On May 9, 2013 the Federal Trade Commission sent a letter to the Bureau of Consumer Financial Protection (“CFPB”) that describes its enforcement actions and other activities during 2012 with respect to several federal consumer financial protection laws. The CFPB requested the information for use in preparing its annual report to Congress.
The letter first outlines the agency’s powers to enforce consumer protection laws, including Regulations Z and E. It then makes clear that although the Dodd-Frank Act gives broad enforcement powers to the CFPB, the FTC “retained its authority to enforce Regulations B, E, M and Z” and also gained shared authority to enforce new CFPB rules, including the unfair, deceptive or abusive acts or practices (“UDAAP”) standard. The agencies cooperate in enforcing these shared powers with respect to nonbank “covered persons” pursuant to a 2012 memorandum of understanding between the agencies.
The FTC states that its “primary focus in the financial services area is bringing law enforcement actions against those who violate statutes and regulations.” It says entities within its jurisdiction “include most providers of financial services that are not banks” or other traditional financial institutions. The CFPB asked about FTC examination activities during 2012, but the FTC reminds the CFPB that the FTC does not conduct exams.
The FTC’s Regulation E discussion is of particular interest to retailers. It states that several Regulation E actions that resulted in litigation and million-dollar settlements were taken against retailers that tried to obtain authorizations for recurring payments through “negative option” plans. The FTC restates the rule that Regulation E prohibits “companies from debiting consumers’ bank accounts on a recurring basis without obtaining proper written authorization for preauthorized electronic fund transfers and without providing the consumer with a copy of the written authorization.”
The FTC’s letter to the CFPB may be found here.
Why it matters: Although the CFPB can promulgate rules for federal consumer financial protection laws like Regulations Z and E, the FTC makes clear that it has equal enforcement authority when it comes to nonbanks, and that it actively exercised that authority during 2012. Accordingly, nonbanks have to worry about two federal sheriffs in town (plus state sheriffs) when it comes to compliance with these rules. In addition, the FTC signals its intention to actively enforce Regulation E requirements that apply to recurring payments that are charged to debit cards or bank accounts. Authorizations must be clear, and the FTC notes that copies of the authorization must be provided. Regulation E presents significant challenges to retailers that offer recurring payment programs, especially when authorizations may be obtained by phone.