On January 23, 2012, the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) signed a memorandum of understanding (MOU) to coordinate enforcement efforts and promote consistent regulatory treatment of Consumer Financial Products or Services.1 "Entering this agreement with the FTC is important to making sure markets for consumer financial products are getting efficient and effective federal government oversight," said Richard Cordray, Director of the CFPB. "We are both motivated by the same thing: To do right by consumers. We look forward to this partnership." Given the shift in jurisdiction over some issues from the FTC to the CFPB, companies should closely watch how the MOU actually gets applied as the two agencies establish their turf.
Notice Required in All Stages of Enforcement Actions
The MOU attempts to reduce overlap in investigations. The agencies agree to coordinate law enforcement activities and investigations, and in particular, to notify each other as to all stages of an enforcement action against a Covered Person2 under Consumer Financial Laws3 in connection with offering or providing Consumer Financial Products or Services. The details are as follows:
- Prior to Commencing an Investigation. The agencies agree to work together to avoid the potential for duplicative, conflicting, or inefficient proceedings. As a general matter, the agencies agree not to initiate separate proceedings arising from the same course of conduct without prior consultation. An agency seeking to open an investigation against a Covered Person must first determine whether the other agency has already initiated proceedings against the subject. If an action has not already commenced, five days before opening an investigation the enforcing agency agrees to provide the other with the identity of the target and the intended topic of investigation. The agency receiving the inquiry has ten days in which to respond. To facilitate the due diligence required under this section, the agencies agree to provide each other with a current list of binding orders and judgments, with the aim of ultimately establishing a centralized system to share this information electronically.
- Notice of Filing an Action or Commencing a Proceeding. The investigating agency must provide ten days notice to the other agency before filing a complaint, a notice of charges, or any similar document that will initiate a court action or an administrative proceeding. If ten days notice is not practicable, for example, in the case of an agency initiating an action and seeking immediate relief in the form of a preliminary injunction, the investigating agency must give notice as soon as possible and not later than three business days prior to filing. A copy of the complaint or notice of charges will be sufficient notice of the information otherwise required to be disclosed (i.e. details such as the court in which action is initiated, nature of action, etc.).
- Notice of Settling an Action or a Proceeding. The agencies agree to notify each other no later than ten business days prior to filing a consent decree, consent order, or settlement agreement in court, or accepting for public comment a proposed consent order or issuing a final consent order in an administrative proceeding. The notice must identify persons named in the action and describe the alleged unlawful conduct and the relief sought. If ten days is not practicable, notice should be provided no later than the time of filing. The filing agency must update the other agency as to any material change to previously provided notice.
- Intervention in Law Enforcement Action. Either agency may intervene in any court action against a Covered Person initiated by the other in which it shares jurisdiction under a Consumer Financial Law. Twenty days prior to doing so, however, or as soon as practicable, the agency seeking to intervene must notify the other of its justification for the impending participation. Once the intervening agency has properly joined, it may be heard in all matters arising in the action and may file petitions for appeal.
Coordinated Rulemaking Activity
The agencies agree to consult each other regarding any rulemaking activity related to consumer financial products or laws. In addition, the agencies agree to meet periodically to discuss and coordinate initiatives regarding advisory opinions and comprehensive guidance that interpret or apply the applicable laws. The MOU sets out the following consultation and notification requirements:
- Generally. With respect to the Omnibus Appropriations Act of 2009, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and the Telemarketing and Consumer Fraud and Abuse Prevention Act, the publishing agency agrees to notify the other at least thirty days prior to the publication of an Advance Notice of Proposed Rulemaking and describe the issues to be addressed.
- Rulemaking and describe the issues to be addressed. Rulemaking on unfair, deceptive, and abusive acts or practices. Either agency agrees to notify the other of its intention to issue proposed or final rules prohibiting the unfair, deceptive, and abusive acts or practices by Covered Persons in the offering of Consumer Financial Products and Services.4 For this category of rulemaking, the agency must notify the other no later than sixty days before the publication of an Advance Notice of Proposed Rulemaking, Notice of Proposed Rulemaking or Final Rule, and include a description of the issues to be addressed. The agencies agree to consult promptly on the prospective rule and the comments received following publication.
- Formal agency guidance on unfair, deceptive, and abusive acts or practices. The agencies agree to consult on formal comprehensive agency guidance documents by either party that address unfair, deceptive, or abusive acts or practices.5 Given the importance of this issue, notification is required at the earliest time practicable of an agency's intention to develop such documents. The agencies are expected to apprise the other as to the substance of the proposed guidance and the expected date of issuance at least thirty days prior to its actual issuance or as soon as practicable.
Supervision and Examination
The MOU requires that the agencies meet quarterly to discuss and coordinate the CFPB's examinations of Covered Persons. To facilitate coordination, the FTC may request to review any planned examinations of Covered Persons by the CFPB. In addition, the CFPB must turn over to the FTC specific examination reports as outlined below. This information sharing is subject to the confidentiality provisions highlighted in the section titled, "Information Sharing and Confidentiality."
- Covered Persons, Generally. Upon written request by the FTC,6 the CFPB agrees to provide the FTC with an examination report pertaining to any Covered Person subject to the FTC's jurisdiction within ten business days of the request. The CFPB must also notify the FTC of any modifications made to a previously produced examination report.
- Confidential Supervisory Information. Upon written request by the FTC,7 the CFPB agrees to provide the FTC with any information the CFPB collects through its supervision of a Covered Person subject to the FTC's jurisdiction unless good cause is shown to preclude disclosure.
The MOU requires that the agencies share responsibility for the receipt, monitoring, and reporting of consumer complaints concerning Consumer Financial Products or Services. Pursuant to this goal, the CFPB and the FTC agree to share consumer complaint information through the Consumer Sentinel Network,8 a government database not publicly available and accessible only to law enforcement organizations. In addition, the MOU requires that the agencies:
- Develop guidance to ensure that consumers file complaints with the appropriate agency;
- Establish processes to effectively review and respond to complaints;
- Make specific complaint data available to each other (with enough time to comment) if that data provides the basis of a report provided to Congress; and
- Consistently strive to update and improve the complaint procedure and process.
The MOU requires that the agencies meet quarterly to coordinate general consumer education efforts. The MOU identifies two categories of consumers particularly vulnerable to predatory financial practices: (1) military service members and families, and (2) older Americans. Pursuant to these terms, the FTC and CFPB announced on January 25, 2012, the development of a database to combat consumer financial frauds directed at military personnel. This database, called "Repeat Offenders Against Military" (ROAM), will enable law enforcement officials across the country, including state Attorneys General, United States Attorneys, and Judge Advocates from all five branches of the armed forces, to search for publicly available information about enforcement actions against perpetrators of financial scams against military service members, veterans, and their families.
Information Sharing and Confidentiality
The agencies agree that all information provided or received under the terms of the MOU be used only for official regulatory, supervisory, or law enforcement purposes. The MOU provides that all nonpublic information shared under its terms remain the property of the providing agency unless otherwise authorized in writing. The agencies agree to take all actions reasonably necessary to preserve, protect, and maintain all privileges and claims of confidentiality related to nonpublic information provided pursuant to the MOU, including any information the CFPB collects through its supervision of Covered Persons. No further disclosure of nonpublic information may be made by the receiving party without the written permission of the disclosing agency.
The extensive notification and consultation requirements imposed by the MOU aim to streamline enforcement activity to better protect consumers from predatory financial practices. The Federal Trade Commsision and the Consumer Financial Protection Bureau welcome all feedback regarding the terms of this memorandum of understanding. Companies and businesses are encouraged to submit their comments directly to the agencies.
For more information about this Client Advisory, please contact:
Christie Grymes Thompson
Sharon Kim Schiavetti
1 Under the MOU, the term "Consumer Financial Product or Service" has the same meaning as under Section 1002(5) of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"), §§12 U.S.C. 5301 et. seq. This includes, but is not limited to, the following: extending, servicing, acquiring, purchasing, selling and brokering loans or other extensions of credit; extending or brokering certain leases of personal or real property that are the functional equivalent of purchase finance arrangements; providing certain real estate settlement services; engaging in deposit-taking activities, transmitting or exchanging funds, or otherwise acting as a custodian of funds; selling, providing or issuing stored value or payment instruments and selling such instruments in certain circumstances; providing check cashing, check collection, or check guaranty services; providing certain payments or other financial data processing products or services; providing certain financial advisory services other than those regulated by the SEC or state securities regulators; providing credit counseling or debt management services; collecting, analyzing, maintaining, or providing consumer report information or other account information subject to certain exceptions; collecting debts related to any consumer financial product or service; and other financial products or services as may be defined by the Bureau, including a service permissible for a bank or financial holding company.
2 "Covered Person" means any person (including an individual, partnership, corporation, trust, estate, cooperative, association, or other entity) who offers or provides Consumer Financial Products or Services other than a bank, thrift, federal credit union, or other person excluded from the FTC's jursidiction under the FTC Act.
3 The term "Consumer Financial Laws" includes, but is not limited to, the Dodd-Frank Act, §§12 U.S.C. 5301 et. seq., the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6101-6108, and the Federal Trade Commission Act (FTC Act), 15 U.S.C. §§ 41-58.
4 Pursuant to Section 1031 of the Consumer Financial Protection Act of 2010 (CFP Act) or Section 18 of the FTC.
5 Pursuant to Section 1031 of the CFP Act, Sections 5 and 18 of the FTC Act, the Omnibus Appropriations Act of 2009, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act.
6 Pursuant to 12 C.F.R. § 1070.43(a).
7 Pursuant to CFPB regulation 12 C.F.R. § 1070.43(b) and the CFPB's other policies and procedures.
8 Subject to the limitations of Section 1013(b)(3)(D).