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CFPB May Fill Enforcement Gap After FTC's High Court Loss

As the Federal Trade Commission looks for a way forward after its bruising encounter with the U.S. Supreme Court last month, fintech firms and other non-banks could see the Consumer Financial Protection Bureau step in to pick up enforcement slack.

The smoke is still clearing from the high court's April 22 decision that sharply curtailed the commission's ability to pursue monetary relief from lawbreakers in federal court, a rebuke that has cast a pall over two dozen pending cases and sent lawmakers scrambling to come up with a fix.

But while Congress may eventually giveth what the justices taketh away, financial services attorneys say the FTC could get some help in the near term from the CFPB, which shares some jurisdiction with its older cousin and has a broader arsenal of enforcement tools at its disposal.

"I think there is a real possibility for enforcement to migrate now from the FTC to the CFPB," said Gibson Dunn & Crutcher LLP partner Helgi Walker, who is co-chair of her firm's administrative law and regulatory practice group.

Since the 1970s, the FTC has relied on Section 13(b) of its governing statute, the FTC Act, to go to court and win redress for violations of the statute's ban on unfair and deceptive conduct. By the agency's own tally, these cases have yielded more than $11 billion in consumer refunds over the past five years alone.

But the Supreme Court ruled last month in AMG Capital Management v. FTC  that the agency's reliance on Section 13(b) has been misplaced. The justices held unanimously that this section of the law gives the FTC a direct path to court only for obtaining injunctions, leaving restitution and other "equitable monetary relief" off-limits until the agency has first tried and won a case administratively.

This two-phase process is arguably more cumbersome and resource-intensive, forcing the commission to clear additional hurdles that could slow down its enforcement program and embolden bad actors. That's why Congress is accordingly considering legislation to re-equip the agency with the remedial powers the Supreme Court said it lacked.

But the CFPB doesn't have that problem. Under the Dodd-Frank Act, the agency is empowered to sue for restitution and other relief without having to go through administrative proceedings beforehand — and it can impose more aggressive civil money penalties than the FTC.

The CFPB can also deploy these tools against a broader range of alleged misconduct, including practices it deems abusive as opposed to just unfair or deceptive. As a result, its involvement in an FTC enforcement matter could "raise the stakes" for a potential defendant, according to Venable LLP partner Allen Denson.

"The bureau does have more penalty authority than the FTC does," said Denson, who represents consumer financial services clients. "It's easier for the bureau to assess a penalty, and the penalties that it can assess are more than the FTC can. It also has that extra 'abusiveness' [authority], which can make it easier for the bureau to bring a new case."

Given its narrower, financial services-specific jurisdiction, the CFPB wouldn't be able to pinch-hit for the FTC in every case. But some of their regulatory turf does overlap: both agencies have authority to police the business practices of debt collectors, consumer reporting companies, online lenders, payments providers and other players in the growing non-bank sector.

Because of that overlap, the two agencies already have a history of collaboration. Since 2012, the FTC and CFPB have had formal agreements in place to coordinate on enforcement efforts, and they have tag-teamed on cases related to mortgage servicing, credit reporting and debt collection.

"With that groundwork having already been laid, I think it makes it a very real chance that we're going to see enforcement actions being picked up at the CFPB," Gibson Dunn's Walker said.

Indeed, in recent weeks, the FTC and CFPB have said they're jointly monitoring eviction practices in the rental housing industry to ensure compliance with federal protections tied to the pandemic.

Sean Royall, a Kirkland & Ellis LLP partner who focuses on antitrust and consumer protection, said he also sees some scope for such partnerships as a near-term response to the Supreme Court's decision.

"In the wake of the AMG decision, the FTC could consider in certain cases teaming up with other agencies that have broader enforcement or remedial authority," Royall said. "That's something we could see happening in response to this curtailment in the FTC's powers, and conceivably this might include collaboration with the CFPB. There are certainly instances in the past in which the FTC and CFPB have joined together in other contexts."

The idea of collaboration has also been talked up before by one particular key official: FTC Commissioner Rohit Chopra, who could soon be in charge of the bureau.

Chopra is the Biden administration's nominee for CFPB director, and he has gone on record during his time at the FTC as being in favor of greater cooperation between the two agencies. To help crack down on privacy and cybersecurity lapses by non-banks, for example, he has said the FTC could partner with CFPB for its civil penalty powers.

"What I learned as a federal regulator is that the agencies do interact more than some would think from their external positions," said O'Melveny & Myers LLP counsel Melissa Baal Guidorizzi. "A lot of that is driven by good working relationships, so if a future Director Chopra already knows the FTC well enough to leverage its resources, that could make coordination more efficient and more available."

Guidorizzi, who left the CFPB in March after nearly eight years as a senior enforcement adviser, stressed that collaboration between the two agencies in the past has been handled "very much on a case-by-case basis." If there were to be more such collaboration in response to the high court's decision, it's unlikely the FTC would go so far as to hand over full responsibility or authority to the CFPB, she said.

Royall said he anticipates the FTC would be wary of fully delegating cases lest it be perceived as ceding authority that's taken years to develop, particularly on issues like data breaches and credit reporting where it has sometimes jockeyed with the CFPB.

"It's not just about retaining power and influence for the sake of it," Royall said. "Over the years, the FTC has made significant investments to build an informed, educated and experienced staff and build industry expertise, and they may feel it's very important to try to keep that expertise within the agency."

According to Royall, what would be more likely are scenarios in which the FTC brings in the CFPB or another agency when a new investigation is opened, allowing the two to delineate their respective authorities through any claims they may subsequently decide to pursue in an enforcement action.

"That might be an easier transition to bring about," Royall said, adding "the prospect of the CFPB becoming involved in already pending FTC cases seems considerably more problematic."

The CFPB also has its own priorities and may not have a lot of enforcement bandwidth to spare, Venable's Denson said. And of course, the FTC may find it doesn't need to call upon other regulators if Congress moves swiftly to blunt the impact of the Supreme Court's decision.

Although lawmakers are still hashing out the details of what such a fix should look like, financial services attorneys told Law360 the FTC's current predicament could prove short-lived.

"This may be a situation that corrects itself pretty quickly," Denson said.

But Guidorizzi said that with consumer protection issues on the rise generally, non-bank financial service providers can expect greater scrutiny either way.

"The fact that the bureau may take a more leading role could be a significant issue for some clients," Guidorizzi said.