CFPB Task Force Releases Recommendations for Improving Financial Services Consumer Protection

On January 5, 2021, the Consumer Financial Protection Bureau (CFPB or Bureau) Taskforce on Federal Consumer Financial Law (Task Force) released a report (Report) recommending changes designed to contemporize and strengthen consumer financial protections, encourage competition and innovation, and improve inclusion and access. The Report is the product of months of study and public outreach by the Task Force, which was charged with evaluating the current legal and regulatory environment for both consumers and financial services providers and providing recommendations for improvement.

In October 2019, the CFPB established the Task Force of external experts as an independent body within the CFPB that reported to Director Kraninger. In April 2020, the CFPB published a request for public comments to help identify areas for Task Force focus. According to the Task Force’s charter, the charter will expire 90 days after completion of the Report, unless renewed. The Report was issued in two volumes. Volume I covers the context of consumer finance and its current regulation. Volume II contains the Task Force’s recommendations.

Current Regulatory Environment

The Task Force Report tracks the development of consumer demand for credit. Specifically, the Report focuses on the importance of the small-dollar lending market, which is an outgrowth of substantial demand for credit among lower-income individuals. Typically, these individuals face substantial barriers when attempting to access mainstream consumer credit. Thus, the purpose of consumer financial protection laws is to balance consumer protection with the reality that overregulation may limit credit access for many borrowers. Currently, the status quo relies on a patchwork of federal and state-specific consumer financial regulations that may overburden creditors and decrease credit access. To encourage financial inclusion, privacy, and innovation, the Task Force recommendations center on streamlining and improving upon the current framework.

Task Force Recommendations

The Task Force Report includes the following recommendations to the CFPB, Congress, and state and federal regulators.

Alternative Data Use

• Identify and eliminate unnecessary restrictions on the use of payment and cash-flow data.
• Use caution when limiting the use of nonfinancial alternative data.
• Allow providers of electronic communication services to furnish account information to consumer reporting agencies.

Credit Reporting

• Clarify the obligations of consumer reporting agencies and furnishers with respect to disputes under the Fair Credit Reporting Act (FCRA).
• Assess periodically the accuracy and completeness of consumer credit reports.
• Research consumer reporting issues that arise in connection with a consumer’s bankruptcy.
• Adopt class action damages limitations for the FCRA to bring civil liability provisions in line with similar laws.

Enforcement

• Issue a policy statement on the concept of consumer harm.
• Adopt and publish a civil penalty matrix.
• Refrain from establishing new industry standards through the settlement of enforcement actions.

Financial Inclusion

• Expand access to the payment system by unbanked and underbanked consumers and ensure consistent treatment by applying the same rules to similar financial products.
• Research and develop policies to address problems of financial inclusion in rural communities.
• Research and develop policies tailored to the unique challenges of formerly incarcerated people and the immigrant population.
• Increase focus on consumer financial education programs.

FinTech

• Authorize the CFPB to issue licenses to non-depository institutions that provide lending, money transmission, and payments services. Alternatively, clarify that the Office of the Comptroller of the Currency has the authority to issue charters to these institutions.
• Identify competitive barriers and make appropriate recommendations to policymakers and regulators for expanding access to the payments system by non-bank providers.
• Work with other agencies to create a unified regulatory regime for new and innovative technologies providing services similar to those of banks.
• Consider the benefits and costs of preempting state law where conflicts can impede the provision of valuable products and services, such as the regulation of FinTech companies engaged in money transmission.

Privacy and Security

• Seek regulatory solutions that limit consumer harm rather than relying on disclosure.
• Enact a national standard for data breach notifications.

Regulatory Streamlining

• Identify opportunities for the CFPB and prudential regulators to coordinate regulatory efforts.
• Continue to increase dialogue with state regulators to bridge knowledge gaps and streamline regulation.
• Establish independent review of the CFPB’s regulatory cost-benefit analyses by staffing an office of cost-benefit analysis at the CFPB and/or by submitting the analyses to the federal Office of Information and Regulatory Affairs for review.

Small-Dollar Credit

• Exercise caution when setting interest rate caps for small-dollar loans.
• Opt for payday loan disclosures that ensure consumers know what they are signing up for rather than prescribing normative disclosures designed to influence consumer behavior.