Data intelligence company Morning Consult recently analyzed consumer complaints made to the Consumer Financial Protection Bureau (CFPB). The analysis showed that fintech and crypto-related complaints made by consumers to the CFPB “exploded” in early 2021 compared to the same period in 2020.
Our clients should be aware that the sharp increase in fintech and crypto consumer complaints is well known within the CFPB and that fintech enforcement is key priority for the CFPB Office of Enforcement. The Office of Enforcement is already active in the fintech space and seeking new matters for investigation. Jurisdictional lines are just now being drawn among financial regulators, and the CFPB is looking to signal that it will be the primary financial regulator of consumer financial products and services in the fintech and crypto spaces and will pursue aggressive enforcement where warranted.
Among the financial regulators, the CFPB has jurisdiction over the broadest array of fintech products and services, most of which fit squarely within one or more of the strategic markets into which the CFPB Office of Enforcement categorizes investigations and litigation. Enforcement’s most relevant strategic markets for purposes of fintech and crypto consumer products and services are payments, deposits, fair lending, auto finance, credit cards, mortgage originations/servicing, small-dollar lending, and student finance.
Looking more closely at some key strategic markets, “payments” is an expansive category, covering payment service providers, peer-to-peer payments, digital wallets, and the infrastructure that enables consumers to make payments or have payments made on their behalf. “Deposits” is likewise expansive and covers all neobanks, most of which have expanded beyond traditional checking and savings functions to offer products such as credit cards, mortgage origination and financing, auto financing, and student lending — all of which are covered by other CFPB strategic enforcement markets. “Fair lending” is the broadest strategic market as it applies to every product or service in the fintech space. As just one example of how the CFPB is thinking about fair lending, the CFPB wants to ensure that any artificial intelligence or machine learning in use by fintechs does not discriminate but instead complies fully with the Equal Credit Opportunity Act and the fair-lending laws. CFPB enforcement resources are being devoted to all of these strategic markets as well as many others in the fintech space.
And while the Morning Consult article identifies certain high-profile fintech and crypto companies by name, that identification should not give comfort to those that escaped mention. The CFPB is looking at all fintech players, products, and services and focusing on many of the most popular new products, including Earned Wage Access and Buy Now Pay Later. Moreover, while the Morning Consult analysis looks at current trends, there is no reason to believe that this “explosion” in consumer complaints is transitory. Rather, this number will undoubtedly grow as mainstream consumers increasingly adopted fintech products and cryptocurrencies. The growth in complaints will lead directly to more CFPB investigations for the simple reason that consumer complaints are one of the primary sources that the Office of Enforcement uses in deciding whether to pursue investigations.
While the CFPB is likely to be the most aggressive financial regulator of consumer fintech products and services, other regulators are demonstrating an increased focus on fintech and crypto regulation and enforcement as well. We are seeing a marked increase in coordination among financial regulators in investigations of fintech, blockchain, and digital asset companies. The Securities and Exchange Commission, Commodities Futures Trading Commission, U.S. Department of Justice, Financial Crimes Enforcement Network, and state financial regulators are carrying out investigations both independently and in partnership with one another.
Sidley has deep experience in fintech and crypto and in representing clients before the CFPB and other federal and state financial regulators. We are able to help guide clients through the coming changes and challenges in fintech and crypto regulation and enforcement. Sidley’s Enforcement lawyers, many of whom served in leadership at the financial regulators most active in the fintech and crypto spaces, work seamlessly with our leading multidisciplinary FinTech and Blockchain group, assisting clients in developing compliance programs and strategies to address issues raised by regulators during investigations and enforcement actions.
With respect to the CFPB, we count among our partners Thomas Ward, who is the only recent CFPB Enforcement Director to enter private practice, the only CFPB Enforcement Director to serve as a career employee under both Republican and Democratic administrations, and the only one who served as a Deputy Assistant Attorney General at the U.S. Department of Justice leading Consumer Protection branch matters, which is a key CFPB partner for criminal referrals arising from consumer financial cases and investigations. During his tenure at the CFPB, Tom commissioned a comprehensive effort to centralize the Office of Enforcement’s investigative, litigation, and negotiation processes and best practices; the critical thinking about each of the more than 20 enumerated statutes that the CFPB enforces and the Consumer Financial Protection Act; the thinking about the Consumer Financial Protection Act’s expansive unfair, deceptive, or abusive acts and practices authority; and how the Office of Enforcement thinks about and calculates remedies, penalties, redress, and injunctive relief. The result was a centralized and comprehensive roadmap of Enforcement’s practice that did not exist under prior Enforcement Directors or administrations. Tom also oversaw the setting of the CFPB’s enforcement priorities under both Republican and Democratic administrations, which will guide the CFPB in the years to come, and led the first restatement of the CFPB’s Responsible Business Conduct bulletin, which allows companies to mitigate or obviate enforcement matters altogether.
In the fintech and crypto space, Lilya Tessler is a partner and head of Sidley’s FinTech and Blockchain group, which was recently recognized as one of the nation’s leading practices in the 2021 Chambers Fintech guide and named FinTech Practice Group of the Year by Law360 in 2020. She focuses her practice on representing digital asset trading platforms, blockchain technology companies, U.S. and non-U.S. broker-dealers, financial services firms, and cryptocurrency funds. Lilya is ranked in the 2021 Chambers Fintech guide in the USA Legal: Blockchain & Cryptocurrencies category and was named a rising star in Fintech by Law360 (2019). Lilya advises technology companies on public and private securities offerings, including blockchain token distributions. She also counsels financial institutions and digital asset exchanges with day-to-day securities issues, private placement agent requirements, custody rule requirements, cross-border regulatory issues, money services business registration requirements, and Financial Industry Regulatory Authority (FINRA) and Securities and Exchange Commission regulatory inquiries. She advises several U.S. and non-U.S. fintech companies, including robo-advisers and high-frequency trading firms, in evaluating the broker-dealer and investment adviser registration requirements. Lilya is the founder and co-chair of the Digital Asset Regulatory and Legal Alliance, an industry working group consisting of general counsel and chief compliance officers of prominent blockchain and digital asset businesses. Lilya is a certified public accountant and FINRA dispute resolution arbitrator and previously held FINRA Series 7 and 24 licenses.