Venable recently hosted a webinar exploring the effect of increased supervision and enforcement efforts by states that have established "mini-CFPBs" to investigate and enforce consumer protection laws. Panelists, including Venable attorneys Andy Arculin, Allyson Baker, Gerry Sachs, Erin Cass, and Peter Frechette, offered these key insights:
- Tools Available to States. Under recent Consumer Financial Protection Bureau (CFPB) leadership, enforcement activity has lagged at the federal level. To fill the void, several states, notably New York, California, Pennsylvania, New Jersey, and Maryland, have stepped up their enforcement efforts, by either empowering existing agencies or creating wholly new agencies with broad jurisdiction and authority. While there is always interplay between state and federal law, certain entities that derive authority through state licenses to broker, lend, service collections, or generate fees are subject to stricter state enforcement. States also have their own consumer protection statutes and requirements, which allow them to review and control which companies do business in the state. Finally, rather than going through a regulatory or legislative amendment process, states tend to establish "enforcement common law" through enforcement action.
- Current Enforcement Trends. As both the CFPB and the Federal Trade Commission (FTC) have defined their Unfair, Deceptive and Abusive Acts, and Practices (UDAAP) authority very broadly, states are likely to do so as well, which may mean that violations of state consumer protection laws will be designated as UDAAP violations also. With the COVID-19 pandemic leading to added financial stress for many consumers, there's likely to be a surge in enforcement related to false advertising, financial services, refunds, chargebacks, subscription billing, lending, or loss forbearance. Similarly, any suspected abuses of protected populations, including the elderly, minorities, first responders, healthcare workers, police, firefighters, and others impacted by the pandemic, are likely to be scrutinized. Finally, there is likely to be more scrutiny of mortgage servicing and collections, and increased focus on small lenders, pawnshops, small-dollar loans, etc.
- Data Security and Privacy. With more people working from home and more business being conducted over the internet, it's likely that states will step up enforcement activity related to data privacy and security, particularly in relation to financial and business markets. California has already established the California Consumer Privacy Act (CCPA), and other states may soon enact similar legislation or will build in more oversight of data privacy and security as they develop their mini-CFPBs.
- Mini-CFPB: California. Sometimes referred to as a "nation-state," California is the fifth largest economy in the world; numerous companies are headquartered or licensed there, and it is a center for fintech businesses. With such a fast-growing economy (at least pre-COVID), regulatory authorities tend to work with businesses to try to get things right, rather than simply shutting them down in the wake of violations. For instance, the state has entered into a number of settlements with non-licensed deferred payment lenders, typically imposing reasonable fines, clarifying licensing requirements, and then granting licenses. Generally, the state tends to try to strike a balance between the need to encourage innovation and regulating by enforcement, and this approach is setting trends for many other states.
- Mini-CFPB: New York. Another trend-setting state, New York has been on the forefront of regulating the financial industry for many decades. The New York Department of Financial Services (NYDFS), which is charged with overseeing banks or non-banks chartered or licensed in the state, has been taking an aggressive approach to enforcing financial services laws and consumer protections laws for any financial services companies that do business in New York. Furthermore, through its efforts to create a mini-CFPB, New York has become the first state in the country to tie together its enforcement authority with its licensing authority, thereby creating a far-reaching enforcement regime. Already a leader in regulatory enforcement and now harder hit by COVID-19 than any other region, it's likely that New York's enforcement efforts in coming months will be an indicator of what other states will focus on as the pandemic plays out.
- Enforcement Trends in Other States. Certain states, such as New Jersey, Maryland, Pennsylvania, and Virginia, are following New York and California's lead in establishing separate agencies to expand enforcement efforts. Efforts have been under way in New Jersey since 2018 to create a "state-level CFPB" to help enforce the state Consumer Fraud Act and fill the void left open by federal regulators. Maryland passed a Consumer Protection Act in 2018, expanding the pre-existing Maryland Consumer Protection Act to include "abusive" trade practices, increase civil penalties, and establish a student loan ombudsman. Similarly, Pennsylvania created a Consumer Protection unit in 2017, and Virginia established a predatory lending enforcement unit in 2016.
- Consumer Protection in the COVID-19 Era. Generally, the mini-CFPBs are designed to concentrate resources around consumer protection as it relates to financial services products. Since the onslaught of the pandemic, and the economic upheaval it has wrought, there is already a renewed focus on how consumers are treated by financial services companies along the continuum of loan origination, mortgage forbearance, debt collection, and servicing. While financial services companies have been encouraged to work constructively with borrowers, the guidance from regulatory bodies has been mostly nonspecific. Considering the sudden and extensive nature of the crisis and its far-reaching impact on consumers, companies should take care to do what's right for their customers.
- Advice for Financial Services Companies. Although it's very difficult for companies to quickly adapt to the new, fraught circumstances, with millions of people suddenly out of work and regulators paying closer attention to violations, companies should strive to balance business survival with unprecedented consumer hardship. An increase in consumer complaints is likely to lead to an increase in lawsuits and federal or state investigations into how companies behave during this time. To avoid lawsuits or exposure, companies should consider seeking professional guidance to stay on top of state and federal regulations.