09/26/2024 | Press release | Distributed by Public on 09/26/2024 12:33
Sep 26, 2024
Categories:
Authors:
Entities that operate among or provide services to persons who provide consumer financial products or services can be subject to the same oversight and regulatory responsibilities of persons who directly provide consumer financial products or services. This is based on their involvement in and the services they provide in support of consumer financial products or services. Accordingly, service providers should evaluate their role in the delivery of consumer financial products and determine their responsibilities under applicable consumer financial protection laws and rules.
The Consumer Financial Protection Bureau (CFPB) recently filed a proposed order in an ongoing lawsuit against a service provider that engaged with credit-repair business owners. In the initial 2021 complaint, the CFPB outlined its jurisdiction over the service provider and its alleged violations for being aware of, and allegedly encouraging, credit-repair business owners to violate the Telemarketing and Consumer Fraud and Abuse Prevention Act (the "Telemarketing Act") and thus violate the Consumer Financial Protection Act (CFPA).
The CFPA provides that it is unlawful for any covered person or service provider to offer or provide a consumer financial product or service not in conformity with federal consumer financial law, or otherwise commit any act or omission in violation of federal consumer financial law. A service provider is any person that provides a material service to a covered person in connection with the offering or provision by a covered person of a consumer financial product or service.
The CFPB filed a complaint in 2021 related to the promotion of activities it claimed violate the Telemarketing Act and the CFPA. The service provider in question created software and training to persons interested in building credit repair businesses ("Credit Repair Start-Ups"). The complaint noted the following:
As a result of providing the Credit Repair Start-Ups with these tools and training, the service provider had access to a significant amount of information about their activities.
The intense end-to-end involvement by the service provider resulted in the service provider being held accountable for the alleged violations of the Telemarketing Act and as a result the CFPA. The CFPB pursued action against the service provider rather than the various Credit Repair Start-Ups, which would each be covered persons under the CFPA.
In a proposed stipulated and final judgment from August of 2024, the CFPB imposed certain obligations on the service provider, which have the impact of ensuring that the service provider is responsible for monitoring the activities of the covered persons. Those obligations and penalties included in part:
As the CFPA clearly states, the rules of compliance with consumer financial protection laws apply to both service providers and covered persons. Both the CFPB and state attorney generals have authority to pursue actions with both service providers and covered persons. This action by the CFPB makes it clear that the CFPB can and will go after service providers that are involved in providing financial products to consumers, particularly if such service provider is providing the means for sellers of financial products or services to sell to consumers and encouraging such sellers to do so in a way that is not in compliance with financial regulations.
If you are providing training, templates, software services or other solutions for persons who offer consumer financial services, have you reviewed these materials for compliance with consumer financial protection laws? If not, we strongly encourage you to do so. For further guidance, contact the authors or any attorney with Frost Brown Todd's Finance Industry Team or Data, Digital Assets & Technology Practice.