Predatory lenders may face CFPB payback

An April 23, 2021, U.S. Supreme Court decision in the matter of AMG Capital Management LLC v. FTC may have far-reaching consequences for the Federal Trade Commission and Consumer Financial Protection Bureau, agencies that share enforcement authority over unfair lending practices, legal analysts noted.

While conceding that the defendant used predatory practices, the justices were reluctant to grant broad authority to the Federal Trade Commission to impose fines on lenders on behalf of consumers. This action reined in the FTC's ability to enforce and prosecute fraud, according to Melissa Baal Guidorizzi, counsel at O’Melveny, an international law firm.

Guidorizzi, who recently joined O'Melveny as a financial services specialist after serving eight years at the CFPB, suggested the ruling may spur other state and federal agencies to increase oversight. “We expect aggressive enforcement and coordinated efforts between the agencies to increase, in concert with the numerous new consumer protection offices and resources implemented over the last several years by state regulators and attorneys general,” she said.

Changing of the guard

Guidorizzi told The Green Sheet that the CFPB has unique authority over banks and nonbank financial institutions, with the ability to promote consumer protections regardless of which type of entity offers the product. The bureau has received complaints about money transfer, virtual currency and money services and will likely increase scrutiny of fintechs and alternative lenders, she noted, adding that the CFPB recently revived its abusiveness standard.

Rohit Chopra, current FTC commissioner who is awaiting confirmation as CFPB director, would like to see the FTC and CFPB work together to enforce best practices. In an April 20, 2021, opening statement before the United States Senate Committee on Commerce, Science and Transportation Hearing on “Strengthening the Federal Trade Commission’s Authority to Protect Consumers,” Chopra proposed that the FTC must make tech companies more accountable for their actions when they violate consumer protections.

"First, we must make clear that FTC orders are not suggestions," Chopra stated. "Google is not the only company to engage in repeat offenses." For example, Facebook continued user surveillance practices, after being ordered to stop in 2012 and 2019, and received special immunity provisions for top executives and broad releases for unknown violations.

Chopra went on to say that tech platforms provide fraudsters with marketplaces for counterfeit and illegal products. "I am particularly concerned that ecommerce marketplaces are becoming a haven for counterfeit and unsafe goods, including fake PPE and medicines to treat COVID-19, while platforms wipe their hands of responsibility for the harm that results," he said.

Collaboration needed

Guidorizzi agreed that COVID-19 accelerated nonbank fintech activities, which proportionally increased consumer law violations. "In the last year, consumers have flocked to products offered by nonbank fintech companies at an accelerated pace," she said. "During that same period, a recent review of consumer complaints by the bureau noted a significant increase in complaints against nonbank financial services providers."

Guidorizzi noted that her firm's fintech team has deep consumer financial services and cryptocurrency expertise and, as consumers move from traditional bank products into digitally native alternatives, O’Melveny is helping clients prepare for scrutiny and navigate inquiries.

"The Bureau already has authority over a broad range of nonbank fintech companies that offer consumer financial products and services," Guidorizzi said. "The increase in consumer adoption of these products will encourage the bureau to use its resources to ensure that they comply with consumer financial laws."

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