In an effort to promote compliance and certainty, the Consumer Financial Protection Bureau (CFPB or Bureau) on January 24 issued an often promised and much anticipated policy statement regarding how it intends to apply the “abusiveness” standard in supervision and enforcement matters. The Dodd-Frank Act (Act) is the first federal law to broadly prohibit “abusive” acts or practices in connection with the provision of consumer financial products or services. The Act deems an act or practice to be abusive when it “(1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (2) takes unreasonable advantage of (A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.”
California Governor Gavin Newsom submitted his $222 billion budget proposal for the 2020-2021 fiscal year on January 10. Among other priorities identified, the budget earmarks tens of millions of dollars for the creation and administration of the California Consumer Protection Law (CCPL). The governor’s budget proposal specifically notes the need for this expanded consumer protection law as arising from “[t]he federal government’s rollback of the CFPB [which] leaves Californians vulnerable to predatory businesses and leaves companies without the clarity they need to innovate.” Under the proposal, California’s Department of Business Oversight (DBO) would dramatically expand its consumer protection role to define the contours of, and to administer, the CCPL. The stated aim of this move is to enhance consumer protection in California and “foster the responsible development of new financial products.”
Should California’s lawmakers adopt this proposal, the DBO would be renamed the Department of Financial Protection and Innovation (DFPI). In an expansion of the DBO’s current role, which includes consumer protection in financial transactions and oversight of state-licensed financial institutions, the renamed agency would gain greater authority to “pursue unlicensed financial service providers not currently subject to regulatory oversight such as debt collectors, credit reporting agencies, and financial technology (fintech) companies, among others.”
In a recent post, we discussed the increasing focus by state attorneys general on the use of their enforcement authority against payment processing applications platforms that were not licensed under state money transmitter laws. As we pointed out, one of the challenges raised by these state laws is the fact that they are not uniform in either their language or how they are interpreted or applied.
In the spirit of looking at the glass-half-full aspects of these developments, it is worth pointing out that the Conference of State Bank Supervisors (CSBS) is undertaking an initiative to develop model payments legislation with the goal of increasing uniformity of state legislation in this area. The multistate licensing initiative is part of Vision 2020, a set of initiatives that CSBS and state regulators are implementing to harmonize the multistate licensing and supervisory experience for nonbank financial services providers, including fintechs. One primary area of focus for the CSBS is state money transmitter legislation. To this end, a committee of state financial institution supervisors, under the auspices of the CSBS, has developed model language for money services businesses, and recently published this model language for public comment. The model language focuses on areas such as core definitions of money transmission–related activities, money transmitter exemptions, control and changes in control of money transmission businesses, financial condition issues, and interstate parity and coordination activities.
Payment apps and the legal and regulatory issues they present were front and center at a November 5 meeting of state attorneys general consumer protection leaders.
Attorneys general recognize the value of these apps and noted those available through traditional banking services. Moreover, there is a general recognition that the unbanked and underbanked require digital access in order to perform routine consumer functions and that payment apps can provide this service.
The Consumer Financial Protection Bureau (CFPB, the Bureau) today issued a Notice of Proposed Rulemaking (the Proposal) to establish implementing regulations for the Fair Debt Collection Practices Act (FDCPA). Although it has been more than 40 years since President Jimmy Carter signed the FDCPA into law, if implemented, these would be the first authoritative regulations to clarify key aspects of what is permissible under the federal debt collection laws.
The Consumer Financial Protection Bureau (CFPB) recently advised that it has significantly changed its Civil Investigative Demand (CID) process to increase transparency and to better permit targets and subjects to understand the nature of an investigation. The changes will bring the CFPB into compliance with opinions rendered by two Federal Circuit courts as well as policy changes implemented by the Federal Trade Commission (FTC). The change may well have some persuasive impact on other enforcement agencies, such as state attorneys general, who enforce many of the same laws as the CFPB and generally have CID authority as well.
Kathleen Kraninger, only the second Senate-confirmed director of the Consumer Financial Protection Bureau (CFPB) in its almost eight-year existence, recently gave her first public remarks. The priorities Director Kraninger laid out will materially impact the CFPB’s direction and mission until the end of her term in December 2023. Director Kraninger, appointed by President Donald Trump, succeeds the first CFPB director, Richard Cordray, who was appointed by President Barack Obama.
At a recent meeting of state attorneys general, Consumer Financial Protection Bureau (CFPB) Acting Director Mick Mulvaney reiterated his message, previously reported here that his bureau will no longer “push the envelope” on enforcement matters.
At the conclusion of his remarks, Pennsylvania Attorney General Josh Shapiro (D) asked Mulvaney whether this change in enforcement philosophy means that the CFPB will interfere in or otherwise impede the use of state attorney general authority to enforce certain Dodd-Frank provisions, specifically those penalizing conduct which is “unfair, deceptive, or abusive” (UDAAP) in federal court. Mulvaney responded unequivocally that it would not.
The Consumer Financial Protection Bureau (CFPB) has issued its first No-Action Letter under the final policy on No-Action Letters that it released in early 2016. The No-Action Letter was requested by and issued to Upstart Network, Inc., an online marketplace lending platform. Under the No-Action Letter, the CFPB states that it “has no present intention” to recommend an enforcement or supervisory action against Upstart with regard to its compliance with the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B. Like many marketplace and other new online lenders, Upstart uses alternative lending criteria in its underwriting process in order to expand access to credit for borrowers who might not otherwise qualify for loans or can only qualify for loans with higher interest rates.
On August 17, 2017, the Consumer Financial Protection Bureau (CFPB) and 12 state attorneys general (the Government) filed proposed settlements with Aequitas Capital Management, a now-defunct private equity firm, in connection with loans that Aequitas funded for students of another bankrupt entity, Corinthian Colleges, Inc. The settlements follow the Government’s allegations that Aequitas engaged in “unfair, deceptive, or abusive acts or practices” (UDAAP) under Dodd-Frank and under similar state statutes targeting “unfair and deceptive acts and practices” (UDAP). Corinthian, formerly one of the largest for-profit colleges in the country, suffered a total collapse in 2015 following enforcement actions by both the US Department of Education (ED), for alleged violations of its rules, and the US Securities and Exchange Commission (SEC), for alleged securities fraud. Aequitas itself is currently in receivership following SEC allegations of securities fraud and of Aequitas operating in a “Ponzi-like fashion.”