The Skinny on the Consumer Finance Protection Bureau
by Joseph Sanscrainte, an attorney specializing in telemarketing law.
For those just tuning in, there's a new sheriff in town: the Consumer Finance Protection Bureau (CFPB). The CFPB was created in July of 2010 as an independent bureau of the Federal Reserve System by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFPB has authority to make rules (and to enforce such rules) relating to consumer financial products and services. As of July 21, 2011, the CFPB took over responsibilities from seven Federal agencies, including the Federal Reserve, the Federal Trade Commission, the Federal Deposit Insurance Corporation, and the Department of Housing and Urban Development. The main focus of the CFPB, at least at first? The mortgage and consumer credit/finance markets.
As stated in Dodd-Frank, the purpose of the CFPB is to "implement and enforce Federal consumer financial laws consistently to ensure that all consumers have access to markets for consumer financial products and services and that such markets are fair, transparent, and competitive." If you cringe when you hear about a regulatory entity tasked with ensuring "fairness," "transparency," and "competitiveness" in major US markets, you're not alone. Telemarketers, however, have even more reason to be concerned - the CFPB is also tasked with ensuring consumers are provided with "timely and understandable information regarding consumer financial products and services" and that consumers are protected from "unfair, deceptive, or abusive acts and practices."
How will this play out in the real world of enforcement? We don't need to wait to find out - the CFPB has already gone after Capital One (to the tune of $210 million) and Discover Card ($200 million in refunds and a $14 million civil penalty). Driving down into the details, we find some interesting statements by the CFPB regarding the rationale for enforcement. In the press release for the Discover Card matter, the CFPB states that:- Discover's telemarketing scripts contained misleading language likely to deceive consumers about whether they were actually purchasing a product.
- Discover's telemarketers also often downplayed key terms and spoke quickly during the part of the call in which the prices and terms of the add-on products were disclosed.
- Discover's telemarketing scripts often used language implying that the products were additional free "benefits," rather than produces for which a fee would be applied.
- The scripts frequently suggested that consumers would not be charged for the products until after having a chance to review printed materials. Discover did not provide the materials until after Discover had already initiated the consumer's purchase.
- Discover representatives processed add-on products without some consumers' consent.
Although on one level, it's a good thing to stop fraudulent telemarketing practices, let's look at the language used by the CFPB above. Who determines whether "misleading" language is "likely" to deceive consumers? What does it mean to "downplay" key terms? Who ever heard of the "speaking quickly" prohibition? How "often" do you have to "imply" certain things to make it problematic? How "frequently" do you have to "suggest" certain other things to constitute deception? And how many consumers is "some" consumers?
Keep in mind - the CFPB was created by Congress, but it's funded by . . . The Federal Reserve (which is independent of all three branches of the Federal Government). The president appoints the CFPB's director for a five year term, and he/she can stay on indefinitely if no successor is confirmed. The first director (Richard Cordray) was appointed without the advice and consent of the Senate - President Obama appointed him as a "recess appointment" under some very contentious circumstances.
The bottom line? Telemarketers have spent many years making their practices consistent with the rules issued by the FTC, the FCC, and the State Attorneys General. Now, telemarketers providing services in the consumer financial products and services space need to pay very close attention to the enforcements of the CFPB. What remains to be seen is how far the CFPB will expand its scope of action - remember, it is tasked with regulating practices "relating" to the consumer financial products and services space. Stay tuned to see whether the CFPB becomes expansive in defining what exactly is "related" to consumer financial products and services and what is not.