A team of DWT payments lawyers attended the American Bar Association Business Law Section’s spring meeting in San Francisco last week. Adam Maarec from our Washington, DC office moderated a lively roundtable titled A Roadmap for Credit Card Lending: Mitigating Fair Lending and UDAAP Risks, and Anticipating the CFPB’s Focus in its Next CARD Act Report. Roundtable participants reviewed the CFPB’s past activity, and debated its future focus, on credit card debt collection and debt sales, credit card ability to pay assessments, and credit card reward disclosures.
At the conference, we gained valuable insight on federal and state unfair, deceptive, and abusive acts or practices (UDAP/UDAAP) enforcement priorities and learned new details about the CFPB’s efforts, through its Project Catalyst, to consult with companies developing innovative consumer financial products and services. Each is discussed below.
Federal and State UDAAP Priorities
Representatives from the Consumer Financial Protection Bureau, Federal Trade Commission, and the New York Department of Financial Services discussed their recent enforcement activities and ongoing priorities involving unfair, deceptive, and abusive acts or practices.
CFPB. Kristin Donohue, the CFPB Deputy Enforcement Director for Policy and Strategy, noted that the agency’s ongoing UDAAP priorities are based on the “Four D’s”: 1) deception, primarily in marketing; 2) debt traps; 3) discrimination; and 4) dead ends, where consumers don’t have the ability to choose a provider, e.g. consumer reporting and debt collection. She stated that enforcement priorities are further affected by:
- The number of victims;
- The harm to each individual consumer;
- Whether the harm is temporary or long lasting, or might affect the economy;
- The effect on protected groups, including older Americans, students, and the military;
- Whether consumers can shop for the product or service; and
- Whether practical barriers to a private solution exist.
FTC. Carolyn Hann in the FTC’s Bureau of Consumer Protection identified the following ongoing UDAP priorities:
- Gatekeepers and those who facilitate fraud, including payment processors, affiliate marketers, telemarketers, and billing aggregators;
- Fraud and deception in the mobile marketplace;
- Military and for-profit schools; and
- Abusive debt collection.
NYDFS. Joy Feigenbaum, Executive Deputy Superintendent, Financial Frauds & Consumer Protection at the NYDFS, identified the following ongoing state UDAAP priorities:
- Short term loans;
- Lead generation services;
- Products that violate usury laws;
- Student loan servicing and other student lending issues;
- Discrimination, particularly in the auto loan space; and
- Data security, especially with respect to Fintech firms.
Ms. Feigenbaum also noted that the NYDFS views cyber security as the single biggest threat to the financial system.
Innovation and Regulation
Dan Quan, head of the CFPB’s Project Catalyst initiative, discussed the agency’s efforts to support innovation, help consumers, and help companies developing innovative consumer friendly products. He described Project Catalyst as a “sandbox” for companies that acts as a safe place for companies to try out new ideas with support from the Bureau and without fear of prosecution for non-compliance.
Mr. Quan discussed the three primary elements of Project Catalyst:
- The trial disclosure program – businesses can test new disclosures under a trial disclosure waiver, which generally shields the business from private lawsuits and regulatory enforcement actions stemming from compliance with certain consumer protection laws.
- The no action letter policy – businesses can present a scenario that results in ambiguous application of the law and receive a letter from the CFPB indicating that they will not take action under certain circumstances. We provided a critique of the CFPB’s proposed no action letter policy in October 2014.
- Office hours (new!) – the Project Catalyst team has been giving innovative financial services companies the opportunity present issues to the CFPB in a closed-door environment to get candid feedback on their ideas. This does not appear to be a formal program previously promoted by the Project Catalyst team, so we welcome this development. In the past, the CFPB has notified certain companies in advance that it will conduct a day of “office hours” visits, and in the last year, the CFPB held three separate days of office hours style meetings in San Francisco, and one day in New York, consulting with 15-20 companies each day.