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CFPB Weekly Update: The CFPB Encroaches on SEC Territory While Building a Massive Consumer Financial Information Database and Interpreting Federal and State Gift Card law

April 19, 2013

1.         Yesterday, the CFPB released a report on “senior designations.”  The purpose of the report is to highlight the circumstances under which financial advisors may confuse senior citizens.  For example, the CFPB states that some financial advisors attract senior citizen clients by touting designations that either explicitly state or imply that the financial advisor has some level of expertise that is important to senior citizens even if the financial advisor does not have such expertise.  Among other things, the CFPB advises senior citizens to make sure that the financial advisor is well versed in the securities and insurance products that the advisor offers to the senior citizen.  I am not going to give you an outline of the 63 page report that the CFPB would like senior citizens to read because that is not the purpose of this update.  I find it interesting that the CFPB issued a report on issues—securities and insurance products—that are regulated by the United States Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), state securities commissioners and state insurance commissioners.  These regulators are not trying to encroach on the CFPB’s domain by attempting to regulate credit reporting agencies and payday lenders!  I have been saying this for months and I will say it again: the CFPB will try to exercise investigatory and enforcement jurisdiction over a person or entity that is traditionally regulated by the SEC.  It is not a matter of if, it is when.  But because the CFPB is statutorily prohibited from exercising such jurisdiction by itself, I see a collaborative enforcement action between the CFPB and SEC within the next couple of years.

2.         According to Bloomberg News report this week, the CFPB has started the process of demanding information from banks concerning the customers’ spending habits, income and any loan information.  Also according to Bloomberg, the CFPB is also in the process of buying information concerning pay day loans, auto loans and consumer spending habits from credit reporting agencies.  The Bureau is also purchasing information from a company that has a database comprised of consumer financial and property information.  According to the article, it appears that the CFPB will use this information to build a large consumer financial database under the guise of fulfilling its stated purpose of protecting consumers.

I find several things interesting about this latest venture:  (1)  The CFPB already has some of this information from its own complaint database.  I guess the CFPB wants information about people who are not complaining to them about bad experiences.  They want the non-complainers as well.  (2) While I understand why retailers have databases about consumers’ spending habits, the CFPB having such a database reminds me of Big Brother (from 1984, not the CBS television show.  What if the non-complainers do not want the CFPB to know about their spending habits?  (3)  Does anyone else think that it is odd (perhaps a conflict of interest) that the CFPB is buying information about consumers from companies that it supervises and subjects to examinations, namely the credit reporting agencies.  And why is the CFPB buying information from the credit reporting agencies, but not buying information from the banks, mortgage lenders, mortgage brokers, mortgage servicers, debt collectors, and payday lenders—which are other entities that the CFPB supervises and examines?  In any event, get ready for a massive consumer spending database from the CFPB that will be used by plaintiff’s lawyers, expert witnesses and others—not just the CFPB.  But that is just my opinion.

3.         Earlier today, the CFPB announced that it had been analyzing the issue of whether the unclaimed property laws in Maine and Tennessee are inconsistent with federal laws on gift card expiration dates.  The CFPB decided to do this because it has been receiving inquiries from consumers concerning the foregoing issues (again, so why does the CFPB need information from non-complainers when the complainers keeps the CFPB very busy?)

Under federal law, gift cards cannot expire until at least five years after they are funded.  The CFPB has determined that Tennessee law is inconsistent with federal law because Tennessee law allows a gift card issuer to decline a card once the card is considered abandoned property, which could conceivably occur within 5 years.  My initial inclination is that this does not mean much and is nothing more than an opinion.  The CFPB’s words are more bark than bite at this point.  In order for a state law to be deemed invalid because it violates the supremacy clause, a court order from a federal court is required.  And, in spite of what the CFPB may think, it is not always the judge, jury and executioner---not yet.  In any event, the Maine legislators can sleep at night in light of the fact that the CFPB found that the Maine law is not inconsistent with federal law because Main requires gift cards to be honored indefinitely.  So if you want to get someone a gift card that will stand the test of time, get a gift card from a nice lobster restaurant in Maine!

Have a good weekend and remember that all of our weekly updates are at www.cfpaguide.com/weeklyupdates.  And my Twitter handle is @cfpbattorney.

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