CFPB And New York Attorney General Announce Settlement With Retailer For Violations Of TILA And CFPA - Financial Services

On January 16, 2019, the Consumer Financial Protection Bureau (CFPB) and the New York Attorney General announced a settlement with a retailer for alleged violations of the Consumer Financial Protection Act of 2010 (CFPA) and the Truth in Lending Act (TILA), as well as New York State law arising out of the retailer's sales practices for its store credit cards; in particular, the alleged misrepresentation by the retailer in connection with opening of credit accounts on behalf of customers and misrepresentation of the credit financing terms. As part of the settlements, the retailer is required to pay $10 million in civil money penalties to the CFPB and $1 million in civil money penalties to the State of New York.

ALLEGED VIOLATIONS

The CFPB alleged in its complaint that the retailer engaged in unfair and deceptive acts or practices in violation of the CFPA and New York State law by (i) submitting credit applications and opening accounts for store credit card accounts without the customer's knowledge or consent; (ii) signing customers up for credit insurance products without the customer's knowledge or consent; and (iii) misrepresenting credit terms (e.g., interest rate, payment amount) and promotional financing terms. In particular, the CFPB alleged that, when asking customers to provide their personal information, the retailer's employees misrepresented to customers that the customers were providing their personal information in connection with being enrolled in the retailer's rewards program or completing a survey. Often, according to the CFPB, customers found out that they had submitted credit card applications or had accrued fees in connection with promotional financing or payment protection insurance on their accounts only after receiving the credit card in the mail or finding an inquiry on their credit reports. The CFPB also highlighted that the payment protection plan allegedly sold to customers without their consent generated "significant revenues" for the retailer.

In addition to imposing its $10 million civil money penalty, the CFPB ordered the retailer to "maintain policies and procedures related to sales of credit cards and any add-on products ... that are reasonably designed to ensure" that the retailer obtains consumer consent before a credit card is issued or an add-on product is sold to the consumer. Notably, the retailer was not required to pay restitution as part of the settlement.

CONCLUSION

The settlement with the retailer comes at a time of heightened regulatory scrutiny regarding sales practices of consumer credit products, and follows a 2016 enforcement action by the CFPB against a national bank for similar sales practices violations. The settlement also demonstrates the continued focus by federal and state regulators on corporate policies related to increasing revenue. In particular, the CFPB claimed that the retailer's corporate culture "pressured" employees to enroll consumers in the retailer's credit card program and sell its promotional financing plans and payment-protection insurance, since performance reviews and pay raises were based on meeting sales quotas for these products.

The CFPB and New York Attorney General settlement with the retailer is a reminder that both federal and state regulators are still focused on the sales practices of financial institutions and other companies for consumer financial products and services. While the retailer was not required to pay restitution as part of the settlement, the CFPB focused on the revenues generated by the retailer in connection with its credit card program and the add-on product sales in determining the amount of civil money penalties the retailer is required to pay.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.