Guest post by Andrew Bigart, Venable LLP
The payments industry, particularly the nonbank side, has traditionally been free from direct federal regulation or supervision. Over the past several years, however, the federal government has focused on the important role of payment processing in the economy. Although Operation Chokepoint has received most of the media’s attention, the Consumer Financial Protection Bureau (CFPB) may ultimately prove to be in the best position to impact the payments industry. In the spirit of looking ahead to the next regulatory frontier, this article provides an overview of the CFPB’s supervisory, rulemaking, and enforcement authorities as applied to the payments industry.
What is the CFPB Anyway?
The CFPB is an independent federal agency created by Congress by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). The CFPB’s mission is to protect consumers from unfair and deceptive acts and practices (UDAAP) in the market for consumer financial services.
To carry out this mission, the CFPB has broad supervisory, rulemaking, and enforcement authority:
- The CFPB’s supervisory jurisdiction extends to certain enumerated covered entities that offer or provide financial products or services, including entities that provide payments or financial data processing services to consumers or that process or store payments through banking or telecommunication systems. In addition, the CFPB has supervisory authority over persons who provide services to CFPB-regulated entities. The CFPB, for example, has stated that it plans to regulate nonbank larger participants in markets related to consumer credit and payment instruments. See Defining Larger Participants in Certain Consumer Financial Markets, 76 Fed. Reg. 38,059 (June 29, 2011). Altogether, the CFPB’s authority is broad enough to cover a host of nonbank entities in the payments industry.
- As part of its supervisory powers, the CFPB can examine companies to assess compliance with federal consumer financial laws, obtain information about a company’s activities and compliance systems, and identify potential risks to consumers related to consumer financial products and services. Although the CFPB has not yet exercised any general supervisory authority over the payments industry, it has taken several smaller steps that highlight its interest in this area. In 2014, the CFPB announced it was seeking public input on how consumers are using mobile financial services to access products and services, manage finances, and achieve their financial goals. The CFPB also issued a Consumer Advisory warning consumers about the risks with virtual currencies (e.g., Bitcoin) and announcing that consumers can submit complaints about such payments through the CFPB’s consumer complaint database.
- In addition to supervisory powers, the CFPB has broad rulemaking authority under a host of consumer financial laws, such as the Fair Credit Reporting Act, Gramm–Leach–Bliley Act, and Electronic Fund Transfer Act. The CFPB is currently working on, or has announced an intention to work on, rules involving prepaid cards, fair credit reporting, and overdraft services, to name just a few. These rules are likely to have a significant impact on a number of industries served by payment processors and related service providers.
- The CFPB has authority to bring an enforcement action against any covered person or service provider engaged in UDAAP in connection with the provision or sale of consumer financial products and services. The CFPB has been active in investigating companies in the financial markets and has issued dozens of civil investigative demands (subpoenas) requesting information from the payments and related industries. To date, the CFPB has brought several enforcement actions involving payment processors. On August 25, 2014, the CFPB filed a complaint in a Federal District Court in California against Global Client Solutions, for allegedly helping debt settlement companies collect tens of millions of dollars in illegal upfront fees from consumers in violation of the Federal Trade Commission’s Telemarketing Sales Rule. In October 2013, Meracord LLC, another debt settlement payment processor, paid $1.376 million to settle similar CFPB allegations. And finally, in December 2014, the CFPB filed a complaint against a telecommunications company alleging, in part, that the company had failed to monitor payment processors that had placed unauthorized charges on consumers’ accounts.
The CFPB has only been on the scene for a few years, but the CFPB has shown that it is willing to use its tools (supervision, rulemaking, and enforcement) to address perceived weaknesses in markets for consumer products and services. Although not necessarily a direct focus of the CFPB, the role that the payments industry plays in connecting consumers to these industries makes it a natural target for future scrutiny.
Andrew Bigart is a Counsel in the Washington office of Venable LLP. Mr. Bigart specializes in helping clients in the payments industry navigate the complex federal and state regulatory environment.
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