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United States | Publication | December 2022
As we soon close out 2022 and begin 2023, it is a good time to consider and take stock of the current regulatory priorities and trends in the consumer financial services sector. We offer below some thoughts and perspective as to what to expect going into the new year.
The US Senate confirmed Rohit Chopra as the Director of the Consumer Financial Protection Bureau (CFPB) over 14 months ago. Having previously served as a member of the Federal Trade Commission (FTC), Chopra has a proven track record of being an aggressive enforcer of consumer protection. Since April 1, 2022, the CFPB has announced 16 public enforcement actions including complaints filed, consent orders and settlements. During fiscal year 2022, the CFPB estimates that enforcement actions resulted or will result in financial institutions, businesses and individuals providing approximately US$300m in monetary relief to harmed consumers. The CFPB also has taken several steps to expand its enforcement authority. The agency revised its UDAAP examination procedures to further protect consumers from illegal discrimination in instances where existing fair lending laws may not apply, and invoked a dormant authority to expand the agency's supervision to nonbank companies (such as fintechs) that pose risks to consumers.
The increased enforcement trends also highlight the CFPB's focus on large corporate repeat offenders. Director Chopra has spoken on a number of occasions about his intent to crack down on repeat offenders, particularly those that violate agency or federal court orders, by pivoting to remedies that are more "structural" in nature instead of relying on monetary penalties. The CFPB also recently proposed requiring certain nonbank financial firms to register with the CFPB when they become subject to certain local, state or federal consumer financial protection agency or court orders. The CFPB has further proposed to publish the orders and company information via an online registry. Larger companies subject to the CFPB's supervisory authority would be required to designate an individual to attest whether the firm is adhering to registered law enforcement orders.
States have been empowered with expanded consumer protection authority, and increased coordination and collaboration between federal and state regulators is expected. In May 2022, the CFPB issued an interpretive rule that describes states' authorities to pursue lawbreaking companies and individuals that violate the provisions of federal consumer financial protection law. Through the Dodd-Frank Act, Congress significantly restricted the ability of federal banking regulators to broadly preempt state consumer financial protections. In addition, Congress sought to enhance states' enforcement abilities, so states (both state attorneys general and state regulators) were empowered to enforce the Dodd-Frank Act's consumer protection provisions. In the years since Congress granted this authority, states have used it in more than 30 public enforcement actions to protect consumers. States brought some of these actions in partnership with the CFPB, while others were brought by individual states or multistate groups that have included almost every state and territory in the country.
In keeping with the broader priorities of the Biden administration, the CFPB's stated policy priorities since January 2021 have been: (1) relief for consumers facing hardship due to the coronavirus (COVID-19) pandemic and the related economic crisis; and (2) racial equity. Director Chopra has prioritized this issue through the issuance of new guidelines, advisory opinions and enforcement actions. Since January 2021, the CFPB has filed six fair lending-related public enforcement actions.
Although the FTC is primarily focused on marketplace competition, it also has consumer fraud and consumer protection functions. In October 2022, the FTC issued an advance notice of proposed rulemaking to address "junk fees," a term used in the notice to refer to "unfair or deceptive fees that are charged for goods and services that have little or no added value to the consumer." This notice was issued shortly after the comment period closed for the FTC's proposed Motor Vehicle Dealers Trade Regulation Rule, which also seeks to address unnecessary add-on fees, among other things, in the car buying process. The FTC has sought consumer redress in actions and settlements involving "junk" fees under Section 5 of the FTC Act. The CFPB is also seeking to address "junk fees," and has recently issued guidance on two fees it believes are likely unfair—"surprise" overdraft fees and depositor fees charged to consumers who deposit a check that bounces. In June 2022, the CFPB issued an advanced notice of proposed rulemaking, seeking information regarding credit card late fees and late payments and card issuers' revenue and expenses.
In August 2022, the CFPB published a circular that reminds financial institutions that failing to safeguard personal data may count as violating federal consumer financial protection laws. In October 2022, the CFPB released an outline of proposals, in advance of issuing regulations to implement Section 1033 of the Dodd-Frank Act, which would define the rights that consumers have to access their financial information from financial services providers. The CFPB is expected to convene a small business review panel this month as a next step in the rulemaking process.
Regulators are taking notice of the increased traction these relationships have gained in 2022. Financial technology is changing rapidly and bank-fintech partnerships are likely to continue growing in number and complexity. The Office of the Comptroller of the Currency (OCC) will establish an Office of Financial Technology early next year to bolster the agency's expertise and ability to adapt to a rapidly changing banking landscape, which is a further indication of the OCC's close scrutiny of bank-fintech partnerships. The growth of banking-as-a-service (BaaS) and the de-integration of banking may make it difficult for customers, regulators and the banking industry to distinguish between where the bank stops and where the fintech starts. For its part, the OCC is working on a process to subdivide bank-fintech arrangements into cohorts with similar safety and soundness risk profiles and attributes.
In September 2022, the CFPB released a report on market trends and consumer impact of the Buy Now, Pay Later (BNPL) industry, which identified areas of consumer risk, including discrete harms such as requiring consumers to use autopay for all payments, data harvesting and borrower overextension. In his prepared remarks coinciding with the release of the report, Director Chopra noted that he has asked CFPB staff to pursue a number of additional steps in relation to BNPL products, in addition to ongoing market monitoring, including assessing how the credit card industry writ large is incorporating BNPL features. Faster payment systems are increasingly popular and offer many benefits to consumers, like sending money directly to other consumers or engaging in quicker transactions. The CFPB is reviewing the business practices of large technology companies operating payments systems in the US, including their data collection and use, their policies for removing individuals or businesses from their platforms and their policies and practices for adhering to key consumer protections like addressing disputes and errors. In November 2022, the CFPB published a bulletin analyzing more than 8,300 consumer complaints about crypto-assets. According to the report, the most complained about issues with the use of virtual currency, and the platforms in which it is stored, bought, sold, sent, received, loaned and borrowed were about fraud and scams that included theft and account hacks, followed by transaction issues.
According to the most recent report, between April 1, 2021 and March 31, 2022, the CFPB received approximately 1,104,400 consumer complaints, sending more than 745,000 complaints to companies for response. Since March 31, 2022, the CFPB received another 533,000 consumer complaints. Complaint data and analyses are readily available to CFPB staff to support their supervisory, enforcement and market monitoring activities.
In October 2022, a three-judge panel of the US Court of Appeals for the Fifth Circuit ruled that the current funding mechanism for the CFPB is unconstitutional. Specifically, in Community Financial Services Association of America v. Consumer Financial Protection Bureau, the court held that the CFPB's independent funding through the Federal Reserve System violates the Appropriations Clause of the Constitution and the underlying separation of powers principles. On this basis, the court also invalidated the remaining portions of the CFPB's restrictions on lenders offering payday, auto title and other short-term, high-interest instalment loans. Last month, the US Department of Justice and CFPB filed a certiorari petition with the US Supreme Court, requesting not only that the Court hear the case, but also that it be decided on an expedited basis during the Court's current term. The Fifth Circuit decision, and whether the US Supreme Court grants the petition, could significantly impact the CFPB's ability to act and may hamstring its authorities—both within the Fifth Circuit and beyond. Defendants in several other CFPB enforcement actions are currently seeking dismissal of the actions, and new litigation also challenges the CFPB's subpoena authority, based on the Fifth Circuit decision. We expect similar challenges in the near term. Until the appeals process is resolved, however, the CFPB should be expected to operate on a business-as-usual basis, meaning that Director Chopra should not be expected to rein in his robust enforcement and supervision policies.
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