Attorneys from Debevoise & Plimpton warn financial technology companies that the Consumer Financial Protection Bureau’s recent actions indicate it wants to broaden its jurisdiction.
10/14/2022 2:15 P.M.
3 minute read
Recent actions by the Consumer Financial Protection Bureau signal it intends to broaden its scope of jurisdiction, particularly over non-bank entities that participate in the consumer financial services sector. Fintechs must remain prepared for this added scrutiny. In a recent article from Bloomberg Law, attorneys from Debevoise & Plimpton detail the CFPB’s scope and jurisdiction while also providing tips on preparation and protection for financial technology companies.
“Actions against fintechs include efforts to supervise or otherwise regulate technology companies that operate in the payments space or collect, analyze, and monetize consumer financial data. The CFPB published an interpretive rule asserting enforcement authority over digital marketers that deliver content to consumers on behalf of consumer financial service companies,” according to the article. “The CFPB also announced an intent to supervise entities it deems to ‘pose a risk’ to consumers.”
Jurisdiction Under the CFPB
The CFPB’s interpretive rule for digital marketing providers for financial firms outlines how they must comply with federal consumer financial protection law, ACA International previously reported.
When digital marketing providers go beyond traditional advertising, they are typically covered by the Consumer Financial Protection Act (CFPA) under the definition of service providers, according to a news release from the CFPB. This means they could also be subject to the law’s consumer protections.
The CFPA contains an exception for companies that solely provide time or space for an advertisement for a consumer financial product or service through print, newspaper or electronic media. However, the CFPB recently stated that the exception does not cover firms that are materially involved in the development of content strategy.
“The CFPA is also authorized to seek injunctive relief in enforcement actions. Recent statements by CFPB Director Rohit Chopra have made clear that the agency is seeking to enforce ‘limits on activities or functions of a firm’ to promote ‘structural’ changes at financial services firms to prevent future violations,” according to the Bloomberg Law article.
The CFPB’s interpretive rule does not mention debt collection; however, financial services companies should review it for any requirements for work with digital marketers, ACA previously reported. Additionally, as an interpretive rule and similar to the several other interpretive rules issued this year, it is exempt from the notice-and-comment rulemaking requirements of the Administrative Procedure Act, according to the CFPB.
“Perhaps the most damaging threat of CFPB scrutiny is the reputational hit that may come with a public enforcement action or even mere disclosure of an investigation,” Bloomgberg Law reports. “Consumer trust is critical to the brand of any company that contributes to the offering of a consumer product, particularly in an arena that used to be the province of banks. Any reputational damage also could affect a fintech’s relationships with its investors and impair future fundraising efforts.”
First, the article states that “knowledge of the regulatory landscape in which a fintech operates is critical. This means taking the time to look at recent CFPB guidance, enforcement actions, and regulations in the relevant market. Have similarly situated fintechs been the subject of a consent order or scrutiny in some other way? What lessons can be learned from those companies and regulatory actions?”
Second, it cautions that fintechs should analyze any stress or risk points with consumers in light of new CFPB guidance.
Fintechs should, for instance, consider the consumer data they gather, the effectiveness of their cybersecurity procedures and policies regarding that data, if they sell any consumer data, and if so, whether consumers are provided the necessary disclosures when asked for their information.
Finally, to prevent being caught off guard if they come under CFPB examination, fintechs should hire counsel who are familiar with their business, clients, and compliance systems and who understand the CFPB’s processes.
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