United States: Is The CFPB Using Its Market Monitoring Orders To Build Enforcement Cases?

As we previously noted, on October 21, the CFPB issued orders to six large technology firms seeking information about their payment product business plans (the "October 21 Orders"). According to the Bureau, the purpose of orders was to "shed light on the business practices of the largest technology companies in the world." The CFPB's use of its market monitoring authority under Section 1022(c)(4) of the Dodd-Frank Act for this amorphous purpose was a break from established precedent. Historically, the CFPB issued 1022(c)(4) orders to support its efforts to issue specific rulemakings or Congressionally-mandated research reports. (See, e.g., Appendix B of the CFPB's 2018 Sources and Uses of Data report).

On December 16, the CFPB again broke with historic precedent when it issued a new set of 1022(c)(4) orders, this time to five Buy Now, Pay Later ("BNPL") providers (the "December 16 Orders"). Much has already been written about the information demanded by the CFPB in the orders, and about the institutions subject to the orders. However, less attention has been paid to what the CFPB might do with the information it receives.

Traditionally, the CFPB has maintained a firewall between its market monitoring function and its enforcement function, in recognition of the distinction established by Congress in the Dodd-Frank Act. Section 1022(c)(4) of the Dodd-Frank Act authorizes the CFPB to monitor for risks to consumers in the offering or provision of consumer financial products or services, including developments in markets for such products or services. Congress specified that information obtained by the CFPB using this general power may only be made public (if at all) through aggregated reports or other formats designed to protect the confidentiality of the information. Accordingly, Congress provided few procedural safeguards to financial institutions subject to such collections. Section 1052 of the Dodd-Frank Act establishes the specific enforcement powers of the CFPB and provides that the CFPB may collect information by means of civil investigative demands (CIDs) for the purpose of ascertaining whether a financial institution has violated Federal consumer financial law. Congress provided several procedural safeguards for the targets of CFPB enforcement investigations, including requirements for the service and contents of CIDs, the collection of oral testimony, and the receipt of petitions to modify or set aside the CIDs.

In announcing its October 21 Orders, the CFPB publicly released a sample order representing the actual orders sent to the six technology firms. The language used in the sample order maintained the firewall between its market monitoring and enforcement activities, stating in relevant part:

By contrast, the sample order released in connection with CFPB's announcement of the December 16 Orders to the five BNPL providers lacks the language acknowledging that the order is not being issued under Section 1052, and only states in relevant part:

Also, the December 16 sample order contains new language not present in the October 21 sample order, stating:

Read together, these two changes suggest that the CFPB intends to remove the firewall between its market monitoring and enforcement functions and could use the information collected from the BNPL providers pursuant to the December 16 Orders to build enforcement cases. If so, this development could be considered an attempted end-run around the procedural safeguards established by Congress in Section 1052 of the Dodd-Frank Act. The CFPB can, if it wishes, provide express procedural safeguards within the orders that are equivalent to the types provided in Section 1052 or by agencies like the FTC in similar circumstances, but it has elected not to do so at this time. Recipients of future 1022(c)(4) orders should be mindful of this development in their responses to the CFPB.

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