Jan. 17: CFPB Recent Updates

Published 

CFPB Orders Operator of Cash App to Pay $175 Million and Fix Its Failures on Fraud

Today, the Consumer Financial Protection Bureau (CFPB) ordered Block, the operator of the peer-to-peer payments app Cash App, to refund and pay other redress to consumers up to $120 million and pay a penalty of $55 million into the CFPB’s victims relief fund. Block employed weak security protocols for Cash App and put its users at risk. While Block is required by law to investigate and resolve disputes about unauthorized transactions, the company’s investigations were woefully incomplete. Block directed users — who had suffered financial losses as a result of fraud — to ask their bank to attempt to reverse transactions, which Block would subsequently deny. Block also deployed a range of tactics to suppress Cash App users from seeking help, reducing its own costs.

Enforcement Action
Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial protection laws, including those engaging in unfair, deceptive, or abusive acts or practices. The CFPB also has the authority to enforce the Electronic Fund Transfer Act. The CFPB’s order requires Block to:

  • Pay $120 million to harmed consumers: Block is required to pay up to $120 million in refunds and other redress to consumers whose unauthorized transfers were not investigated, consumers who did not receive refunds they were entitled to, and consumers whose accounts were locked for an extended period of time or who were not provided provisional credits during a delayed investigation. Block must pay a minimum amount of $75 million in refunds and other redress. The CFPB will enforce the order’s redress requirements to ensure affected Cash App users receive redress. Consumers will not need to take action at this time to obtain redress.
  • Fix customer service and investigate disputes: To ensure that the misconduct does not recur, the order requires Block to set up 24-hour, live-person customer service. The order also requires Block to fully investigate unauthorized transactions and to provide timely refunds, where appropriate.
  • Pay a $55 million fine: Block will pay a $55 million penalty to the CFPB’s victims relief fund.

The CFPB order only addresses violations of consumer financial protection laws under the CFPB’s purview. Yesterday, state regulators separately ordered Block to pay $80 million for Bank Secrecy Act and anti-money laundering law violations.

Read today’s order.


Published 
CFPB Issues New Electronic Fund Transfers Frequently Asked Question

The CFPB issued a new Electronic Fund Transfers Frequently Asked Question (FAQ) about the compulsory use prohibition.  The new FAQ is Coverage: Transactions Question 6.

You can access the new FAQ here: https://www.consumerfinance.gov/compliance/compliance-resources/deposit-accounts-resources/electronic-fund-transfers/electronic-fund-transfers-faqs/.


Published 

CFPB Sues Capital One for Cheating Consumers Out of More Than $2 Billion in Interest Payments on Savings Accounts

Today, the Consumer Financial Protection Bureau (CFPB) sued Capital One, N.A., and its parent holding company, Capital One Financial Corp., for cheating millions of consumers out of more than $2 billion in interest. The CFPB alleges that Capital One promised consumers that its flagship “360 Savings” account provided one of the nation’s “best” and “highest” interest rates, but the bank froze the interest rate at a low level while rates rose nationwide. Around the same time, Capital One created a virtually identical product, “360 Performance Savings,” that differed from 360 Savings only in that it paid out substantially more in interest—at one point more than 14 times the 360 Savings rate.

Capital One did not specifically notify 360 Savings accountholders about the new product, and instead worked to keep them in the dark about these better-paying accounts. The CFPB alleges that Capital One obscured the new product from its 360 Savings accountholders and cost millions of consumers more than $2 billion in lost interest payments. The CFPB’s lawsuit seeks to stop the companies’ unlawful conduct, provide redress for harmed consumers, and impose civil money penalties, which would be paid into the CFPB’s victims relief fund.

Enforcement Action
Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial protection laws, including the Truth in Savings Act. It also has the authority to enforce the Consumer Financial Protection Act’s prohibitions on unfair, deceptive, or abusive acts or practices. The CFPB seeks to stop Capital One’s unlawful conduct, provide redress for harmed consumers, and impose civil money penalties, which would be paid into the CFPB’s victims relief fund.

Read today’s complaint.


Published 
CFPB Issues Proposed Rule to Prohibit Certain Terms and Conditions in Agreements for Consumer Financial Products or Services

The CFPB issued a proposed rule related to prohibited terms and conditions in agreements for consumer financial products or services.

The rule would prohibit certain contractual provisions in agreements for consumer financial products or services. The proposal would prohibit covered persons from including in their contracts provisions purporting to waive substantive consumer legal rights and protections (or their remedies) granted by State or Federal law. The proposal would also prohibit contract terms that limit free expression, including with threats of account closure, fines, or breach of contract claims, as well as other contract terms. The proposal would also codify for covered persons under the Dodd-Frank Act certain longstanding prohibitions under the Federal Trade Commission’s (FTC) Credit Practices Rule.

Comments on the proposal are due: April 1, 2025.

You can access the proposed rule here: www.consumerfinance.gov/rules-policy/notice-opportunities-comment/open-notices/prohibited-terms-and-conditions-in-agreements-for-consumer-financial-products-or-services-regulation-aa/.


Published 

CFPB Finds Hundreds of Thousands of Mortgages in Southeast and Central Southwest US Likely Underinsured Against Flood Risk

The Consumer Financial Protection Bureau (CFPB) issued a new report that found significant differences in the likelihood that homeowners with a mortgage are adequately insured against flooding based both on location and on income and assets. According to findings, homeowners in coastal areas were most likely to have flood insurance and generally had higher incomes and assets, suggesting that they were the best positioned to recover from flooding. Homeowners living near inland streams and rivers, however, were less likely to have flood insurance and less likely to have other financial resources to draw on to recover from a flood. The report uses a sample of mortgage applications from 2018-2022.

This report looks at flood risk in the southeast and central southwest census regions of the United States, as measured by flood risk data from both the Federal Emergency Management Agency (FEMA) and the First Street Foundation. FEMA’s assessment of flood risk is retrospective and focuses mostly on coastal flooding, while the First Street Foundation data better identifies inland flooding as well as having a forward-looking measure of flood risk. The analysis shows that the flood risk exposure of the mortgage market is more extensive and more geographically dispersed than previously understood. Homeowners can have significantly different access to insurance and therefore sharply different financial outcomes based on whether their risk of flooding comes from the coast or from inland rivers, streams, rainfall, and stormwater flooding.

The report’s key findings include:

  • Current flood insurance maps may not capture accurate flood risk exposure. FEMA flood insurance maps rate flood risk highest in coastal areas, while First Street’s estimates predict significantly more exposure in inland areas as well as broader exposure in coastal regions.
  • Over 400,000 homes may be underinsured for flooding events in the southeast and central southwestern parts of the country alone. The majority of flood insurance is provided through the federally subsidized National Flood Insurance Program, which uses the FEMA flood insurance maps to identify properties eligible for flood insurance. Homeowners with a mortgage are therefore likely to be underinsured for flooding if the FEMA flood insurance maps do not accurately measure future flood risk.
  • Homeowners who may be underinsured for flood risk also are least likely to be able to self-insure and recover from flooding. Borrowers in inland areas at risk of flooding, as identified using the First Street flood risk model, had lower incomes and put less money down to purchase their homes compared to homeowners not in inland flood areas. This included both borrowers living in areas at high risk of coastal flooding and borrowers whose homes are not in an area of high flood risk, as identified either by FEMA or First Street. This suggests that these borrowers have the fewest financial resources to recover from flooding and are most at risk of suffering catastrophic loss after a flood.

Read today’s report, Flood Risk and the US Mortgage Market.


Published 

CFPB Proposes Rule to Ban Contract Clauses that Strip Away Fundamental Freedoms

The Consumer Financial Protection Bureau (CFPB) proposed a rule that would stop financial companies from forcing Americans to choose between participating in the financial system or giving up their rights, including those guaranteed by the Constitution. The proposed rule seeks to stop companies from using a variety of contract clauses that limit fundamental freedoms, including waivers of substantive legal rights and fine print that suppresses speech.

In 2023, after taking a number of enforcement actions and observing practices in the market where companies sought to impose unusual conditions in consumer contracts, the CFPB increased its focus on clauses that force consumers to forfeit their rights. The CFPB is issuing this proposed rule to ensure consumer finance contracts focus on the main terms of a deal, instead of fine print to take away people’s rights. Specifically, the CFPB is proposing to block companies from:

  • Undermining Rule of Law: The Constitution vests legislative power in Congress and reserves important authorities for the States. The CFPB is protecting that legal structure by ensuring that large companies cannot use form contracts to opt out of statutes passed by Congress or state legislatures, including protections for servicemembers, laws prohibiting elder fraud, and accountability for corporate lawbreaking.
  • Deplatforming and Suppressing Speech: The rule would bar companies from fining, suing, or deplatforming based on consumer comments, reviews, or political or religious views. It protects consumers’ right to exercise free speech, including a consumer’s right to share negative reviews about a financial firm’s products or services, as well as political speech with which the company’s management disagrees.
  • Amending Key Terms by Fiat: By stopping companies from unilaterally updating contracts in their favor, the rule seeks to protect consumers’ right to benefit from the contracts they agree to and gives people the ability to make decisions about their options in the marketplace.
  • Forcing Customers to Automatically Plead Guilty: The CFPB is proposing to codify existing prohibitions against taking a consumer’s property without judicial due process or oversight. These longstanding prohibitions include prohibitions against “confessions of judgment,” which force consumers to essentially plead guilty even if they have defenses.

While many of the terms in this proposal are already unenforceable in various circumstances, some companies still use them. The rule would create a bright line of prohibition and heightened accountability by, for example, giving state Attorneys General authority to enforce these prohibitions against national banks.

Comments on the proposed rule must be received on April 1, 2025.

Read today’s Notice of Proposed Rulemaking.


Published 

CFPB Research Reveals Heavy Buy Now, Pay Later Use Among Borrowers with High Credit Balances and Multiple Pay-in-Four Loans

The Consumer Financial Protection Bureau (CFPB) released a study of Buy Now, Pay Later (BNPL) borrowers, finding that more than one-fifth of consumers with a credit record used BNPL loans in 2022, with most of those consumers having subprime or deep subprime credit scores. The CFPB research also revealed that more than three-fifths of BNPL borrowers held multiple simultaneous BNPL loans at some point during the year, and one-third had loans from multiple providers.

BNPL borrowers were also more likely than other consumers to have higher balances on other unsecured credit lines such as credit cards. Because lenders do not typically report BNPL loans to nationwide consumer reporting companies, data about BNPL use—especially about borrowers with multiple loans and on total consumer debt balances—is limited. Today’s study helps fill the data gap by pairing a matched sample of BNPL applications from six large firms with deidentified credit records.

BNPL credit is a type of deferred payment option that generally allows the consumer to split a purchase into smaller installments, typically four or fewer, often with a down payment due at checkout. The application process is quick, involving relatively little information from the consumer, and the product often comes with no interest. Lenders have touted BNPL as a safer alternative to traditional credit card debt, along with its ability to serve consumers with limited or subprime credit histories.

To better understand the emerging BNPL market, the CFPB issued market monitoring orders in March 2023 to collect information from several companies offering no-interest, pay-in-four BNPL loans, including Affirm, Afterpay, Klarna, Paypal, Sezzle, and Zip. The CFPB matched the loan-level and deidentified consumer information it received with consumer credit records to study the prevalence of BNPL use. Today’s report finds that, in 2022:

  • More than one-fifth of consumers used BNPL: Among consumers with a credit record, 21.2 percent financed at least one purchase with a BNPL loan, up from 17.6 percent in 2021. About 20 percent of borrowers in 2022 were heavy users originating more than one BNPL loan on average each month, an increase from 18 percent in 2021. The average number of originations per borrower increased from 8.5 to 9.5.
  • Most BNPL borrowers took out multiple simultaneous BNPL loans: Approximately 63 percent of borrowers originated multiple simultaneous loans at some point during the year, and 33 percent took out loans from multiple BNPL lenders.
  • Nearly two-thirds of BNPL loans went to borrowers with lower credit scores: Among these applicants with subprime or deep subprime credit scores, BNPL lenders approved 78 percent of loans in 2022.
  • BNPL borrowers were more likely to hold higher balances on other credit accounts: These borrowers held higher balances of other unsecured consumer debt, including personal loans, retail loans, student loans, credit cards, and subprime alternative financial services lenders. Before first-time BNPL use, consumers’ average credit card utilization rates increased, suggesting that less available credit card liquidity may encourage consumers to use BNPL.
  • Younger borrowers held more BNPL debt as a percentage of their total consumer debt: Among borrowers ages 18-24, BNPL purchases made up 28 percent of total unsecured consumer debt compared to an average of 17 percent among borrowers of all age groups, during the months in which they borrowed.

Read today’s report, Consumer Use of Buy Now, Pay Later and Other Unsecured Debt.


Published JAN 13, 2025
CFPB Issues HMDA and TILA Asset-Size Threshold Adjustments and issues Civil Penalty Inflation Adjustments

The CFPB has issued several annual inflation adjustment final rules.

First, the CFPB has announced the asset-size exemption thresholds for depository institutions under Regulation C. Second, the CFPB has announced the asset-size exemption thresholds for certain creditors under the escrow requirements and small creditor portfolio and balloon-payment qualified mortgage requirements, and the small creditor exemption from the prohibition against balloon-payment high-cost mortgages under Regulation Z.  These adjustments are effective on January 1, 2025, consistent with relevant statutory or regulatory provisions.

Third, the CFPB announced the annual adjustments for inflation to the CFPB’s civil penalty amounts, as required by the Federal Civil Penalties Inflation Adjustment Act, as amended.  This final rule is effective on January 15, 2025.

You can access the Regulation C notice at: http://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/home-mortgage-disclosure-regulation-c-adjustment-asset-size-exemption-threshold/.

You can access the Regulation Z notice at: http://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/truth-lending-act-regulation-z-adjustment-asset-size-exemption-threshold/.

You can access the CFPB’s civil penalty amounts notice at: https://www.consumerfinance.gov/rules-policy/final-rules/civil-penalty-inflation-annual-adjustments/.