The Consumer Financial Protection Bureau - There is a New Sheriff in Town

The Consumer Financial Protection Bureau (CFPB) recently announced its latest round of settlements against large credit card issuers, which once again totaled in the hundreds of millions of dollars. The latest action, this time against Bank of America, levied a fine of $410 million in response to the financial giant’s practice of charging its cardholding customers stiff overdraft fees, often as high as $35 per transaction, when such fees were not warranted. Bank of America routinely processed debit transactions in order of highest to lowest amounts, instead of chronologically. This practice resulted in their customers having money taken out of their account in amounts that they had not anticipated, thus leading to an overdrawing of their accounts, and an overdraft fee that would not have occurred if the bank had processed the transactions correctly. This latest settlement brings the total to $536 million in fines against an array of credit card issuers with over 5.5 million customers being the beneficiaries of refunds and restitutions.

The CFPB was created as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act with the agency being tasked with the implementation and enforcement of federal consumer financial laws with the intention of promoting fair, transparent, competitive and accessible markets for consumer financial services and products. This new agency consolidates the consumer financial protection responsibilities previously scattered amongst seven different governmental bodies. Through the exercise of its enforcement powers, the CFPB has the discretion to craft any appropriate legal or other equitable remedy to address violations of consumer financial protection laws. The resultant agency is a powerful one, possessing sweeping oversight authority, including exclusive jurisdiction to oversee compliance with consumer protection laws for banks with assets exceeding $10 million. The CFPB also has limited powers to monitor smaller banks and depository institutions, as well as supervisory authority over such entities as credit unions, residential mortgage companies, payday lenders, educational lenders and credit reporting companies.

The action taken against Bank of America represents only one of several such moves by the CFPB in recent months. Other efforts to crack down on deceptive credit card practices include penalties against Capital One and Discover. Capital One, charged the agency, “pressured or misled [customers] into buying credit card products they didn't understand, didn't want or in some cases, couldn't even use." Discover was accused of deceptive telemarketing tactics to sell add on credit card products by “implying that the products were additional free 'benefits,' rather than products for which a fee would be applied to their accounts."

In its aggressive efforts against these high profile companies, the CFPB has sent a clear message to the financial services industry, and the public, that large settlements are now the order of the day for companies that have violated consumer protection laws. Included in a recent CFPB press release was a statement issued by the agency’s director Richard Cordray saying that “we are signaling as clearly as we can that other financial institutions should review their marketing practices to ensure that they are not deceiving or misleading consumers into purchasing financial products or services.” Given the sizable amounts firms have been fined to date, Mr. Cordray’s assertion of there being a clear signal sent is both reasonable and supported by the amount of public discourse his agency’s actions have generated.

While it remains to be seen whether or to what degree banks and other financial services providers toe the line, the heightened profile of the agency and its stated casus belli can only be viewed as a positive, even by the agency’s detractors. This is a conversation that we, as a society, need to have. Consumer protection is a critical aspect of public confidence in our banking system and markets. Every time the government, in whatever capacity, emphasizes that it is on the watch, ready to stand up and protect the average American customer, particularly in an environment that is as often confusing and complex as the financial services industry, public confidence is reinforced. Such reinforcement is an absolutely necessary component to the ongoing economic recovery, a recovery that has lagged, in part, because confidence in our finance system is minimal or in many instances entirely nonexistent.