Watch this space

Will the Fifth Circuit’s ruling that the Consumer Financial Protection Bureau’s (CFPB) funding mechanism is unconstitutional impact the CFPB’s focus on compliance and enforcement in the financial services industry in the year ahead?

In the US, the CFPB has taken an aggressive approach to financial services regulation and compliance in 2022 (see BCLP’s summaries here and here), while also fighting challenges to its constitutionality. Of particular significance, in October 2022, the Fifth Circuit invalidated the CFPB’s payday lending rule and found that the CFPB’s funding structure violates the Appropriations Clause. While the potential implications of this ruling are significant, it is an outlier. Most courts have rejected such challenges, holding that the CFPB’s funding structure is constitutional.

Despite this ruling, we have seen the CFPB continue to focus on compliance enforcement in 2022, and we do not anticipate this slowing down in 2023:

Credit Reporting

Throughout 2022, the CFPB focused on the credit reporting industry (see BCLP’s summary here). In October, the CFPB issued an advisory opinion instructing credit reporting agencies to ensure that “junk data” is removed from credit reports. The CFPB described “junk data” as logically inconsistent account information and statuses, such as an account “whose status is paid in full, and thus has no balance due but nevertheless reflects a balance due” or “reflects an ‘Original Loan Amount’ that increases over time.” The CFPB advised that failing to remove such items from a consumer’s report violates an agency’s obligation to reasonably assure accuracy.

The CFPB has made it clear that it will continue to closely watch credit reporting agencies and furnishers in 2023.

A November 2022 circular, puts credit reporting agencies and those who furnish credit information on notice that the CFPB is focusing on investigative failures. The circular noted that regulators may bring actions against furnishers and agencies that do not investigate or seek to avoid investigations into consumer disputes.

The CFPB has made it clear that it will continue to closely watch credit reporting agencies and furnishers in 2023.

Overdraft Fees

In an October 2022 circular, the CFPB addressed “unanticipated overdraft fee assessment” by financial institutions. While the CFPB noted that certain types of overdraft fees are permissible, it concluded that imposing overdraft fees where a consumer does not anticipate them (e.g., if insufficient funds only become an issue after the transaction occurs) could violate the Consumer Financial Protection Act, Truth In Lending Act, and Electronic Fund Transfer Act. We believe that the CFPB will continue to watch these fees throughout 2023.

Crypto-Assets

The CFPB also has its eye on crypto-assets. In a November 2022 bulletin, the CFPB discussed the types of complaints that it has received in connection with crypto-assets, which it defines as “various digital financial assets and their associated products and services,” including specifically “a private sector digital asset that depends primarily on cryptography and a distributed ledger (such as a blockchain) or similar technology.” The CFPB put the crypto-asset industry on notice that it has received more than 8,000 crypto-asset complaints from consumers. The CFPB will continue to investigate “bad actors leveraging crypto-assets to perpetrate fraud on the public” into 2023.

The CFPB will continue to investigate “bad actors leveraging crypto-assets to perpetrate fraud on the public” into 2023.

Conclusion

In the US, the CFPB is battling on multiple fronts. On one front, the CFPB is fighting whether it is constitutionally funded and permitted to regulate the financial services industry. Elsewhere, the CFPB continues to monitor several other areas where consumers are submitting complaints, including credit reporting, overdraft fees, and crypto-assets.