It’s clear that President Joe Biden’s approach toward consumer protection and financial services enforcement will differ from that of his predecessor. In addition to general housekeeping matters, such as replacing and hiring personnel, it’s likely we’ll see more cooperation among state attorneys general, including across state lines, and federal agencies as well as a guaranteed increase in enforcement, especially against individuals in the coming days of the new administration.
We turn to partner David Monteiro, who served as an enforcement attorney with the US Federal Trade Commission’s (FTC’s) Bureau of Consumer Protection; partner Rebecca Hillyer; partner Rubin Nunn, former in-house counsel of two Fortune 500 financial services companies; and of counsel Nicholas Gess, former associate deputy attorney general at the US Department of Justice (DOJ), for their enforcement outlook and key observations as President Biden begins his tenure as the 46th president of the United States.
With Nicholas Gess and Rebecca Hillyer
What effect did the 2020 election have on the makeup of the state attorneys general?
The election had no real impact at the state attorneys general level. It yielded only two new Republican attorneys general in Montana and Indiana, who are both replacing Republicans. However, California Governor Gavin Newsom has the opportunity to appoint a new Democrat to fill the unexpired term of Attorney General Xavier Becerra (D), whom President Biden has nominated to serve as the Department of Health and Human Services secretary, thereby creating a vacancy at the helm of the largest AG’s office in the country.
What factors may influence state attorneys general in the Biden administration?
President Biden’s late son Beau’s former role as Delaware’s attorney general and Vice President Kamala Harris’s service as California’s attorney general created strong networks and encourage an atmosphere of increased collegiality. This collegiality is key. When prosecutors work together, they create collaborative synergies and can bring significant authority to bear.
What can we expect from state attorneys general under the Biden administration?
Three things should be top of mind: the increased collaboration mentioned above; a focus not only on corporate targets, but on individuals; and depoliticization as well as a morale boost for the attorneys working in the Biden administration and at the state levels. There are many benefits to having collaboration and coordination across agencies and federal and state lines, such as more organized resolutions, including global settlements across multiple federal and state agencies. On the flip side, however, a potential pitfall of increased collaboration between agencies is that the information they come by in their coordination may create a more solid foundation to pursue an investigation that an individual agency or office may not have pursued on its own.
Also on our list of what to watch: the targeting of individuals, as well as corporations, at the federal and state levels. This focus on individuals will occur, in part, as a response to broad-based and ongoing criticism of how the 2009 financial crisis was handled by the DOJ and the attorneys general. There is a belief that punishing individuals, as well as the business, creates a strong and lasting deterrent. Companies should step up their internal processes knowing this increased scrutiny on individuals is likely.
Finally, President Biden will focus on depoliticizing and boosting morale that may trickle down to line attorneys at every level. And, many senior career attorneys retired during the last/current administration, providing an opening for the Biden administration to bring on fresh, committed, and aggressive lawyers.
What are some of the other priorities you anticipate?
Priorities will include direct consumer fraud, e.g., sale of fake goods, elder fraud schemes, fake drugs, financial services (loan origination and servicing, collections), and drug pricing, to name a few.
What recommendations do you have for businesses in preparation of the new administration or just in general?
Businesses should be mindful that the increased importance of attorneys general in the enforcement orbit means that their relationships with at least their own and other key attorney generals are important. This includes not only the attorney generals, but the relevant individuals within the divisions. These relationships can be invaluable given the potential power of discussion and what can be accomplished instead of or at least before litigation may be necessary.
Additionally, the role of key state attorney general organizations has increased and their influence will remain. Engaging these organizations at the most senior levels is well worth the effort. As mentioned earlier, established and maintained relationships provide a good foundation.
With Robin Nunn
Who will be at the Consumer Financial Protection Bureau (CFPB) helm?
President Biden will appoint a new acting director at the CFPB and then nominate someone to go through the US Senate confirmation process. It’s likely that his choice will be an individual with the same heft of Stephanie Avakian, the US Securities and Exchange Commission (SEC) Division of Enforcement director.
Once under new leadership, the CFPB will abolish or reconstitute the agency’s Task Force on Consumer Financial Law. CFPB Director Kathleen Kraninger’s recent announcement about the reorganization of the CFPB’s Supervision, Enforcement, and Fair Lending (SEFL) Division (and through which supervision may become the CFPB’s primary tool) may not actually get knocked down in the Biden administration.
What do we anticipate the CFPB’s agenda will look like under the new administration?
It’s likely that President Biden will reverse many of the rules and guidance policies put in place by CFPB Acting Director Mick Mulvaney and/or Director Kraninger. This can be done without much difficulty through the CFPB’s regulatory process and will not require legislation.
Included in this effort will be a resumption in rulemaking governing everything from overdrafts to readopting a strict payday lending rule. The final rule issued at the end of October 2020 that allows debt collectors to engage with borrowers over a broader range of communication channels than before—including digital ones—will likely be revised under the new administration.
President Biden has proposed the creation of a public credit reporting agency within the CFPB to compete with the three credit bureaus that will employ algorithms that will not result in discrimination and use nontraditional data sources, such as utility bill payments. The new CFPB will also reexamine debt validation or “ability to repay” determinations.
The president will focus on softening the economic impact of the COVID-19 pandemic on households and more aggressively police Wall Street. The federal CARES Act relief law extended certain protections to homeowners and renters, and the CFPB will probably step in more closely to monitor businesses and make sure consumers aren’t pushed further into distress (i.e., avoid evictions and vehicle repossessions, reduce loan delinquencies and defaults, and monitor debt collectors and credit reporting agencies).
The Biden administration may also aim to promote racial equity through financial policies and programs.
In terms of enforcement, what should businesses keep in mind?
The key issue for the Biden administration is enforcement. The CFPB’s approach to the exercise of its authorities is likely to reflect criticism that the agency has been lax in its approach to industry under Acting Director Mulvaney and/or Director Kraninger’s leadership. More specifically, in contrast to the CFPB’s current approach of handling more matters in supervision, there will likely be more enforcement cases involving larger dollar amounts and a more aggressive focus on fair lending/unfair, deceptive, or abusive acts or practices (UDAAP).
State attorneys general and regulators, many of whom took on a more active role during the Trump administration to fill a perceived gap in enforcement by the CFPB, will likely remain very active and receive significant support from the CFPB, and may oftentimes partner with the CFPB on enforcement matters.
What are your thoughts on the regulatory outlook?
The new administration may not be supportive of some of the CFPB’s most recent regulatory developments, including the different qualified mortgage proposals, the small business data collection proposals under consideration, and the recently issued debt collection final rule, which may cause those rulemakings to be modified or scrapped altogether.
Other projects, such as consumer access to financial records and the congressional mandate in the Economic Growth, Regulatory Relief, and Consumer Protection Act that the CFPB prescribe certain regulations relating to “Property Assessed Clean Energy,” may get expedited.
The CFPB will likely renew its focus on overdrafts and payday lending, including by reopening the payday rulemaking with the goal of restoring an ability-to-repay standard.
More rulemaking on “open banking” is expected, as are rules for fintechs, data aggregators, and any illegitimate institutions that want to do business in the banking space.
With David Monteiro
What can you tell us about how the new administration will likely affect the FTC?
Change is coming, but at the FTC, particularly on the consumer protection side, it may look a little different than the shifts we may see occurring at other government agencies in the days following the inauguration. This is due, in part, to the FTC’s structure and mission when it comes to consumer protection, which have historically been less partisan.
As early as today President Biden will be able designate a new FTC chair to replace Chairman Joseph Simons from the Democratic Commissioners. In all likelihood, one of the Republican appointees will resign from the Commission, and there will be for a time a 2-2 Republican/Democratic split in leadership. While the Commission must reach a majority vote to start or stop a public action, anything already in motion—lawsuits filed, 6(b) proceedings initiated—continues.
In addition to/as a result of the change in leadership structure, where is the agency likely to change course?
A lot of what the Bureau of Consumer Protection does is uncontroversial, core antifraud work. But a substantial part has become political; the agency has been marked by major 3-2 decisions in the past year—though sometimes with Chairman Simons joining his two Democratic colleagues. The good news about the agency’s structure and these 3-2 decisions is that there is relatively little mystery about where a Democratic-led FTC is likely to go.
It sounds like for the most part it will be business as usual at the FTC?
Yes and no. There is one wildcard: a series of attacks on the FTC’s powers and authority that have gained traction—specifically attacks on 13(b) powers and the ability to obtain monetary relief, which have culminated in the AMG Capital Management, LLC v. FTC Supreme Court case argued on January 13. On the one hand, if successful, these attacks could force the FTC to radically shift its enforcement strategy from the approach it has been following for the past 35 years. On the other hand, if it is too successful, you may see legislative action that actually expands the agency’s authority: that’s exactly what happened recently with the SEC.
In what areas do you expect a new or renewed focus?
I’d start with the technology and automotive sectors and the for-profit colleges and universities industry. In terms of technology, the agency has been trying to find a “new” privacy framework for some time, and the current 6(b) process is only going to accelerate that. In the automotive arena, dealers are of course carved out from CFPB jurisdiction, but the focus on automotive issues will result in a closer look at the entire industry. I’d also say small business “consumer” protection will be an area of interest, again, in significant part because it largely falls outside the CFPB’s jurisdiction.
Two other issues I’d flag include the building out of a “fair lending backstop”—and in doing so creating an unfair or deceptive acts or practices (UDAP) framework for preventing and remedying discrimination. If successful, that would provide both a fallback in the lending area in the event of challenges to the Equal Credit Opportunity Act—but it could also reach much more broadly. If discrimination is an unfair trade practice, that could give the agency the power to target and regulate commercial algorithms across the board—dovetailing nicely with the agency’s likely aggressive focus on the technology industry.
Even with a new or more pronounced emphasis in the areas I mentioned above, we won’t see the agency let up where it has pushed ahead in the past few years. This includes fintech deception claims, Do Not Call enforcement, lead generation, and the core antifraud program.
What should businesses be looking out for?
First, don’t assume you won’t be a target of FTC interest simply because you haven’t been before. Section 5 of the FTC Act applies to anyone engaged in interstate commerce. Second, watch for rulemaking proceedings that affect your company and your industry. Get involved in those proceedings, directly or through your trade associations, and position yourself as well for future APA challenges before receptive courts. And to echo my colleagues: make sure you have in place a meaningful compliance program that is tailored to the risks inherent in your business. Some of the most serious consumer protection matters in the last several years have ultimately been charged as failures of compliance management systems.
For more on what consumer protection–related developments we’ll be watching in the early days of President Biden’s administration, check out Compliance Week’s article highlighting some of the takeaways from the program.