Data intelligence company Morning Consult recently analyzed consumer complaints made to the Consumer Financial Protection Bureau (CFPB). The analysis showed that fintech and crypto-related complaints made by consumers to the CFPB “exploded” in early 2021 compared to the same period in 2020.
Our clients should be aware that the sharp increase in fintech and crypto consumer complaints is well known within the CFPB and that fintech enforcement is key priority for the CFPB Office of Enforcement. The Office of Enforcement is already active in the fintech space and seeking new matters for investigation. Jurisdictional lines are just now being drawn among financial regulators, and the CFPB is looking to signal that it will be the primary financial regulator of consumer financial products and services in the fintech and crypto spaces and will pursue aggressive enforcement where warranted.
Among the financial regulators, the CFPB has jurisdiction over the broadest array of fintech products and services, most of which fit squarely within one or more of the strategic markets into which the CFPB Office of Enforcement categorizes investigations and litigation. Enforcement’s most relevant strategic markets for purposes of fintech and crypto consumer products and services are payments, deposits, fair lending, auto finance, credit cards, mortgage originations/servicing, small-dollar lending, and student finance.
Looking more closely at some key strategic markets, “payments” is an expansive category, covering payment service providers, peer-to-peer payments, digital wallets, and the infrastructure that enables consumers to make payments or have payments made on their behalf. “Deposits” is likewise expansive and covers all neobanks, most of which have expanded beyond traditional checking and savings functions to offer products such as credit cards, mortgage origination and financing, auto financing, and student lending — all of which are covered by other CFPB strategic enforcement markets. “Fair lending” is the broadest strategic market as it applies to every product or service in the fintech space. As just one example of how the CFPB is thinking about fair lending, the CFPB wants to ensure that any artificial intelligence or machine learning in use by fintechs does not discriminate but instead complies fully with the Equal Credit Opportunity Act and the fair-lending laws. CFPB enforcement resources are being devoted to all of these strategic markets as well as many others in the fintech space.
And while the Morning Consult article identifies certain high-profile fintech and crypto companies by name, that identification should not give comfort to those that escaped mention. The CFPB is looking at all fintech players, products, and services and focusing on many of the most popular new products, including Earned Wage Access and Buy Now Pay Later. Moreover, while the Morning Consult analysis looks at current trends, there is no reason to believe that this “explosion” in consumer complaints is transitory. Rather, this number will undoubtedly grow as mainstream consumers increasingly adopted fintech products and cryptocurrencies. The growth in complaints will lead directly to more CFPB investigations for the simple reason that consumer complaints are one of the primary sources that the Office of Enforcement uses in deciding whether to pursue investigations.
While the CFPB is likely to be the most aggressive financial regulator of consumer fintech products and services, other regulators are demonstrating an increased focus on fintech and crypto regulation and enforcement as well. We are seeing a marked increase in coordination among financial regulators in investigations of fintech, blockchain, and digital asset companies. The Securities and Exchange Commission, Commodities Futures Trading Commission, U.S. Department of Justice, Financial Crimes Enforcement Network, and state financial…