The CFPB’s emphasis on fee disclosures and marketing practices was highlighted in a major way this week, as the bureau levied a $23.1 million enforcement action against credit reporting agencies Equifax and TransUnion over allegedly misstating the cost and usefulness of their products and “luring” customers into recurring payments. Although targeted at credit bureaus, the enforcement action offers key takeaways for payments providers shaping their own compliance efforts to stay out of the CFPB’s cross hairs, according to industry observers.
The enforcement against Equifax and TransUnion stems from claims the credit reporting bureaus made between 2011 and 2014 that the credit scores they provided to customers were the same scores used by lenders and other commercial users to determine creditworthiness. In reality, the CFPB enforcement alleges, the scores offered to consumers were not typically used as a basis for credit decisions. The credit bureaus also failed to “clearly and conspicuously” disclose that customers would automatically be charged a recurring monthly fee after a free trial period of seven or 30 days, unless they canceled during the trial period. Both actions were violations of Dodd-Frank Act protections against unfair, deceptive or abusive acts or practices (UDAAP), the CFPB says.
Under terms of consent orders, Equifax and TransUnion must pay a total of more than $17.6 million in restitution to affected customers, along with a total of $5.5 million in penalties to the CFPB’s civil penalty fund. The credit bureaus also must “clearly inform consumers” about the nature of the credit reporting products being offered, obtain express consent before enrolling consumers into a free trial period that leads to automatic billing when the trial ends, and provide an easy way to cancel a service once enrolled. The credit bureaus admit to no wrongdoing in the consent orders.
The CFPB has recommended that regulated entities examine prior enforcements to guide their own compliance efforts, and this week’s action offers some important guidance for payments providers as to the agency’s enforcement priorities.
“The CFPB’s consent orders are remarkable because they effectively establish prescriptive requirements for the marketing of credit scores,” Adam Maarec of Davis Wright Tremaine LLP tells Paybefore. Over the past year-plus, the CFPB has tightened is focus on marketing practices in general. In April 2015, the agency cited combating deceptive marketing as among its highest enforcement priorities. And in a bulletin issued in November 2016, the bureau warned companies that incentive compensation could encourage improper marketing practices.
Meanwhile, clear fee disclosure requirements have been a hallmark of several recent CFPB proposals and rulemakings, including the agency’s landmark final rule on prepaid accounts, released in October 2016. “The consent orders reinforce the CFPB’s continued concern with consumers’ understanding of the utility of various financial products and services, including educational credit scores,” Maarec notes.
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