United States: Consumer Financial Protection Bureau Brings Its First Data Security Enforcement Action

On March 2, the Consumer Financial Protection Bureau ("CFPB") issued its first ever consent order in a data security matter. According to the order, Dwolla, Inc. settled allegations that it misrepresented that the company had reasonable and appropriate data security practices when, according to the CFPB, its practices failed to employ reasonable and appropriate measures to protect user data from unauthorized access. While Dwolla did not admit or deny any allegation, the consent order requires Dwolla to pay a $100,000 civil penalty and take other specified actions for a five-year period, such as conducting semi-annual data security risk assessments and developing, with direct input from the board of directors, a compliance plan. 

The CFPB began operating in 2011 after the Dodd–Frank Wall Street Reform and Consumer Protection Act gave the agency authority to regulate consumer financial products and services under the federal consumer financial laws. The action against Dwolla demonstrates that this relatively new agency is going to take a strong position in the cybersecurity realm and pursue companies within its jurisdiction for allegedly making deceptive statements about data security, even without an actual compromise of consumer information. The agency's decision to proceed against a start-up payment processor also underscores the wide variety of consumer financial companies that could face an enforcement action by the CFPB. 

According to the consent order, Dwolla is a payment processing company that transfers as much as $5 million per day for its 650,000 members. Members transfer money from either a Dwolla account or a personal bank account linked to the member's Dwolla account. The consent order states that, when a customer establishes a Dwolla account, Dwolla stores the customer's name, address, date of birth, telephone number, and social security number, and if the customer links the account to a personal bank account, Dwolla also stores a bank account number, routing number, and a username, password, and pin. 

The CFPB alleges that Dwolla made representations that its data security practices "exceed[ed]" and "surpass[ed]" industry standards, allegedly claiming, for example, that the company "sets a new precedent for the industry for safety and security." Dwolla also allegedly made multiple statements related to its encryption technology, including stating that the company encrypts "all sensitive information that exists on its servers" and is compliant with Payment Card Industry ("PCI") standards.

The CFPB concluded that these statements constituted deceptive acts or practices in violation of the Consumer Financial Protection Act ("CFPA"). According to the CFPB, these statements were false or misleading because Dwolla "failed to employ reasonable and appropriate measures to protect data obtained from consumers from unauthorized access." In particular, the order asserts that Dwolla:

  • stored, transmitted, or caused to be transmitted personal information such as names, social security numbers, and bank account information without encrypting that data;
  • was not PCI compliant;
  • did not have reasonable and appropriate data security policies and procedures;
  • until 2014, did not conduct comprehensive risk assessments and inadequately trained its employees;
  • had an inadequate software development operation; and
  • stored sensitive customer information on applications that were not tested for security before being released to the public. 

Notably, however, the CFPB does not allege that any third parties gained unauthorized access (or even attempted to gain unauthorized access) to any of the personal information that it claims Dwolla failed to adequately protect.

The negotiated consent order, which will be effective for five years, requires that Dwolla refrain from further misrepresentations regarding data security, adopt a comprehensive data security plan, and implement related policies and procedures, including designating an employee to be accountable for the data security program. These requirements resemble those typically imposed by consent orders entered into by the Federal Trade Commission ("FTC"), which has thus far been the federal agency most active in the data security space. But the CFPB order also imposes several requirements that go above and beyond what the FTC typically imposes. For example, while the FTC frequently requires companies to conduct data security risk assessments, the CFPB order requires that Dwolla conduct such assessments twice annually. Likewise, while the FTC frequently requires third-party data security audits, it typically requires only that they be conducted biennially; the CFPB order requires that such audits be completed once per year. Even more notably, the CFPB order imposes specific requirements on Dwolla's board of directors. It requires that the report generated by the third-party data security audit be provided to the board of directors, that the board of directors develop a compliance plan to correct identified deficiencies and implement recommendations, and that the audit report and the board's plan be submitted to the CFPB. It further provides that the CFPB can accept or revise the plan. Additionally, pursuant to the consent order, the board must review and assume ultimate responsibility for all submissions made to the CFPB. Finally, as noted above, the order requires Dwolla to pay a $100,000 civil penalty. 

While many of the requirements imposed under the consent order will require significant attention by Dwolla and its board of directors, it is important to note that, unlike FTC consent orders, which are typically for a period of twenty years, this order will be in force for only five years. Whether the CFPB believes that immediate, intense data security measures are the best remedy for alleged data security violations remains to be seen. But what is clear is that this relatively new agency believes it need not wait for a data security incident to occur before bringing an enforcement action against a company within its jurisdiction – even a start-up – that it believes is making deceptive, material representations about its data security practices.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Wilson Sonsini Goodrich & Rosati
Strasburger & Price, L.L.P.
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Wilson Sonsini Goodrich & Rosati
Strasburger & Price, L.L.P.
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions