As a fintech company, platform offering payment services, or a cryptocurrency business, you may be used to operating in uncharted waters; the Consumer Financial Protection Bureau (CFPB), however, is ready to start drawing some maps. It has announced that it will begin to exercise its supervisory authority over non-bank consumer financial entities that the CFPB has reason to believe pose risks to consumers. It also announced a new procedural rule to govern when CFPB decisions related to these supervisory actions will be made available to the public.
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Consumer Financial Protection Bureau Alleges Dark Patterns in Advertising of Financial Products; Files Suit Against TransUnion and Senior Executive for Violating Order
On April 12, 2022, the U.S. Consumer Financial Protection Bureau (CFPB) filed a lawsuit against TransUnion, two of its subsidiaries, and former TransUnion executive John Danaher in his individual capacity for violating an enforcement order. That order, from January 2017, was part of a settlement in which TransUnion agreed to pay $16.9 million in restitution and civil penalties for deceptively marketing credit scores and credit-related products, such as credit monitoring services.
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Starting Up the CFPB’s No-Action Letter Program
The expanding use of mobile technologies, cloud computing, and the Internet of Things has greatly increased the amount of available consumer data. The ability to efficiently process this information has the potential to provide countless consumer benefits. Nevertheless, companies must navigate an ever-expanding patchwork of domestic and foreign laws and uncertainty regarding the application of existing laws to new technologies. In addition, although regulators have commended the advancement and development of new consumer lending technologies, they also have warned that these new tools “carry the risk of disparate impact in credit outcomes and the potential for fair lending violations[.]” For companies under the authority of the Consumer Financial Protection Bureau (CFPB), the CFPB’s no-action letter (NAL) program offers a potential tool to help navigate these challenges. As described in the following article, however, the tool is not without risk for companies seeking regulatory guidance.
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CFPB Brings First Data Security Enforcement Action
The Consumer Financial Protection Bureau (CFPB) recently brought its first data security enforcement action, adding itself to the growing list of federal regulators tackling data security issues. The CFPB’s enforcement action was against Dwolla Inc., a Des Moines, Iowa-based online payment platform. The CFPB alleged that Dwolla misrepresented its data security practices, and as a result, Dwolla agreed to pay a $100,000 penalty and to implement significant data security measures.1 While this is only its first data security-related action, the CFPB appears to be taking very seriously its role in securing consumers’ financial information. The requirements the agency placed on Dwolla’s board of directors make this clear, as the board will be held accountable for any security shortcoming by the company. This goes beyond the typical requirements imposed by the Federal Trade Commission (FTC), the regulator with the most extensive data security experience, in its data security enforcement actions. As such, companies, especially financial technology start-ups, should take note of the data security requirements placed on Dwolla by the CFPB, and ensure that any statements made regarding the security of consumers’ information are accurate.
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Consumer Financial Protection Bureau Issues Final Rule Regarding Online Annual Consumer Privacy Notices
The Consumer Financial Protection Bureau (CFPB) recently adopted the Privacy Notice Rule, a final rule that permits the financial institutions it regulates the option to post annual consumer privacy notices online, rather than mailing paper copies to customers, under certain conditions.1
The Privacy Notice Rule is the latest instance of regulatory relief provided to financial institutions by the CFPB. The new rule, which follows on the heels of other streamlining rulemakings by the CFPB, aims to reduce unnecessary or unduly burdensome regulatory requirements in the financial sector: the CFPB estimates that, as a result of the rule, financial institutions’ compliance expenses will decrease by approximately $17 million annually.2
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