On February 22, 2021, the Consumer Financial Protection Bureau (CFPB) filed its first lawsuit since the US presidential election and subsequent resignation of Director Kathy Kraninger. The lawsuit alleges that the defendant engaged in deceptive and abusive practices by charging detained immigrants large upfront and monthly fees to arrange for payment of immigration bonds securing the immigrants’ release. The complaint lays out a rather damning set of facts alleging that the defendant misrepresented the nature of its services to consumers, many of whom do not speak English, and then engaged in aggressive collection actions. As the CFPB’s first lawsuit of the Biden administration, it offers some clues as to the direction of CFPB enforcement.
1. Expansive view of jurisdiction.
The CFPB’s lawsuit represents an expansive view of the agency’s jurisdiction. The CFPB can bring actions for unfair, deceptive or abusive acts or practices (UDAAP) only against “covered persons”—those who provide consumer financial products or services. Such services include making loans as well as collecting debt that is itself related to “any consumer financial product or service.” And, indeed, the agency’s enabling statute includes an express exclusion of authority over sellers of nonfinancial products and services.
Here, the complaint alleges that the defendant served as an intermediary between the detainees and the sureties and bond agents who actually post the immigration bonds resulting in the consumer’s release from detention. As alleged in the complaint, therefore, the defendant was selling a service, not a loan. That service—acting as an intermediary to help secure an immigration bond—is not a consumer financial product or service. Absent some other hook, therefore, the defendant’s conduct—both in marketing its services and in collecting for those services—would be outside the CFPB’s authority.
Apparently recognizing this, the CFPB’s complaint alleges in several instances that the defendant misrepresented to consumers that it paid the bond and that the monthly payments that it charged consumers were “payments toward a loan.” Accordingly, the complaint alleges that because the defendant “creates the reasonable impression in the consumers’ mind that it is offering or providing extensions of credit to pay for consumers’ immigration bonds,” the transactions at issue are “consumer financial products or services” and the defendant is a covered person subject to the CFPB’s UDAAP authority. At its essence, the CFPB’s position appears to be that although the defendant was not in fact providing a consumer financial product or service, it is nevertheless subject to the agency’s authority because its alleged deceptive practices led consumers to believe that it was.
Whether the CFPB’s authority extends to conduct such as this will be for a court to determine. But the fact that the CFPB was willing to proceed with this lawsuit suggests, not surprisingly, that it will seek to expansively assert its jurisdiction. And that it won’t be afraid to do so in litigation. Although the case was brought under Acting CFPB Director Dave Uejio, this approach comports with the apparent views of Director-nominee Rohit Chopra. As an FTC Commissioner, Mr. Chopra has written that that agency should “demonstrate greater willingness to pursue” litigation because such actions contribute to “important development of the law” and can “cement” an agency’s authority to pursue certain conduct.
As we’ve written before, the CFPB under Director Kraninger continued to assert abusiveness claims, notwithstanding industry concern with that aspect of the agency’s authority. It is no surprise, therefore, that the CFPB in the Biden administration would pursue such claims. But it is a little surprising that it would be among the first claims asserted. The complaint alleges that the defendant’s use of predominantly English-language agreements to enroll clients, when it knew that many of its clients did not understand English, and its omission and misrepresentation of materials terms in the written agreement during the enrollment process “materially interfered with consumers’ ability to understand the terms and conditions” of the defendant’s services and thus constituted abusive acts or practices. As with many abusiveness claims, the underlying conduct alleged could have been characterized as either unfair (because it caused consumer injury that consumers could not reasonably avoid given their lack of English language skills) or deceptive (based as it was on alleged omissions and misrepresentations). That the CFPB chose to plead this as an abusive claim seems to be a signal of the agency’s intent to use the full range of its authorities going forward and that it will not hesitate to bring abusiveness claims.
3. Acting Director Uejio will not be gun shy.
Acting Director Uejio has publicly signaled that he does not intend to serve merely a caretaker role pending the confirmation of Mr. Chopra. This lawsuit puts proof to that assertion. We know that the investigation of the defendant has been pending since at least August 2017, when the CFPB issued the company a Civil Investigative Demand. The company sought to quash that demand, but its petition was denied by then-Director Richard Cordray. That the CFPB did not file suit until now—almost three-and-a-half years after that decision—might suggest that there was less appetite to pursue this case under Director Kraninger. That Acting Director Uejio authorized the lawsuit is proof that he will not be reluctant to act, even where there may be questions about the CFPB’s authority.
The lawsuit also provides a concrete example of Acting Director Uejio’s focus on racial equity issues, extending beyond traditional fair lending concerns. The CFPB’s press release describes the case as “a prime example of how people of color are targeted in financial scams and the latent inequity that is too often found in the market for financial products and services” and notes the CFPB’s “commitment to addressing racial injustice in the market.” The CFPB’s authorities for dealing with discrimination are focused on fair lending, but this case serves as an example of how those concerns may drive enforcement policy in other areas as well.
4. Return of the pejorative press release.
In the CFPB’s early days, under Director Cordray, the CFPB’s press releases did more than just relay the facts of the case. They tried to tell a story, often using pejorative terms such as “scam” and “rip off,” especially when non-bank companies were involved. Indeed, it seemed like the press office used a thesaurus to pick words to describe conduct that the CFPB found unseemly. That changed under Acting Director Mick Mulvaney and Director Kraninger. The press releases issued during their tenure were more focused on the facts of the case and lacked the colorful adjectives of the past—the word “scam” does not appear once in any enforcement press release issued on their watch. That era seems to be ending. The CFPB’s press release announcing this case describes the company’s allegedly “predatory” services as a “scam” and a “cash grab scheme” and references the consumers involved as “victims” who were “prey[ed]” upon. We expect that the tone of press releases in the years ahead will be similarly harsh, particularly when dealing with more troubling factual assertions.