CFPB Enforcement Authority: What the Future May Hold
The CFPB recently marked its one year anniversary (July 21, 2012), but it has yet to flex its enforcement muscle. This is an opportune time to analyze the CFPB’s enforcement authority and how it may be used. Such an analysis is all the more appropriate because there is considerable uncertainty regarding just what the scope of that authority will be. In particular, there is uncertainty regarding the entities that the CFPB will regulate as well as the conduct that it will target.
Title 10 of the Dodd-Frank Act, known as the Consumer Financial Protection Act (“CFPA”), grants the CFPB authority of varying degrees over three broad classes of entities: (1) depository institutions with $10 billion or more in assets; (2) depository institutions with less than $10 billion in assets; and (3) certain nondepository institutions (“non-depository covered persons”). The allocation of authority between the CFPB and other federal agencies with respect to these three categories of institutions is less than clear cut. The CFPA gives the CFPB rulemaking authority over all of these entities, but allocates examination and enforcement authority very differently. The CFPB will have exclusive examination authority only over large depository institutions (the first of the three categories). Other banking agencies will retain their examination authority over smaller institutions. As to enforcement authority, the CFPB will have to coordinate, and potentially compete, with other federal agencies. While the CFPA gives the CFPB “primary” enforcement authority over large depository institutions and certain non-depository institutions, other agencies may exercise enforcement authority as well, if they recommend an enforcement action to the CFPB and the CFPB fails to proceed. Moreover, the precise contours of these three categories of entities are still being defined.
There is also uncertainty about the scope of conduct the CFPB is authorized to target. The CFPA authorizes the CFPB to define and prohibit “unfair, deceptive or abusive acts or practices in connection with” consumer financial products or services. CFPA § 1031(b), 12 U.S.C. § 5531(b). This language is noticeably broader than the powers granted to the Federal Trade Commission, which is authorized to define and prohibit “unfair or deceptive acts or practices in or affecting commerce.” 15 U.S.C. § 45(a). The authority given to the CFPB incorporates a new component of impropriety, namely, acts or practices that are “abusive,” and what precisely these are has yet to be determined. Moreover, the broader authority granted to the CFPB does not displace the narrower authority already granted to the FTC. Under the CFPA, the FTC retains the authority it has always had to target “unfair or deceptive” acts or practices. Thus, financial services companies subject to the CFPB’s and FTC’s enforcement powers will have to adhere to two standards of conduct simultaneously — the FTC’s “unfair or deceptive” standard and the CFPB’s new “unfair, deceptive or abusive” standard that has yet to be defined.
Stephen A. Fogdall, Partner,
Schnader Harrison Segal & Lewis LLP
Title X of Dodd-Frank contains a new prohibition against “unfair, deceptive or abusive acts or practices” (UDAAPs). The CFPB has yet to promulgate regulations to define such acts or practices, yet it appears to believe that it may bring actions to enforce this prohibition regardless. Is this correct? How can financial institutions defend such actions when the CFPB has not even defined what a UDAAP is?
Title X of Dodd-Frank distinguishes between actions arising solely under an enumerated consumer financial law and actions arising under “this title,” i.e., Title X itself. What does this distinction mean? When does an action arise under “this title,” and when does it arise solely under an enumerated consumer financial law? Does an action arise under “this title” when it alleges a UDAAP violation? Or does an action arise under “this title” whenever the defendant is a “covered person” as defined in the statute?
Title X empowers the CFPB to seek a wide range of remedies not available under other consumer financial laws. Are these remedies only available to the CFPB when it brings an action under “this title” (Title X), or are they available even when the CFPB brings an action arising solely under an enumerated consumer financial law?
Title X seems to exempt certain categories of individuals or entities from the CFPB’s authority — for example, individuals engaged in the practice of law, or entities engaged in the business of insurance — but, almost in the same breath, seems to take away this exemption “to the extent” such individuals or entities are otherwise subject to consumer financial laws. How can these seemingly conflicting provisions be reconciled?
Title X permits the CFPB to define by regulation certain categories of “nondepository covered persons,” which, once defined, will be subject to its supervisory authority. However, the CFPB contends that it need not promulgate such regulations in order for these entities to be subject to its enforcement authority. Can this position be squared with the statutory text?
Brent Lindahl , Partner,
Fulbright & Jaworski LLP
- The Bureau’s jurisdictional reach and how that may differ depending on whether the Bureau is acting in a supervisory, regulatory, or enforcement capacity.
- The Bureau’s position that it has the right to obtain privileged information under its supervisory authority and the potential consequences of turning over privileged information to the Bureau.
- The Bureau’s sharing of information with other regulators, such as state Attorneys General.
Maureen Day, Partner,
Ernst & Young
During the third quarter of 2012, Federal regulators, including the Consumer Financial Protection Bureau (CFPB), issued multiple Consent Orders to several of the top five credit card issuers. Each had significant financial repercussions, which included fees to be remediated to customers and civil money penalties. Customer remediation ranged from $91 million to $200 million and civil money penalties ranged from $14 million to $60 million. It appears that the agency is using its enforcement authority to also articulate its views on how financial institutions should comply with enumerated consumer protection laws.
Each consent order noted a lack of sufficient vendor compliance oversight. Although specific regulations related to vendor compliance oversight have not been issued, the regulatory agencies have previously provided formal guidance on the matter as industry utilization and reliance on vendor service providers has increased. The message delivered by these consent orders is that regulatory expectations regarding vendor management are increasing and scrutiny of these relationships will continue regardless if the activity is conducted in-house or by a supplier. This message was also delivered by the Director of the CFPB (Richard Cordray), who recently commented that “[These actions] put all financial institutions on notice about these prohibited practices and reinforces that they must make sure their service providers are complying with the law.”
Similarly, two of these consent orders focused on the sale and servicing of add-on products. Regulators of financial institutions (CFPB, FDIC, OCC, and state regulators) have directed heightened scrutiny towards the marketing, sale, and servicing of these products, focusing on the following problems (in addition to a lack of vendor oversight) including Issuers either delayed or failed to provide services after customer began to pay monthly premiums; failure to fully/accurately disclose the terms and conditions of the products or services; enrolling customers in the service programs without their affirmative consent, or without making the customer aware that they are enrolled or have to pay for the services.
Arthur B. Axelson , Senior Counsel,
Dykema Gossett PLLC
CFPB: Supervision, Examination & Enforcement
RISKS TO CONSUMERS, “UDAAP” & SUPERVISION
MEANING OF “ABUSIVE”
PROHIBITED ACTS IN TITLE X
IMPACT OF NEW UDAAP?
Risk Assessment by CFPB
How Do You Prepare?
Working with CFPB Examiners
After the Examination – CFPB’s Next Steps
Who Should Attend:
Corporate counsel for banks, and outside lawyers who represent banks in agency enforcement actions.
Corporate counsel and outside lawyers for non-bank financial institutions, and entities that provide services to such institutions, should attend as well (i.e., lawyers who represent entities potentially subject to Dodd-Frank’s provisions governing “non-depository covered persons”).
Mr. Fogdall participates in numerous areas of the Firm’s commercial litigation practice, including financial services litigation, product liability litigation, and class action defense. He has litigation experience in state and federal courts at both the trial and appellate levels.
- University of Pennsylvania Law School, J.D., 2001
- University of Washington, Ph.D, 1997
- University of Washington, B.A., magna cum laude
- Phi Beta Kappa, 1990
- U.S. Supreme Court
- U.S. District Court for the Eastern District of Pennsylvania
- U.S. Court of Appeals for the Third Circuit
- U.S. Court of Appeals for the District of Columbia Circuit
- U.S. District Court for the District of Columbia
- Pennsylvania, 2001
- District of Columbia, 2012
- Philadelphia Bar Association, member
- American Bar Association, member
- Noted as a “Pennsylvania Rising Star” by Super
- Lawyers in the area of business litigation, 2010-2011
- Recipient, Earl G. Harrison Pro Bono Award-2007
Mr. Fogdall participates in numerous areas of the Firm’s commercial litigation practice, including financial services litigation, product liability litigation, and …
Brent R. Lindahl is a partner in Fulbright & Jaworski’s Minneapolis office and is a member of the firm’s litigation department. He focuses on business and commercial litigation, primarily mortgage banking and consumer financial services litigation and class actions.
Over the course of his career, Brent has defended lenders and other financial institutions in individual and class action litigation in state and federal courts across the country, as well as investigations brought by various state and federal regulatory bodies, including state attorneys general and departments of commerce/insurance, and the United States Department of Housing and Urban Development (HUD) and the Consumer Financial Protection Bureau (CFPB) formed under Dodd Frank. He has substantial experience representing these clients in matters alleging predatory or deceptive lending practices under various state and federal laws, such as the Real Estate Settlement Procedures Act (RESPA), Truth in Lending Act (TILA), Home Ownership and Equity Protection Act (HOEPA), Equal Credit Opportunity Act (ECOA), Fair Debt Collection Practices Act (FDCPA), Fair Credit Reporting Act (FCRA), Servicemembers Civil Relief Act (SCRA), Fair and Accurate Credit Transactions Act (FACTA), and Racketeer Influenced and Corrupt Organizations Act (RICO), as well as state consumer protection, deceptive practice, loan suitability and banking statutes. He also has advised mortgage lenders and other financial institutions on a wide variety of state and federal regulatory compliance matters.
In addition, Brent has represented businesses in variety of complex commercial disputes, including executive termination and change of control, products liability, insurance and construction matters.
Brent R. Lindahl is a partner in Fulbright & Jaworski’s Minneapolis office and is a member of the firm’s litigation …
Maureen has over 25 years of experience serving global financial services firms, including card issuers, investment, retail and commercial banks, broker dealers and GSEs, in the areas of internal controls, compliance, risk management and internal audit. She has experience helping large financial institutions assess consumer compliance risk, programs and procedures and has worked with clients to improve such programs. She has worked with clients to prepare for and respond to regulatory examinations. She has been engaged by card issuers to assess processes, controls and regulatory compliance with respect to UDAAP and vendor risk management guidelines. She also has an internal and external audit background and has assisted clients in large scale forensic reviews which included reviews. She has specific knowledge of a broad range of businesses, including card, retail and commercial banking, wealth management, investment banking and capital markets and the related risks and requirements. Maureen is a certified public accountant and holds an MBA from Columbia University.
Maureen has over 25 years of experience serving global financial services firms, including card issuers, investment, retail and commercial banks, …
Mr. Axelson is a Senior Counsel of Dykema Gossett PLLC’s financial services regulatory and compliance practice, interacting with federal and state banking officials, assisting firm clients on compliance and new product development, and advising financial service providers on both federal and state law, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and its implementing regulations. He is also co-author and co-editor of the recently released Consumer Financial Services Answer Book 2012-13, and is the editor of Dykema’s bi-monthly CFPB Alerts.
Mr. Axelson represents a broad range of financial institutions, brokers, lenders, investors and other service providers on consumer financial service and retail banking matters. His primary areas of practice include federal and state regulatory compliance with special emphasis on new product development, secured and unsecured lending, regulatory banking and e-commerce in the financial services industry.
Mr. Axelson is a Senior Counsel of Dykema Gossett PLLC’s financial services regulatory and compliance practice, interacting with federal and …
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