CFPB and FTC Memorandum of Understanding Aims to Coordinate Non-Bank Enforcement and Allow Information-Sharing

By: David I. Monteiro

Over the weekend, the CFPB and the FTC executed a Memorandum of Understanding (“MOU”) between the two agencies that clarifies how they will share information and coordinate efforts with respect to companies and issues that fall under both agencies’ jurisdiction. The document contains few surprises but offers some insight into the steps the agencies are taking to prevent unnecessary duplication and inconsistency.

While the Dodd-Frank Act that created the CFPB drew some clear jurisdictional lines between the CFPB and the constellation of federal agencies charged with administering and enforcing federal consumer financial laws, the FTC was something of an exception. The statute intentionally and expressly left intact the FTC’s jurisdiction over non-depository financial services providers under the FTC Act while giving the CFPB essentially concurrent jurisdiction over those same entities. The law also contemplates information-sharing and consultation between the agencies with respect to a variety of issues. Accordingly, the Dodd-Frank Act required the two agencies to reach an agreement to coordinate their enforcement actions.

The MOU released on Monday is that statutorily-required agreement. It goes beyond what the law requires and addresses a range of issues that are likely to come up as the CFPB and FTC try to navigate their joint responsibility for non-depository financial services providers. The MOU sets out the agencies’ agreement to share information and coordinate actions as to seven elements of their respective programs: (1) coordination of enforcement actions, (2) coordination of regulations and guidance, (3) sharing of supervisory information, (4) coordination of long-term planning, (5) sharing of consumer complaint information, (6) coordination of consumer education, and (7) coordination of research. The agencies also agree to meet at least quarterly to discuss their cooperative efforts under the MOU.

Most of the provisions of the MOU with respect to these seven elements represent simple and straightforward agreements to coordinate efforts with specific communications deadlines. For example, the agencies agree to notify one another five days before commencing an investigation of a non-bank and ten days before initiating or settling an enforcement action. The agencies also agree in general terms to coordinate consumer education and to discuss results of research projects before releasing them to the public.

Some of the provisions provide slightly more substance, however. The most interesting provisions in each of the various categories are the following:

Enforcement

Under the MOU, the FTC and the CFPB agree not to file independent actions against the same entities simultaneously, though they may proceed jointly or, after proper notice, intervene in one another’s cases. The MOU also suggests that the agencies intend to devise a joint database of settlements, orders, and judgments obtained against non-banks that the agencies will use to better assess and enforce order compliance across agencies.

Regulations

The agencies will consult with one another before either issues formal guidance documents relating to unfair, deceptive, or abusive acts or practices under section 1031 of the Dodd-Frank Act, sections 5 and 18 of the FTC Act, the mortgage-related services rulemakings authorized by the Omnibus Appropriations Act of 2009, the FDCPA, or the FCRA. This provision is important because the risk of inconsistency is higher with respect to these guidance documents than with rules adopted through the notice-and-comment process.

Supervision

The CFPB agrees in the MOU to share confidential information it obtains in the course of its examinations of non-banks with the FTC upon request. The CFPB retains the right to refuse to provide confidential supervisory information for “good cause” set out in writing to the requesting FTC staff, but the MOU does not set out further what “good cause” means. The FTC in return promises to safeguard the confidentiality of this information. The confidentiality assurances throughout the MOU appear to be designed to satisfy interim rule 12 C.F.R. § 1070.43, which governs the CFPB’s disclosure of information to other government agencies. How the FTC’s access to this supervisory information will work pragmatically and what legal issues sharing that kind of information will present are the most legally complex aspects of the MOU. The answers may depend on how the agencies make use of their information-sharing capacity in practice: the legal issues are quite different if FTC staff uses the CFPB’s supervisory information solely to draft internal investigative memoranda than if the agency uses the same information in federal court in support of an ex parte temporary restraining.

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In general, the MOU, which is in effect for three years, suggests a good-faith effort by the agencies to coordinate their work and to avoid duplication and inconsistency. It is, at a minimum, important that the agencies have shown an awareness of this risk and are taking steps to mitigate it. But the framework is short on specific details that would give certainty or comfort to non-depository financial services providers that the CFPB and FTC will succeed in meeting those objectives. As such, it remains to be seen how the agencies will navigate this new relationship in the coming months and whether the broad terms of the agreement are sufficient to prevent the risks that their concurrent jurisdiction entails.

Read the full text of the MOU here: http://www.consumerfinance.gov/wp-content/uploads/2012/01/FTC.MOUwSig.1.20.pdf.

Read the agencies’ joint press release announcing the MOU here: http://www.ftc.gov/opa/2012/01/ftccfpb.shtm.

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