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CFPB invokes rarely used authority to protect consumers

Photo (c) seksan Mongkhonkhamsao – Getty Images

The Consumer Financial Protection Bureau (CFPB) has announced that it is turning to a largely unused legal provision to protect consumers from risky practices used by non-banks and fintech companies.

The agency said it would use conventional law enforcement and the leeway allowed to it under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to protect the best. consumer interests and help level the playing field between banks and non-banks. If necessary, officials said they would litigate the issues in court.

The CFPB has called upon Dodd-Frank and the Consumer Protection Act on several occasions to conduct supervisory reviews to examine the books and records of regulated entities over the past 10 years. In 2014, Bank of America was ordered to pay $727 million for deceptively marketing credit card add-ons through these two legal avenues. In 2015, he investigated companies that lied to consumers with ads for a mortgage payment program promising tens of thousands of dollars in interest savings. In 2017, he sued Experian for misleading consumers about how their credit scores are used.

Dusting off the rule, it’s possible the CFPB is also looking to keep tabs on Big Tech companies and Buy Now Pay Later vendors. Consumer groups have already urged the agency to find a way to regulate the latter.

“Given the rapid growth of consumer offerings by non-banks, the CFPB is now using a dormant authority to compel non-banks to meet the same standards as banks,” CFPB Director Rohit Chopra said. “This authority gives us critical agility to act as quickly as the market, allowing us to conduct reviews of financial companies posing risks to consumers and stop the damage before it spreads.”

Assume a supervisory role

Prior to the passage of Dodd-Frank, only banks and credit unions were subject to federal oversight. But that was long before fintech companies — “non-banks” that don’t operate on a charter like “real” banks do — became all the rage and subsequently played a significant role in the financial crisis. of 2008.

Shortly after it all fell apart in 2008, Congress tasked the CFPB with overseeing certain non-bank institutions, large depository institutions with over $10 billion in assets, and other service providers.

Among the entities over which Congress has given the CFPB oversight power are the payday loan industries and non-bank companies that deal in mortgages and private student loans, regardless of size. What the agency says it will look for in these categories is “reasonable cause” that a non-bank is acting in any way – regardless of the financial product or service – that puts consumers at risk. danger.

The CFPB said this allows it to be “agile and supervise entities that may be growing rapidly or in markets outside of the existing non-bank supervision program.” Conduct that officials consider risky may involve potentially unfair, deceptive, or abusive acts or practices — all of which they will monitor to appear in consumer reports, whistleblowers, and legal notices.

“We call this system regulation by threat,” said Daniel Schwarcz, professor of law at the University of Minnesota Law School, and David Zaring, associate professor at the Wharton School, University of Pennsylvania, in their analysis of Dodd-Frank and non-banks.

“The use of regulatory threats can, under the right circumstances and with the right constraints, induce caution in an industry prone to hard-to-control risky behavior.”