A recent blog post from Manatt highlights the “first consent order under new Director Rohit Chopra” and points out that this consent order “returns the Bureau to the business of indirectly policing parties over which it has no jurisdiction, in this case state and local governments. It also confirms the new Director’s strategy of attempting to deter financing of certain types of businesses by ‘naming and shaming’ investors in companies found to have violated the law.” The consent order found that “a service provider to state correctional departments violated the Electronic Funds Transfer Act (EFTA) and the Consumer Financial Protection Act (CFPA) in providing prepaid debit cards to released inmates on behalf of its state and local government clients.”
According to the Manatt blog,
[w]hile this consent order may seem focused on an isolated corner of the consumer financial services space, we believe it provides important intelligence regarding Bureau policy in three respects.
First, the Bureau plainly has returned to indirect enforcement against parties over which it has no jurisdiction. As in a prior order in which Director Cordray’s CFPB attacked bad-check diversion programs run by local prosecutors by suing their service provider, here the Bureau used its authority over a service provider to challenge policies of elected state and local governments. The indirect auto finance consent orders are another example, in that case involving the Bureau’s indirect policing of auto dealers that are exempt from its authority. The lesson for all service providers is that direction from a customer, even if it is a government, is not a defense to Bureau enforcement action.
Second, reputational risks for institutional investors will be elevated significantly under Director Chopra’s CFPB. In the press release announcing the consent order, the Director chose to name the private equity firm that owns JPay, effectively punishing that firm for portfolio company activity without any due process. Investors and lenders therefore should be redoubling their focus on due diligence and oversight of companies they buy or finance.
Finally, the press release and consent order both suggest a greater focus at the Bureau on competition issues. JPay allegedly “abused its market dominance” and “denied [consumers] a choice on how their own money would be given to them upon release” by proposing in RFPs to eliminate cash and check alternatives to the debit cards, for example. We see this focus on market power as something to watch, particularly given the recent Bureau orders to certain large technology companies.
Eric J. Ellman is Senior Vice President for Public Policy and Legal Affairs at the Consumer Data Industry Association (CDIA) in Washington, DC. He also served for eight months as Interim President and CEO of the Association. More