Financial Services/CFPB

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The Consumer Financial Protection Bureau (CFPB) has once again been found to be unconstitutionally structured. The ruling is a win for CFPB critics and calls into question most actions taken by the agency.

A unanimous three-judge panel of the U.S. Court of Appeals for the Fifth Circuit held on Wednesday that the CFPB’s funding mechanism, funded by fees generated by Federal Reserve Board not through Congressional appropriations, is unconstitutional. According to the court, the CFPB’s funding is double insulated from Congress and, thus, is unaccountable to both Congress and the public. As such, the CFPB’s funding mechanism violates the Constitution’s separation of powers design and, specifically, the Appropriations Clause.…

Continue Reading Federal Appeals Court Finds CFPB Unconstitutionally Funded, Structured

Last week, the Federal Trade Commission turned its attention to the mortgage relief industry once again. In its most recent enforcement action, the FTC joined forces for the first time with the California Department of Financial Protection and Innovation (DFPI).

On September 12, 2022, the agencies jointly filed a complaint in the U.S. District Court for the Central District of California against several companies alleged to have operated a mortgage relief scam. Two days later, the court issued a temporary restraining order (TRO) appointing a receiver and freezing the defendants’ assets until the parties can be heard on whether to issue a preliminary injunction.

The defendants consist of various corporate entities doing business as Home Matters USA, Academy Home Services, Atlantic Pacific Service Group, and Golden Home Services America, and two individual defendants who own the companies.…

Continue Reading FTC Joins with California DFPI to Obtain Asset Freeze Against Mortgage Relief Business

The Federal Trade Commission’s recent action against Credit Karma serves as a reminder to advertisers that optimizing consumer conversion is not—and cannot be—the be-all and end-all. Regardless of what split or A/B testing results show, claims must be truthful, substantiated, and not misleading.

Per the FTC’s administrative complaint, Credit Karma advertised third-party credit offers to Credit Karma members as “pre-approved,” but, in fact, the creditors had not pre-approved the credit offers and consumers were required to apply and go through the creditors’ underwriting process. The FTC’s investigation showed that about one-third of those customers were denied the advertised credit.…

Continue Reading FTC Action Against Credit Karma Underscores That Conversion Cannot Trump Compliance

Through a new interpretive rule announced this week, the Consumer Financial Protection Bureau (CFPB) has declared that digital marketing providers can be held liable under the Consumer Financial Protection Act (CFPA) if they engage in or substantially assist unfair, deceptive or abusive practices in advertising financial products on behalf of banks and nonbanks covered by the CFPA.

While service providers to “covered persons” under the CFPA are already subject to the Act, Congress carved out an exception for service providers offering or providing to covered persons “time or space for an advertisement for a consumer financial product or service through print, newspaper, or electronic media.” The CFPB’s new rule limits the applicability of that exemption to digital marketing providers such that the “electronic media” prong is very nearly void.…

Continue Reading CFPB Warning to Consumer Financial Services Digital Marketing Providers

A lawsuit filed by the CFPB last week against a national credit reporting agency provides some insight into the types of website features and designs that regulators like the Consumer Financial Protection Bureau and Federal Trade Commission will target. As we covered previously, digital dark patterns—or website design, features, and interfaces used to allegedly deceive, steer, and manipulate users—are a priority for both rulemaking and enforcement actions by the FTC. Although the focus has been on website features that “trick or trap” consumers into subscriptions, the potential for broad and arbitrary application of this concept is worrisome. What is the line between a website that is acceptably optimized for conversion and one that is illegally steering users to make purchases?

In the highly detailed complaint, the CFPB alleged, among other things, that the net impression of various advertising messages, combined with the design of the webpage where users landed when clicking on the ads, obscured the nature of the offer (a month-to-month subscription of a credit-monitoring service and credit score), the status of a user’s enrollment in the service, and the purpose of collecting a user’s payment information.

More specifically, the complaint described how call-to-action buttons, email subject lines, font color and size, text placement, and website flow were employed to confuse consumers who were seeking information about or copies of their annual free credit report and steer them instead into unwittingly purchasing a subscription for credit monitoring.…

Continue Reading Latest CFPB Lawsuit Sheds Light on Digital Dark Patterns

In a bulletin published last week, the Consumer Financial Protection Bureau (CFPB) warned banks and other financial companies against impeding honest reviews of consumer financial products and services. Although it does not cite a specific study for financial products and services, the CFPB’s bulletin describes how online reviews impact other industries across the economy.

We have been covering the Federal Trade Commission’s (FTC) efforts to combat what it sees as rampant customer review fraud, and now the CFPB is preemptively addressing its growing concern with how online reviews will play into customers’ decision-making when they are choosing from among several financial providers.

At first glance, the CFPB’s foray into the deceptive use of online reviews might appear to come out of left field, but it reflects a more general theme of following the FTC’s playbook and scrutinizing financial service providers more holistically, including their marketing practices. The bulletin itself cites to several recent FTC settlements in this area as persuasive precedent for application of the CFPB’s UDAAP authority.…

Continue Reading The CFPB Warns Companies Against Impeding or Manipulating Honest Customer Reviews

In its much-anticipated cryptocurrency executive order issued earlier this month, the Biden administration called for a coordinated interagency approach to the regulation of digital assets and to the study of their potential risks.

A significant part of this effort focuses on the nation’s primary consumer protection agencies, the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB).

Historically, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Financial Crimes Enforcement Network (FinCEN) have played the primary roles in regulating digital assets, with the FTC and CFPB largely taking a wait-and-see approach. But this has left open a regulatory gap for crypto activities that do not involve a security or a commodity derivative.…

Continue Reading Biden Tasks Consumer Protection Agencies with Stepping Up Cryptocurrency Oversight

A class action lawsuit filed against Kim Kardashian, Floyd Mayweather, and former professional basketball player Paul Pierce earlier this month underscores the need for celebrity endorsers to take care when they approach any endorsement activity in the cryptocurrency space.

The lawsuit alleges that the celebrities collaborated with Ethereum Max, a company offering ERC-20 cryptocurrency tokens (EMAX Tokens), and its executives to engage in a “pump-and-dump” scheme promoting investments in the company’s tokens. The complaint alleges that the three celebrity influencers misleadingly promoted EMAX Tokens to potential investors, touting the ability of investors to make significant returns due to the favorable “tokenomics” of the EMAX Tokens, when in fact the tokens were practically worthless. The class action alleges violations of California’s Unfair Competition Law, California’s Consumers Legal Remedies Act, aiding and abetting, and unjust enrichment/restitution.

According to the complaint, EthereumMax’s entire business model relies on marketing and promotional activities, and the celebrity promoters received EMAX Tokens and/or other compensation in return for promoting the tokens. (EthereumMax “has no connection” to Ether, the second-largest cryptocurrency, the lawsuit said, adding that its branding appears to be an effort to mislead investors into believing the token is part of the Ethereum network.) The promotional activities at issue included, among other things, making social media posts, wearing EMAX-branded shirts, and promoting the cryptocurrency at a conference.…

Continue Reading “Are You Guys Into Crypto????”: Celebrities Promoting Cryptocurrencies Become Class Action Targets

Game developers and platform providers are increasingly integrating non-fungible tokens (NFTs), virtual currencies, and digital marketplaces into their games and platforms, creating seamless, novel, and interactive experiences. While the industry has moved ahead quickly, federal and state regulators are taking a much closer look at how these technologies fit within existing legal frameworks.

In a recent webinar, partner Ellen Berge and associate Chris Boone of Venable’s Advertising Law and Payments groups explored the latest regulatory developments and addressed how to spot and avoid compliance and regulatory risks associated with NFTs, virtual currencies, and other platform-based monetization mechanics. We received insightful questions from members of the audience, which our lawyers answer below.…

Continue Reading You Asked, We Answered: NFTs and Virtual Currency in Games: Compliance Issues and Legal Risks