August 18, 2022

Consumer Financial Services Practice Digest

5 min

Legal and Regulatory Developments

CFPB Warning to Consumer Financial Services Digital Marketing Providers

Through a new interpretive rule announced this week, the Consumer Financial Protection Bureau has declared that digital marketing providers can be held liable under the Consumer Financial Protection Act if they engage in or substantially assist unfair, deceptive or abusive practices in advertising financial products on behalf of banks and nonbanks covered by the CFPA.

Five Common Consumer Financial Services Legal and Regulatory Due Diligence Mistakes to Avoid in M&A

Under many federal and state laws, the owner or operator of a consumer financial services provider is responsible for complying with numerous statutes and regulations. The failure to comply with legal requirements can lead to injunctions, consumer refunds, fines, and penalties and, in some instances, void consumer agreements. Often that liability is strict—the consumer financial services company need not have intended to cause the violation to be liable for financial payments and conduct restrictions. When acquiring consumer financial products and services, such as deposit products, lending activities, money transmission, or a business that provides consumer financial products or services, one key to avoiding consumer financial services law liability is to understand the regulatory risk before buying the portfolio or business.

CFPB Considers Whether to Regulate Certain Employer-Employee Arrangements as Financial Products

The Consumer Financial Protection Bureau, under Director Rohit Chopra's leadership, has taken the first step toward regulating what the CFPB describes as "employer-driven debt," which refers to a range of employment arrangements and practices that could result in an employee owing money to an employer (or other third party), such as requiring employees to make up-front purchases of equipment and supplies or to repay their employer for training if the employee leaves before a certain time frame.

Are Your Website Terms Enforceable? Maybe Not, According to These Recent Decisions

Whether they refer to their online terms as "website terms and conditions," "terms of use," or something else, online marketers and sellers often seek to enforce contracts to manage the relationships with their customers and mitigate the consequences of legal action. Two recent decisions illustrate that marketers must obtain and have proof that customers agreed to their terms.

California DFPI Issues Proposed Rulemaking on the Debt Collection Licensing Act

The California Department of Financial Protection and Innovation (DFPI) recently issued an invitation for comments on a proposed second rulemaking to implement aspects of California's Debt Collection Licensing Act (DCLA), along with a draft text of the proposed rule. The DFPI's rulemaking would amend its existing regulations implementing the DCLA (Cal. Fin. Code §§ 100000 et seq.) to add sections addressing the scope, annual report, and bond amount increase provisions of the DCLA. The DFPI is soliciting public comments on the proposed rule until Monday, August 29, 2022.

Marijuana Banking in 2022: Lessons Learned and Best Practices

As we pass the halfway mark of 2022, it's a good time to reflect on what has happened, or not happened, with respect to the legal framework for the provision of financial services to marijuana-related businesses (MRBs). In our review, the answer to this question is "not much" or, put differently, the more things change, the more they seem to stay the same. While advocates in Congress continue to push for reform, the prospect of comprehensive legal reform remains uncertain, and the federal government has taken few, if any, additional steps to provide guidance to MRBs or financial institutions seeking to provide them with basic banking services.

Comprehensive Risk Management in the Age of Regulation F

The CFPB's Debt Collection rule has had far-reaching implications for the debt collection industry and others. This session, presented by Jonathan Pompan and Alexandra Megaris at the ACA 2022 Annual Convention & Expo, explored the impact of Regulation F on debt collectors, and presented strategies that debt collectors can use to manage compliance risk and prepare for regulatory and private plaintiff scrutiny in light of the new rule. The session also focused on the importance of a strong risk and enterprise-wide compliance management system with cross-functionality.

Are You Prepared for an Examination?

The CFPB and other regulators have signaled that they intend to leverage their supervision and examination authority to increase oversight of the online lending industry. Dealing with an examination can be intimidating, but having the proper procedures in place goes a long way toward ensuring a successful outcome. At this OLA 2022 Compliance University session, Jonathan Pompan described the supervisory process, including monitoring, and offered best practices for putting your company in the best position to succeed in the event of an examination.

CFPB Warns Debt Collectors of Illegal Pay-to-Pay Fees

The Consumer Financial Protection Bureau issued an advisory opinion warning debt collectors that they may be collecting illegal fees from consumer-borrowers. Specifically, the Bureau has interpreted Section 808(1) of the Fair Debt Collections Practices Act as prohibiting "pay-to-pay fees" unless either the underlying contract creating the debt or an applicable law affirmatively authorizes the fees. In the announcement, CFPB Director Rohit Chopra said, "Federal law generally forbids debt collectors from imposing extra fees not authorized by the original loan."

Hot Topics in Artificial Intelligence and Machine Learning in Financial Services

Venable partners Andrew Bigart and Jonathan Pompan presented "Hot Topics in Artificial Intelligence and Machine Learning in Financial Services" to the Association of Corporate Counsel on June 22, 2022. They provided an overview of the legal framework governing artificial intelligence and machine learning, and practical insight into how businesses and their legal counsel can navigate risks, technology changes, and the continuing evolution of the policy and regulatory landscape. This program delved into recent legal and regulatory developments, including the latest from the Consumer Financial Protection Bureau and Federal Trade Commission, and discussed ways companies can use AI and ML as a part of your compliance and risk assessment programs.