Whether a defendant is a person or a company, it must be proven to have violated the law before it can be found guilty. The past leadership at the Bureau of Consumer Financial Protection did not seem to always abide by this critical tenant. Under former leadership, the bureau seemed to take an “ends justify the means” approach to enforcement matters. Two notable examples are the bureau’s indirect auto cases and the ongoing lawsuit against Navient, a student-loan servicer.

A recent editorial in the Wall Street Journal details how, after four years of investigating Navient, then-Director Richard Cordray sued for claims that the company was “systematically and illegally failing borrowers” two days before President Trump took office. During this period of time, the company produced 450,000 pages of documents, hundreds of hours of phone recordings, and more than 30 written reports, but the bureau has yet to prove that Navient engaged in fraudulent conduct. When the company requested a list of those making a claim against them, the bureau, without vetting, pulled from its complaint database. And when Navient began to depose these supposed accusers, the complaint began to fall apart.

The bureau is supposed to protect consumers, but in the past, their actions have not only hurt companies, but consumers. Navient services 12 million student loan customers across the country, with over 6,000 employees. Instead of focusing on their core business of providing students with access to the resources they need, they spent company resources defending themselves against unfounded allegations by the bureau.

This particular case of overreach by the bureau also caused regulatory duplication, as regulating student lending also falls within the purview of the Department of Education. Navient faced a no-win situation as they had two regulators, with divergent views, to answer to. Such a situation ultimately limits a company’s ability to provide the services and products to consumers which it otherwise would be able to do.

This is just one illustration of why the Center for Capital Markets Competitiveness (CCMC) has long advocated to reform the bureau, recently detailing 23 recommendations that, if enacted, will help establish a long-lasting bureau that actually works for consumers. One recommendation of paramount importance, is to stop the practice of regulation by enforcement. At issue in Navient’s case is whether student borrowers should be put in forbearance or income driven repayment (IDR). The bureau preferred IDR to forbearance, and is using a lawsuit to regulate by enforcement to seek to force servicers to put students in IDR. Simply put, eschewing the preference of a regulator does not constitute a legal violation.

As U.S. Chamber President and CEO Tom Donohue said late last year, “For the past six years, the financial marketplace has been starved for clear rules of the road. Instead of delineating clear standards, the bureau has played in the gray area of regulating through enforcement.”

As part of Acting Director Mulvaney’s effort to reform the bureau, he established a “Call to Evidence” with a series of Requests for Information (RFI), seeking public comments about bureau practices in 12 areas such as adjudication proceedings and enforcement. We look forward to commenting on each RFI, and to observing the improvements to come. We commend Acting Director Mulvaney for already indicating the bureau has “pushed its last envelope” – and the vast majority of Americans also agree with this approach. Polling of American consumers earlier this year, conducted by CCMC and Morning Consult, showed an overwhelming majority of respondents (66%) indicated they prefer the bureau’s current approach to regulation as opposed to previous leadership’s “regulation by enforcement.”

We believe that the bureau’s new leadership can make meaningful changes that will create a more mature, data-driven agency. We also hope the bureau will have a robust assessment of ongoing enforcement actions and dismiss those that “pushed the envelope.” And is there a better place to start than with the Navient case?

About the authors

Kate (Larson) Prochaska

Kate (Larson) Prochaska is former vice president and regulatory counsel at the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness.