On January 16, 2019, the Consumer Financial Protection Bureau (CFPB) and the New York Attorney General (NY AG)announced an US$11 million settlement with a large retail jeweler (Retailer) to resolve alleged violations of the Consumer Financial Protection Act of 2010 (CFPA); the Truth in Lending Act (TILA) and its implementing regulation, Regulation Z; and New York state law.
In the complaint, the CFPB and NY AG allege that Retailer
- opened store credit card accounts without customers' consent and/or knowledge;
- misrepresented financing terms of the credit card accounts to customers; and
- enrolled customers in payment-protection insurance (PPI) plans without their consent.
In connection with the settlement, the CFPB and NY AG's complaint asserts that Retailer engaged in unfair or deceptive acts and practices in violation of the CFPA arising from the following practices:
- Misstating reasons for requesting customers' personal information, suggesting the information was for a rewards program or a survey when it was, in fact, used to apply for credit
- Misrepresenting financing terms, such as interest rates and eligibility, or omitting information necessary for consumers to understand the offer
- Enrolling customers in PPI without their knowledge of consent
The purported violations of TILA and Regulation Z arose from, according to the CFPB, the Retailer issuing credit cards without the customer's knowledge or consent and without having received an oral or written request for the credit card.
As part of the Stipulated Final Judgment and Order, in addition to the civil money penalty of US$10 million to the CFPB and US$1 million to the state of New York, Retailer is prohibited from engaging in the unlawful conduct and required to "maintain policies and procedures" regarding credit card sales and "related add-on products, such as [PPI];" the policies and procedures must be "reasonably designed to ensure... consent is obtained before any such product is sold or issued to a consumer." Unlike former CFPB actions, this settlement does not require restitution payments despite the fact that customers accrued fees as a result of the alleged actions.
How are your consumer credit products marketed and sold to customers?
- Despite the changes at the CFPB, enforcement is still alive and well. This action also illustrates state enforcement efforts to continue to undertake enforcement actions, with or without the CFPB. In light of a recent report that the CFPB's Associate Director of Supervision, Enforcement, and Fair Lending will be leaving to join the NY AG's office, we assume there will be more cooperation between the CFPB and NY AG's office going forward.1
- According to the complaint, Retailer created a culture that pressured employees to sell the credit cards and PPI plans; "[e]mployees were rated, retained, and compensated based on their ability to meet certain performance standards, including for obtaining credit-card applications." Although incentive-based compensation and performance standards are not prohibited with respect to these products, they tend to attract regulatory scrutiny, particularly after sales practices that have previously made headlines.
- Understanding the types of credit products offered to your customers, the inherent risks involved, and how they are provided is a first step to reducing regulatory compliance risks. And to the extent performance-based compensation is offered to employees regarding the products, implement measures to meaningfully reduce the potentially heightened risk for unfair or abusive practices.
Our team can help. We have extensive experience advising a variety of clients about consumer financial services laws and regulations. We review, revise, or rewrite policies and procedures. We investigate compliance issues and provide advice. We handle state and federal enforcement actions before the CFPB or state Attorneys General when issues arise. We also have a multilingual, multijurisdictional team of lawyers with deep knowledge about all the legal issues that impact the global retail industry.