In the last eight months, the Consumer Financial Protection Bureau (CFPB) has signaled its intent to expand its use of abusiveness theories in enforcement matters. In March, the CFPB rescinded the previous administration's policy statement regarding the prohibition on abusive practices; and in its recent action against JPay, the CFPB has begun to implement its more expansive approach.
Shortly after Director Rohit Chopra took the reins in September, the CFPB issued a consent order finding that prison financial services company JPay had violated the Dodd-Frank Act's prohibition on unfair, deceptive, or abusive acts or practices (UDAAP), 12 U.S.C. § 5531, as well as the Electronic Fund Transfer Act, and imposing $6 million in restitution and penalties on the company. But the fact of the enforcement action or the amount of penalties imposed were perhaps less noteworthy than Director Chopra's statement in support of that enforcement action.
When the CFPB rescinded the 2020 abusiveness policy statement, it stated that section 1031 of the Dodd-Frank Act broadly defines four types of prohibited abusive acts or practices:
- Materially interfering with someone's ability to understand a product or service;
- Taking unreasonable advantage of someone's lack of understanding;
- Taking unreasonable advantage of someone who cannot protect themself; and
- Taking unreasonable advantage of someone who reasonably relies on a company to act in their interests.
The CFPB found that JPay, by forcing consumers to pay fees to access their own funds, "took unreasonable advantage of consumers' inability to protect their interests" in violation of section 1031—one of the categories identified in that policy statement. JPay also was found to have violated the Electronic Fund Transfer Act by conditioning consumers' receipt of government benefits on establishing a JPay account.
Director Chopra, however, went farther than the language of the consent order, stressing that the laws JPay violated were designed to "prohibit abuses of dominance." Director Chopra, who has re-joined the CFPB after three years as a Commissioner at the Federal Trade Commission (FTC) now appears to be bringing an FTC antitrust lens to his Director's role at the CFPB.
Indeed, the footnote in Director Chopra's statement expounding on abuses of dominance is especially telling of his view that the CFPB's UDAAP authority incorporates prohibitions usually thought of as the realm of antitrust law:
Federal antitrust law prohibits unlawful acquisition of monopoly power. 15 U.S.C. 2. In some cases, the misuse of a dominant position in the offering of consumer financial services, where consumers cannot easily switch, is unlawful under the Consumer Financial Protection Act's prohibition on abusive practices. 12 U.S.C. 5531(d)(2)(B).
As Director Chopra noted, JPay was in a "dominant position" in this case with respect to a specific market of vulnerable consumers—prison inmates. JPay's debit card product was provided to inmates upon release from prison and allowed them to access funds that they had either earned (through prison jobs) or received (as transfers from family or friends) while incarcerated.
Notably, JPay acquired its dominant position with the help of the state and local governments that run departments of correction, and who appear to have eliminated alternatives to JPay. But the CFPB seems to have been less concerned with how JPay acquired its position than how it used its position.
JPay allegedly exploited the fact that its consumers had no choice as to how to receive these funds by charging fees for, among other things, balance inquiries, withdrawing funds, and calling customer service. In addition, the CFPB's consent order with JPay cited numerous examples where the disclosures provided to the consumers did not accurately reflect the fees that were being charged—meaning that the fees were mispresented or, in some cases, not authorized by the cardholder agreement.
Based on these findings, in the consent order JPay agreed to the following:
- Limited Fees – JPay will not charge fees to use its prison release cards, other than an inactivity fee that may only be imposed after at least 90 days of inactivity;
- Restitution – JPay will pay $4 million in damages for the CFPB to administer as redress to injured customers; and
- Civil Money Penalty – JPay will pay $2 million to CFPB's Civil Penalty Fund.
We expect to see antitrust principles finding their way into more CFPB enforcement actions, not only because of Director Chopra's strong background in antitrust enforcement, but also because the Biden Administration has directed all federal agencies to find ways to use existing authority to promote increased competition within their respective areas of regulation. Director Chopra appears to be signaling his intention to follow that directive by seeking to apply the abusiveness standard under section 1031 to companies that may be misusing their market dominance.
For additional analysis of antirust developments in financial services, please see our post about Five Antitrust Tips for FinTech In-House Counsel.
Davis Wright Tremaine will continue to monitor and report on the Bureau's determinations.