By Dawn Causey, Thomas Pinder and Andrew DoersamIn the 1970s, most children knew the familiar catchphrase “Weebles wobble but they don’t fall down.” Weebles were popular egg-shaped toys with circular bottoms and painted faces. They were weighted at the bottom so that if they were pushed over they would immediately bounce back up. Similarly, in 2017, the Consumer Financial Protection Bureau suffered several setbacks in court, but each time, the agency bobbed back up and refused to temper its enforcement strategy.
The CFPB’s authority to pursue unfair, deceptive or abusive acts or practices claims is often broad, but not boundless. In March 2017, a North Dakota federal district court dismissed the CFPB’s UDAAP claim against Intercept, a third-party payment processor, and its executives. The CFPB alleged the defendants turned a blind eye to illegal or fraudulent transactions by ignoring red flags. However, the court was not convinced. Judge Ralph Erickson found the CFPB failed to show how Intercept’s actions specifically harmed consumers, holding that the CFPB’s UDAAP claim was overly broad and should have been more concrete.
In August, a Georgia federal district court sanctioned the CFPB attorneys for their “blatant disregard” to follow orders to state the factual basis to support claims against four payment processors and a telemarketing company. The CFPB did not present any exculpatory evidence to support its theory that the defendants placed millions of robocalls to threaten and harass consumers into collectively paying millions of dollars in what the agency described as “phantom debts” they did not owe. Judge Richard Story was incredulous. He determined that the CFPB’s unwillingness to present evidence reflected a bad faith effort to follow the court’s orders and dismissed several of the CFPB’s charges.
Regarding the CFPB’s remedial scope, the agency’s approach to consumer restitution in UDAAP cases is fairly routine: claim that every consumer who encountered a misleading or deceptive representation was affected, and as a result, should be compensated.
However, on Sept. 8, a California federal court rejected this approach. Judge Richard Seeborg refused to award $74 million in restitution and $24 million in penalties against Nationwide Biweekly Administration Inc. based on Nationwide’s allegedly deceptive marketing of its accelerated mortgage loan repayment program. Instead, the court ordered it to pay a statutory penalty of $7.3 million. While the court found a portion of Nationwide’s advertising was misleading, Seeborg found that Nationwide took affirmative compliance measures, such as training and seeking legal counsel. Consequently, the court held that Nationwide’s conduct was neither reckless nor intentional and reduced the CFPB’s almost $100 million monetary demand by more than 90 percent.
The same day, a Minnesota federal district court dismissed the CFPB’s claim that TCF National Bank committed technical violations of the opt-in regulation. The CFPB alleged that, by tricking consumers into signing up for overdraft services, the bank violated UDAAP, as well as the opt-in regulation requiring banks to obtain “affirmative consent” from consumers. Rejecting the opt-in claim, the court pointed out that the agency’s complaint failed to show that TCF did not obtain new customers’ consent. However, the court kept alive the CFPB’s UDAAP allegations. This ruling suggests that compliance with the CFPB’s regulatory regime may not foreclose UDAAP claims for the same underlying conduct.
The CFPB also claimed that Borders and Borders, a Kentucky law firm, established a web of shell companies to disguise improper client referral kickbacks as lawful profit-sharing. On July 12, a Kentucky federal district court determined that Borders qualified for a RESPA safe harbor provision which shelters “affiliated business arrangements,” as long as the arrangements are disclosed to the consumer. Because Borders disclosed these arrangements, the court found that agency failed to show how Borders received anything of value beyond their own interest.
The past year has shown that the CFPB is stubborn, but not infallible. Until recently, CFPB investigations have relied on high settlement rates from companies seeking to avoid bad publicity and the reputational harm that generally stems from protracted litigation. However, if more companies begin to challenge the CFPB in court, the agency’s settlement demands may begin to appear bloated and unrealistic.
Hopefully the recent shakeup in agency’s leadership will encourage the agency to learn from its losses. The weight of its recent losses should keep the “weeble wobble” down.
Dawn Causey is general counsel at ABA, where Thomas Pinder is SVP for litigation and Andrew Doersam is a paralegal.