Critical Insights Into the State and Federal Consumer Finance Enforcement Agenda

Financial Services Law

Insider offers critical insights into the consumer finance enforcement agenda. Read on for details.

What happened

On July 23–24, I co-chaired and spoke at the American Conference Institute’s 31st National Forum on Consumer Finance Class Actions and Government Enforcement in Chicago, Illinois. The panels on state and federal enforcement shared important intelligence regarding enforcement agendas, subject to the usual disclaimer that no one was speaking officially or on behalf of their employer.

Most notably, the audience was treated to a detailed list of activities and industries of interest to the Federal Trade Commission (FTC), which—in the absence of a Cordray-led Consumer Financial Protection Bureau (CFPB)—has become the most aggressive federal enforcement agency in the consumer finance space. In addition to debt collection and data security, which already have been front and center on the FTC’s agenda, an agency panelist noted significant enforcement interest in fintech, lead generation, small-business finance and applying the Telemarketing Sales Rule’s (TSR) restrictions on debt settlement activities to lenders.

The FTC has been quite public about its focus on fintech, apparently because it perceives that some online lenders mistakenly believe that consumer finance laws don’t apply to them. Regarding lead generation, the agency intends to hold companies “up and down the chain” responsible for the use of improperly obtained or used leads, regardless of whether the company was directly involved in the wrongful activity. Regarding small-business finance, the FTC intends to be active because the CFPB has limited jurisdiction; the merchant cash advance industry in particular will be scrutinized. 

It also appears that the FTC will be going after lenders who negotiate settlements of their own debts over the telephone, arguing that such lenders are subject to the TSR’s restrictions on “debt relief services.” This runs contrary to the language of the TSR itself, and evokes memories of the CFPB’s attempts to regulate first-party debt collection through its UDAAP enforcement authority. Nevertheless, lenders should review and, where appropriate, revise their modification and forbearance programs with this theory (as wrong as it appears to be) in mind.

The panel of enforcement lawyers from state bank regulators and attorneys general (all from states with aggressive enforcement programs) also offered helpful observations on their areas of focus. In the fintech space, the panelists had negative views on lending partnerships between banks and fintech program sponsors. They indicated that programs lending below 36% are not necessarily safe from Madden and true lender attacks, although my sense was that the regulators are closely following the ongoing Colorado litigation over these issues and may wait for that to be resolved before asserting their own claims. 

Other areas of state enforcement interest included student lending (especially private student loans), auto finance (especially ancillary products and repossessions), lead generation, financing products structured as purchases rather than as loans (such as merchant cash advances and income-sharing agreements), and whether separate fees are properly disclosed and accounted for in required finance charge disclosures.

Why it matters

To the extent that the CFPB has moderated its enforcement practices, these panels confirmed that other federal and state agencies remain intent on “filling the void.” In sharing the enforcement focus of their agencies, the panelists admirably gave consumer and small-business finance companies an important opportunity to address compliance in these areas. Of course, doing so was fully consistent with the agency mission of ensuring that companies conduct themselves in a lawful and responsible manner. We look forward to working with clients to address these issues before costly enforcement actions force them to do so.