Controversial New Regulator Begins With Aggressive Enforcement Settlement Against Financial Services Company

On July 17, 2012, the Consumer Financial Protection Bureau (''CFPB'') reached a groundbreaking $165 million settlement with Capital One Bank (USA), N.A. (''Capital One'') in its first enforcement action, ordering Capital One, a credit card issuer, to refund $140 million to 2 million customers who purchased its credit card ''add-on'' products and to pay a $25 million fine into the CFPB's Civil Penalty Fund.1 In a related settlement reached with the Office of the Comptroller of the Currency (the ''OCC''), Capital One agreed to pay a $35 million penalty and an additional $10 million in reimbursement payments, resulting in a total of $210 million in fines and reimbursements. In addition to the payment of $165 million in restitution and penalties, Capital One also consented to extensive oversight by the CFPB and certain remedial measures.3

For a monthly fee, Capital One's ''add-on'' products included ''payment protection,'' which allows debt can- cellation if program members encounter certain ''life events'' such as unemployment, disability and death, and ''credit monitoring,'' which includes identity-theft protection services. According to the CFPB, from August 2010 to January 2012, Capital One violated the consumer financial protection laws through deceptive marketing and sales practices engaged in by its callcenter vendors relating to the add-on products.4 The CFPB alleged that Capital One's call-center representatives misled customers into the purchase of add-on products through false statements that the products were free and sold the payment protection products to customers that were ineligible for the program due to unemployment and existing disabilities (later allegedly denying the program's benefits to such customers).5 As is typical in the resolution of enforcement actions, Capital One stipulated to the Consent Orders without admitting or denying the allegations brought by the CFPB and the OCC.6

After a quiet first year, the CFPB now has aggressively asserted its vast enforcement powers and levied significant financial penalties in its regulation of the marketing and sale of consumer financial products. Financial services firms should consider retaining outside counsel to evaluate their marketing and sales practices of consumer financial products for compliance with the new regulatory framework. The Consumer Financial Protection Bureau7

The CFPB was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act (''Dodd- Frank'')8 to implement and enforce federal consumer financial laws and to promote fair, transparent and competitive and accessible markets for consumer financial services and products.9 The CFPB consolidates the consumer financial protection responsibilities, including with respect to rulemaking, supervision and enforcement, that previously had been the province of seven federal agencies.10 In exercising its enforcement powers, the CFPB has the discretion to create any appropriate legal or equitable remedy to address violations of the consumer financial protection laws, including temporary and permanent cease-and-desist orders, rescission, reformation of contracts, refunds, disgorgements, damages and civil money penalties.11 In addition, the CFPB has wide and exclusive authority — except where it shares rulemaking power with the FTC — to promulgate rules ''as may be necessary or appropriate to enable the Bureau to administer . . . enforce and otherwise implement the provisions of Federal consumer financial law.''12

The CFPB has extensive enforcement powers and operates with unique and controversial independence from Congressional or Executive oversight. Its budget is statutorily tied as a fixed ratio to the Federal Reserve's operating expenses. CFPB final rules can be overturned only by a determination by two-thirds of the members of the Financial Stability Oversight Council (the ''FSOC'') that the rule threatens the ''safety and soundness of the United States banking system or the stability of the financial system.''13 Courts must defer to the CFPB's determinations regarding the meaning or interpretation of federal consumer financial law.14 While a cease-and-desist order issued by the CFPB may be appealed within 30 days of service to the D.C. circuit or to the federal circuit court in which the principal office of the defendant resides, such appeal does not operate as a stay of the CFPB's order.15 Finally, the CFPB is headed by a single Director, appointed by...