Editor’s note: This article is the first in a two-part series.
In May, the Consumer Financial Protection Bureau made its first criminal referral to the Department of Justice — a headline that should have sparked concern in the legal departments of financial institutions, but instead went largely unnoticed. The criminal referral and other recent activity signal that it is time for businesses to pay attention to the CFPB. In effect, the bureau is redefining and expanding consumer finance law with increasing breadth and scope and ultimately reshaping the landscape of the consumer financial services industry.
In the aftermath of the financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010. Under Title X of the Dodd-Frank Act, the CFPB was established as an independent agency under the Federal Reserve System to protect consumers and increase transparency with respect to financial transactions. The CFPB was effectively designed to codify and consolidate consumer financial protection into one agency and to bring federal oversight to previously unregulated (or “under-regulated”) providers of consumer financial products and services. The bureau’s responsibilities include enforcing federal consumer financial protection laws; restricting unfair, deceptive or abusive acts and practices; receiving consumer complaints; promoting financial education; and researching consumer behavior. In addition, the CFPB is vested with the power to enact new regulations, as well as the authority to pursue investigations and take enforcement and supervisory action regarding consumer financial products and service providers.
Significantly, the CFPB has the authority not only to oversee banks, thrifts, credit unions and other financial institutions, but also entities that had previously been subject to little or no regulation before, including loan modification and foreclosure relief service providers, mortgage servicing providers, private student loan lenders, and nondepository finance companies. Additionally, the CFPB may regulate certain activities of professionals such as accountants, real estate agents and brokers, as well as retailers of nonfinancial goods, to the extent that they engage in any of the activities subject to the 14 consumer laws now within the CFPB’s domain. As of October 1, 2012, the CFPB began exercising supervisory authority over certain consumer reporting agencies. As such, supervisory responsibility for the three major credit-reporting companies is now in the hands of a single governmental agency for the first time. Further extensions of the CFPB’s regulatory supervisory oversight over nonbank entities and service providers are expected to come.
The breadth of the CFPB’s authority does have limitations, of course. For example, the CFPB must consult with appropriate financial regulators before proposing a rule. Further, under Dodd-Frank §1023(a), the Financial Stability Oversight Council can set aside CFPB regulations, if they would “put the safety and soundness of the U.S. banking system or the stability of the financial system of the U.S. at risk.”
While the bureau lacks criminal enforcement power, it can pursue investigations and bring administrative enforcement proceedings or civil actions in federal or state court and it can refer potential criminal matters to the DOJ. Significantly, the bureau has also shown an ability and willingness to effectively work with other departments. Last month, the bureau engaged in a novel collaboration with the DOJ, coordinating efforts that resulted in separate, concurrent filings of a civil complaint and criminal indictment against a debt settlement company. In effect, that coordinated action enabled the government to concurrently pursue criminal sanctions and civil remedies in another. In its own right, the CFPB can obtain “any appropriate legal or equitable relief with respect to a violation of federal consumer financial law.” Unlike other regulators, the CFPB has the power to seek damages, restitution and other remedies that could lead to significant monetary payments — including civil penalties of upward of $1 million per day, depending on the federal consumer finance law violation involved.
Despite its youth, the CFPB has already (a) proven adept at coordinating its efforts with other state and federal agencies and departments; (b) aggressively pursued litigation when its investigation produces evidence of wrongdoing; and (c) undertaken significant efforts to bring increased transparency to financial products and services, with input from enterprises within the industry itself. On the whole, the CFPB’s first two years show a focus on moving quickly to meet its mandate under Dodd-Frank.
The CFPB’s first enforcement action came in the summer of 2012, in an action focused on what the bureau regarded as deceptive tactics by a large bank in the marketing and sale of certain credit-card-related products, including payment protection and credit monitoring services. That action resulted in an order from the bureau imposing substantial fines, the payment of restitution and equitable relief, including the retention of an independent auditor by the company to verify compliance with the CFPB’s directive. Since then, the bureau has been increasingly active, evidencing significant energy directed to its rulemaking efforts, but also in assuming an aggressive posture in pursuing litigation under its enforcement powers, amongst other things.
Steadily, the CFPB is directing its focus on a broadening scope of consumer financial products and service providers. As it expeditiously gains a foothold on the consumer protection landscape, more firmly establishing additional procedures, increasing its guidance and the number of opinions issued, and broadening its focus beyond those industries to which it had directed investigation and enforcement efforts in its infancy, it becomes increasingly important to actively monitor the bureau’s activities and for entities subject to the CFPB’s jurisdiction to conform their own policies, practices and procedures to maintain compliance with that changing landscape.
Next month, in part two of this series, we will take a hard look at the work done by the bureau to date, as we approach the end of its second full year of operation, and identify those areas into which the bureau is expected to direct its attention in the near and longer terms. •
Lesli C. Esposito is a partner with DLA Piper in Philadelphia, where she focuses her litigation practice on antitrust and consumer protection matters. She was formerly a senior attorney with the Federal Trade Commission’s Bureau of Competition.
Kevin W. Rethore is a partner with the firm in Philadelphia, where he focuses his practice on complex commercial, business and civil litigation matters.