The CFPB’s Taskforce on Federal Consumer Financial Law released its report making recommendations on how to improve consumer protection in the financial marketplace.
The CFPB created the Taskforce in October 2019 to examine ways to harmonize and modernize federal consumer financial laws. The Taskforce was charged with examining the existing legal and regulatory environment for consumers and financial services providers and making recommendations to the Bureau’s leadership for improving consumer financial laws and regulations.
The report consists of two volumes. Volume I (798 pages) contains a historical and economic overview of consumer finance, covers the key principles guiding federal consumer financial law and policy, and discusses particular topics that the Taskforce considers important to the Bureau’s work. Volume II (100 pages) contains the Taskforce’s specific recommendations (which number 102) for improving and strengthening the application of financial laws and regulations. The Taskforce report reflects the unanimous views of its five members.
The Taskforce identified the following three “overarching principles” as animating its drafting of the report:
- Consumer protection policy should be particularly attentive to the consequences for inclusion and access by previously underserved communities. To that end, facilitation of competition, innovation, and consumer choice in the marketplace should be an essential element of consumer protection policy.
- The focus of consumer protection policy should be avoiding harms to consumers rather than attempting to specify how providers should design and market their products.
- Modernization of the existing regulatory framework is needed to allow it to adapt more nimbly to changes in technology and consumer preferences, respond to new opportunities and consumer threats, and address future crises (such as the 2008 financial crisis and the COVID-19 pandemic).
Key Taskforce recommendations include the following:
- Alternative data. The Bureau, Congress, and other federal and state regulators should (1) identify and eliminate unnecessary and undue restrictions on the ability of consumer reporting agencies to report certain types of alternative data (payment and cash-flow data), including through the Bureau clarifying the FCRA’s application to data aggregators and the use of alternative data, and (2) exercise caution in restricting the use of nonfinancial alternative data.
- Bureau reorganization. The Bureau should reorganize its internal structure so that it is primarily organized around markets instead of tools (i.e. enforcement, rulemaking and supervision). For example, the Bureau could have units dedicated to credit cards, mortgages, small dollar loans, fintech, and third party service providers (such as debt collectors and mortgage servicers), with each unit having enforcement, rulemaking, and supervision responsibilities. Tools such as research, consumer education, and consumer complaints might remain Bureau-wide, but the staff in each of these areas would be expected to develop expertise in working with each of the market-based units.
- Credit reporting. The Bureau should engage in rulemaking to (1) clarify the obligations of CRAs and furnishers with respect to disputes under the FCRA, (2) codify the FTC’s FCRA interpretations (and assess whether any interpretations require updates or revisions), and (3) update and revise the FCRA’s summary of consumers rights, notice to furnishers of information to CRAs, and notice to users of consumer reports. Congress should adopt FCRA class action damages limits in order to bring the FCRA civil liability provision in line with other consumer protections statutes such as the TILA and ECOA.
- Deposit accounts. To expand access to payments systems by unbanked and underbanked consumers and ensure consistent treatment of similar products, the Bureau should apply the same Regulation E rules to prepaid cards and debit cards by requiring issuers of both types of cards to provide the same Regulation E overdraft opt-in ability and “just-in-time” fee disclosures and allow issuers to apply new funds first to overdraft fees and negative balances.
- Disclosures. Disclosures mandated by Congress and the Bureau should consist only of the minimum information consumers need to make an informed decision and to verify they have received the product terms promises. The Bureau should only issue disclosure-related rules guided by research into what information is important to consumers and should use this research to re-think its overall approach to disclosures. As appropriate, based on research, the Bureau should make recommendations to Congress for disclosure reform and should also reform the disclosures that the Bureau has discretion to require. The Bureau should develop a foreign language disclosure scheme that allows financial institutions to reach out into underbanked/unbanked consumer communities without forcing the financial institutions to maintain an underlying foreign language infrastructure. (In her remarks given during the CFPB event announcing the report’s release, Director Kraninger indicated that a new CFPB development was imminent regarding limited English proficiency consumers.)
- Electronic signatures and document requirements. Congress should (1) eliminate the E-Sign Act’s antiquated requirements, including the required disclosures regarding necessary hardware and software and the requirement for a consumer’s consent to be in a manner that reasonably demonstrates that the consumer can access information in the electronic records, and (2) more generally, consider revising the consent process to allow consent by either a simple statement of consent to conduct the transaction electronically or an inference from the transaction’s circumstances. Pending Congressional action, the Bureau should (1) provide guidance as to what constitutes a “reasonable demonstration” that a consumer can access information in the electronic records, and (2) enable electronic disclosures to consumers by reviewing its rules that require information to be provided “in writing” and consider amending such rules, when possible under the relevant law, to allow electronic disclosure.
- Enforcement. The Bureau should (1) issue a policy statement on the concept of consumer harm, (2) adopt a public statement on how it will determine appropriate consumer restitution and civil penalties in matters, with the Bureau’s objectives to relate principally to the magnitude of consumer harm and to be adjusted as needed to further deterrence, (3) issue “Enforcement Highlights” to provide guidance on the factors the Bureau might consider in deciding not to bring an enforcement action, (3) adopt the 1998 FFIEC Interagency Policy Regarding Assessment of Civil Money Penalties which sets forth 13 relevant factors that the federal banking agencies should consider in assessing civil penalties, and (4) adopt and publish a civil penalty matrix based on the factors in the 1998 FFIEC Interagency Policy and consistent with the matrices of the federal banking regulators, together with public guidance to enforcement staff on how to apply the matrix factors. Congress should reconcile the civil penalty and redress authorities of the federal banking regulators, the Bureau, and the FTC, including giving the FTC statutory authority to obtain consumer restitution for any unfair or deceptive practice that is dishonest or fraudulent and giving the Bureau and federal banking regulators civil penalty authority for unfair or deceptive acts and practices that are also dishonest or fraudulent or that violate another statute or regulation.
- Equal access to credit. The Bureau should (1) conduct research on whether the ECOA should be amended to include disability as a prohibited basis, (2) modernize Regulation B in various areas such eliminating the ban on questions about plans for childbearing, the prohibition on considering whether an applicant has a telephone listing in the applicant’s name, and the requirement for a creditor to consider the credit history of accounts in a spouse’s name for which the applicant is not contractually liable but is authorized to use, (3) issue a rule that sets forth the standard it will apply to disparate impact and how it will apply that standard, (4)(a) address any future concerns about credit discrimination in pricing by auto dealers through its ECOA enforcement powers with auto dealerships under its jurisdiction rather than through enforcement against banks and other creditors that take assignments of financing contracts, and (b) when evaluating an auto dealer’s ECOA compliance, take into account the legitimate non-discriminatory reasons a dealer may vary the APR over the assignee’s wholesale buy rate, the requirements of a manufacturer’s promotional rate offering, the additional time and effort needed to find financing for some applicants, and similar non-discriminatory business reasons.
- Fintech regulation. Congress should authorize the Bureau to issue licenses to non-depository institutions that provide lending, money transmission, or payment services. Licenses should provide that these institutions are governed by the regulations of their home states, even when providing services to consumers in other states. The Bureau should consider the benefits and costs of preempting state law in some specific cases in which the potential for conflict can impede the provision of valuable products and services. Alternatively, Congress should clarify that the OCC has authority to issue charters to such non-depository institutions.
- Supervision. The Bureau should (1) consider conducting automated or data-based examinations whenever possible, (2) focus its supervisory activity on an institution’s compliance with consumer protection laws and base and institution’s exam rating on the outcome of its compliance management system (CMS) rather than the quality of its CMS, (3) unless otherwise necessitated by laws that require the presence of a CMS, limit CMS considerations to risk assessments in setting exam scope and focus, (4) change its supervisory appeal process to increase fairness and consistency, (5) revisit its larger participant rules to assess the cost and benefits of the rules in conducting effective supervision and promoting consumer protection. Congress should grant the Bureau explicit authority to examine institutions for Military Lending Act compliance.
- Small dollar credit. States should be cautious when setting interest rate caps when regulating small dollar loans and carefully consider the negative impact on credit availability when considering further regulations. Preferably, interest rate caps should be eliminated entirely. More generally, states should reconsider, update, or eliminate usury laws as appropriate, recognizing the high costs such laws impose by denying valuable services to consumers who need them.
- Regulatory principles. The Bureau should rely on principles-based regulations that protect consumers from harm while promoting access, inclusion, innovation, and competition, rather than detailed and specific regulations that can become quickly outdated, impose more costs than necessary, and foreclosure innovative new approaches to protecting consumers.
- Competition. With regard to licensing, (1) the Bureau should research the effect of state licensure laws for covered entities and whether the burden and time for licensing approval creates unwarranted barriers to entry, and (2) states should consider eliminating or streamlining licensing requirements for financial services providers to avoid anticompetitive barriers to entry. With regard to RESPA settlement service packaging, the Bureau should remove regulatory barriers to allow guaranteed prices on packages of settlement services
Following the issuance of the Taskforce’s report, Acting Comptroller of the Currency Brian Brooks issued a statement in which he appeared to take issue with the Taskforce’s recommendation that the Bureau should be given authority to issue licenses to non-depository institutions that provide lending, money transmission, or payment services. Mr. Brooks stated:
Under the law, the agency that grants national charters to companies engaged in lending, payments, or deposit-taking is the Office of the Comptroller of the Currency (OCC), which has the responsibility for prudential supervision to ensure these chartered institutions operate in a safe, sound, and fair manner. In its wisdom, Congress in the Dodd-Frank Act separated chartering and prudential supervision from consumer protection enforcement, assigning chartering authority to the OCC and specific consumer protection enforcement authority to the CFPB. The additional protections implemented following the last financial crisis put two cops on the beat and separated those responsibilities so neither would be compromised in service to the other. That dynamic should be preserved so that the CFPB continues to enforce compliance with enumerated financial consumer protection laws for the financial companies designated by the Dodd-Frank Act, while at the same time avoiding the creation of a prudential supervision gap that could lead to serious safety and soundness risks.
The CFPB’s creation of the Taskforce has been challenged in a lawsuit filed in June 2020 in Massachusetts federal district court by the National Association of Consumer Advocates, U.S. Public Interest Research Group, and Professor Kathleen Engel. In addition to a declaration that the creation and establishment of the Taskforce is unlawful, the relief sought by the complaint includes an injunction barring the Bureau from relying on or using any Taskforce recommendations or advice. The CFPB has filed a motion for partial dismissal of the complaint.
Within minutes of its release, the Taskforce’s report met with criticism from consumer advocacy groups, including the plaintiffs in the lawsuit, who released a statement in which they called the Taskforce an “illegal advisory group” and asserted that the report “recommends changes to consumer protections that will prove harmful to Americans struggling to weather the economic fallout of the ongoing pandemic.”
Given the imminent change in Administrations, there is considerable uncertainty as to what the ultimate impact of the Taskforce’s recommendations will be.