The Consumer Financial Protection Bureau (“CFPB”) recently announced that it is launching a new system of providing guidance through the release of Consumer Financial Protection Circulars (“CFPCs”). The CFPCs are policy statements that will be issued to state and federal government agencies responsible for enforcing federal consumer financial law. The circulars are also being released publicly and posted to the CFPB’s website and in the Federal Register. The first three CFPCs were published in May 2022.
The first circular, CFPC 2022-01: System of Consumer Financial Protection Circulars to agencies enforcing consumer financial law, provides an overview of the authority under which the CFPB is acting and the reasoning behind the new process of releasing policy statements. The CFPB states that it wants to “promote consistency among enforcers and fair competition in the market.” The circulars are meant to provide background information on applicable law and detail how the CFPB intends to approach enforcement actions. The goal is to promote transparency and more consistent enforcement strategies from state and federal government agencies especially as to how it affects companies that “compete in the same market but are subject to the jurisdiction of different enforcers.”
CFPC 2022-02: Deceptive representations involving the FDIC’s name or logo or deposit insurance, published on May 17, 2022, focuses on when using the FDIC’s name or logo would constitute a deceptive act or practice under the Consumer Financial Protection Act. The analysis references the FDIC’s recent adoption of a regulation on misrepresentation under section 18(a)(4) of the FDI Act, 12 U.S.C. 1828(a)(4), which “prohibits any person form engaging in false advertising or misusing the name or logo of the FDIC to represent or imply that uninsured deposits are FDIC-insured” and emphasizes that misrepresentations to consumers may violate the Consumer Financial Protection Act regardless of whether they are made knowingly. It is noted that disclaimers cannot cure otherwise deceptive messages or practices. The circular mentions that firms offering financial products involving new technologies such as crypto-assets “may be particularly prone to making such deceptive claims to consumers about FDIC deposit insurance coverage.”
The third circular, CFPC 2022-03: Adverse action notification requirements in connection with credit decisions based on complex algorithms, released on May 26, 2022, analyzes the use of complex algorithms, or “black-box” models” in relation to ECOA and Regulation B. The CFPB notes that some creditors use complex datasets and algorithmic decision-making that makes it difficult to accurately identify specific reasons for an adverse action. The analysis states clearly that ECOA and Regulation B require creditors to provide applicants with statements that are specific and indicate the principal reason(s) for any adverse action. The legal requirements under ECOA and Regulation B are the same regardless of the technology being used by a creditor and use of complete algorithms that are too complicated to understand are not a justification for noncompliance. The circular does not go further to provide new information or additional guidance to creditors about increased use of data driven algorithms or other new technology tools.
