Payment apps and the legal and regulatory issues they present were front and center at a November 5 meeting of state attorneys general consumer protection leaders.
Attorneys general recognize the value of these apps and noted those available through traditional banking services. Moreover, there is a general recognition that the unbanked and underbanked require digital access in order to perform routine consumer functions and that payment apps can provide this service.
Stepping in to fill a perceived regulatory and enforcement void at the federal level, the governor of New York and his acting superintendent of the New York Department of Financial Services (DFS) have created a division within DFS that amounts to a mini-(federal) Consumer Financial Protection Bureau (CFPB). Because there are few major financial institutions that do not have significant business contacts with New York, the new division will have broad-based authority over large volumes and many types of financial consumer transactions, and its impact will not be held back by the current federal administration’s commitment to “regulatory rollback.”
The Consumer Financial Protection Bureau (CFPB) recently advised that it has significantly changed its Civil Investigative Demand (CID) process to increase transparency and to better permit targets and subjects to understand the nature of an investigation. The changes will bring the CFPB into compliance with opinions rendered by two Federal Circuit courts as well as policy changes implemented by the Federal Trade Commission (FTC). The change may well have some persuasive impact on other enforcement agencies, such as state attorneys general, who enforce many of the same laws as the CFPB and generally have CID authority as well.
Recent action by the Consumer Financial Protection Bureau (CFPB) may bring some relief to fintech developers and the broader financial services industry as new products run into otherwise insurmountable regulatory hurdles that do not take into account or adapt to new technologies.
In a recent announcement by the CFPB’s Office of Innovation, its director has proposed the creation of a “Disclosure Sandbox” to encourage trial disclosure programs.
The greatest concern for many new developers and possible funding sources for those developers is that a new and innovative product may not be able to provide disclosures in the same way that traditional products have done, simply because consumer device sizes are shrinking while the amount of information regulators are requiring to be displayed without “clicking through” many screens is increasing. This poses a conundrum for the developer, which must reconcile competing issues and demands, including the size of a device screen, the limits of human eyesight—and patience!—and the demands of regulators.
We write frequently about the SEC’s and the CFTC’s focus on cryptocurrencies, but potential issuers should also be alert to other oversight, including possible enforcement actions, from other regulators as well. Indeed, state Attorneys General are playing a greater role in evaluating whether the mining and use of cryptocurrencies works to the disadvantage of consumers and small businesses. These state enforcement and regulatory officials are becoming ever more powerful. Furthermore, some of them may seek to expand the scope of their authority by pushing the “round peg” of “virtual” financial technology offerings into the “square hole” of outdated “physical only” state statutes and rules.
Meetings of the Conference of Western Attorneys General (CWAG) in New Mexico last week and of the Republican Attorneys General Association (RAGA) (Rule of Law Defense Fund) in California this week included panel discussions of cryptocurrency issues that are now before the Attorneys General and senior staff. Accordingly, fintech companies that intermediate cryptocurrencies should be aware of the increased risk in conducting these activities in particular states.
In yet another example of state attorneys general stepping up their activities in response to a perceived regulatory rollback in Washington, 16 attorneys general[1], all Democrats, have written to the Bureau of Consumer Financial Protection (Bureau), formerly the Consumer Financial Protection Bureau (CFPB), proposing in quite strident terms that the Bureau not reduce its authority for or use of key enforcement tools such as the Civil Investigative Demand (CID). Read the letter here.
The letter makes the case that full CID authority permits agencies to fulfill their investigative mandate. While nominally responding to the Bureau’s request for information about its CID process, the letter serves the unmistakable purpose of making a joint public statement of the enforcement philosophy of these attorneys general. The letter thus bears a careful review as it likely presages investigative and enforcement litigation that they might undertake themselves. Each of these attorneys general has not only powerful consumer protection authorities under state law but also the express authorization under the Dodd-Frank Act to enforce that law’s prohibition on “unfair, deceptive, and abusive” acts and practices in federal court. In turn, as we have previously reported, the Bureau’s acting director, Mick Mulvaney, has made clear that he does not intend to interfere in the states’ regulatory and enforcement prerogatives. Read our prior blog here.
Earlier this week, Consumer Financial Protection Bureau (CFPB) Acting Director Mick Mulvaney met with state attorneys general at the National Association of Attorneys General (NAAG) in Washington, DC, in his second public speaking appearance since taking over as acting director at the end of November 2017. While Mulvaney’s prepared remarks did not break new ground, his Q&A session with the state attorneys general was illuminating.
Mulvaney said that he does not intend to dismantle the CFPB, but that he does intend to change it so that it acts within the confines of the law as written. He does not intend to use his regulatory authority to break new ground and he does not intend to use his enforcement authority to “regulate through litigation,” a thinly veiled criticism of his predecessor’s aggressive use of the CFPB’s statutory “unfair, deceptive, and abusive acts and practices” (UDAAP) authority. Mulvaney also stated that he intends to focus a great deal more on education and less on enforcement.
The Great Schism at the Consumer Financial Protection Bureau (CFPB) is over, at least for now, and White House Office of Management and Budget Director Mick Mulvaney is now firmly in control of the agency as its acting director, having been appointed pursuant to the president’s authority under the Federal Vacancies Reform Act. He has imposed a hiring and regulations freeze and said that while he does not intend to “burn the place down,” he intends to ensure that the CFPB operates under a budget and consistent with other executive branch agencies.
For the time being, we expect that this will mean new rules will be put on hold and be scrutinized further, particularly for the burden they impose on regulated businesses. We also expect a more measured approach in enforcement matters, and that the CFPB’s examination functions will be better coordinated with those of other federal banking agencies, further easing compliance costs and burdens for the CFPB-regulated firms.
Consumer Financial Protection Bureau (CFPB) Director Richard Cordray announced on Wednesday that he will resign from his post on November 30, seven months before the end of his five-year term. This development already is fueling substantial speculation about what is next for the agency.
The vacancy presents the president with an opportunity to appoint a director who shares the administration’s views on financial regulation and can put the agency on a different regulatory path. In due course, the president will nominate someone to fill the post permanently, and that person will be subject to Senate confirmation. The CFPB, however, enjoys strong support not only from Senate Democrats, but also in major sectors of the financial consumer community, having, among other things, collected over $12 billion in consumer restitution. In turn, the nomination and confirmation process for the new director may be difficult, depending in large part on who is nominated for the vacancy.
One of President Donald Trump’s early official acts in February 2017 was to sign an executive order stating a series of “Core Principles” for the regulation of the US financial system and directing the secretary of the Treasury to report, in consultation with the members of the Financial Stability Oversight Council, on the extent to which existing laws, regulations, and other regulatory requirements promote the Core Principles. In response to the executive order, the US Department of the Treasury has just released a wide-ranging report (Report) addressing many aspects of current US financial regulation and recommending changes to the current regulatory framework.
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