Last month I attended the spring meeting of the American Bar Association’s Business Law Section in San Francisco. Speakers at the conference included representatives of the CFPB, FTC and New York Department of Financial Services. Key areas of conversation included future UDAP and UDAAP enforcement priorities and the CFPB’s efforts, through its Project Catalyst, to consult with companies developing innovative consumer financial products and services.
I’m happy to share my takeaways from this meeting with Paybefore readers.
Federal and State UDAAP Priorities
Representatives from the CFPB, FTC and the NYDFS addressed their recent enforcement activities and ongoing priorities involving unfair, deceptive and abusive acts or practices.
CFPB. Kristin Donoghue, the deputy enforcement director for policy and strategy, noted that the bureau’s ongoing UDAAP priorities are based on the “Four D’s”:
- Deception, primarily in marketing;
- Debt traps;
- Discrimination; and
- 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 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, 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.
She also noted that the NYDFS views cybersecurity as the single biggest threat to the financial system.
Innovation and Regulation
Dan Quan, head of the CFPB’s Project Catalyst initiative, discussed the bureau’s efforts to support innovation, help consumers and help companies developing innovative consumer-friendly products. He described Project Catalyst as a “sandbox” that acts as a safe place for companies to try out new ideas with support from the bureau and without fear of prosecution for noncompliance.
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 them from private lawsuits and regulatory enforcement actions stemming from compliance with certain consumer protection laws.
- The no action letter policy. Businesses can present scenarios that result in ambiguous application of the law and receive a letter from the CFPB indicating that it will not take action under certain circumstances. (Read DWT’s critique of the CFPB’s proposed no action letter policy.)
- Office hours (new!). The Project Catalyst team has been giving innovative financial services companies the opportunity to present issues to the CFPB in a closed-door environment to get candid feedback on their ideas. This does not appear to be the 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.
Adam Maarec concentrates his practice on financial services, advising financial institutions on regulatory compliance matters regarding consumer protection, data privacy and information sharing, and joint marketing. His experience with financial protection laws includes Dodd-Frank, the Truth in Lending Act, the Gramm-Leach-Bliley Act, the Fair Credit Reporting Act and the CARD Act. Reach him at AdamMaarec@dwt.com.
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