Has Your Business Encountered the Consumer Financial Protection Bureau?

The Consumer Finance Protection Bureau (“CFPB”), created pursuant to the amendments to the Dodd-Frank Wall Street Reform and Consumer Protection Act, is an independent agency responsible for consumer protection in the financial sector. Its scope of jurisdiction covers many financial services, including banks, credit unions, securities firms, payday lenders, mortgage-servicing operations, forfeiture relief services, debt collectors and many others.

The CFPB's reach appears to be expanding beyond initial expectations, with its scope spreading into arguably non-traditional areas of financial consumer protection. In January 2014, the CFPB brought its first enforcement action involving deferred interest products. It entered into a consent order with GE Capital Retail and its subsidiary, CareCredit. According to the consent order, CareCredit provided a credit card to consumers for use with dental and medical providers enrolled with CareCredit. When applying for a CareCredit Card, applicants were presented with a choice of either a deferred interest option or a fixed-rate 14.9% payment option.

The consent order alleges that CareCredit engaged in unfair acts and practices by failing to:

• Adequately train the medical provider staff 
• Monitor the sale of its CareCredit Card at the medical provider level
• Ensure disclosures given to consumers could counteract the “erroneous” information provided orally to consumers

Further, the CFPB alleges that CareCredit engaged in deceptive acts and practices because it operated the medical provider channel for the CareCredit Card and thus was responsible for the incorrect statements provided. The CFPB also claims consumers were not adequately educated about the “no interest” programs and the fact that the APR would rise to 26.99% if the cardholder failed to pay the deferred balances in full and on time.

Additional examples of concern include a recent announcement of a $722 Million penalty for Bank of America premised upon its credit card practices. And, on April 2nd of this year, the CFPB sued the for-profit college chain, ITT Educational Services, accusing it of predatory lending and prompting a stern warning to other such institutions. The complaint focuses on “tuition-gap” funding provided by a zero-interest loan called a “Temporary Credit.” The loan has to be repaid at the end of the first year, but the CFPB alleged ITT knew the students could not possibly pay back the loan at that time. Students were allegedly rushed through the process which presented a strong chance of them not understanding their payment obligations.

Companies that are subject to enforcement action by the CFPB should pay attention to their activities and be aware of the growth of their reach. Should you want additional information as to aspects of the CFPB and the possible impact on your company, please respond to this email or contact your Elarbee Thompson attorney.