CFPB Issues Report Recommending Ways for States to Strengthen Consumer Protections

Regulatory Developments

CFPB Issues Report Recommending Ways for States to Strengthen Consumer Protections
On January 14, the CFPB released a report with recommendations for how states can update their laws and regulations to strengthen consumer protections. The report’s recommendations include: (1) adding a ban on abusive practices that mirrors the CFPB’s unfair, deceptive, or abusive acts or practices (UDAAP) laws and guidance; (2) strengthening state agency investigatory authority; and (3) creating additional remedies for consumers, including ensuring that consumers have a private right of action. In furtherance of these recommendations, the report contains model language that states may use to update their laws to incorporate UDAAP principles. The report also encourages states to work with the CFPB to create a consistent framework for financial consumer protection across state and federal law.

In addition, the report specifically addresses issues such as data privacy and junk fees, which have been areas of focus for the CFPB in recent years. In particular, the report recommends that states provide additional data protection rights to consumers, such as granting consumers a right to have their data deleted by companies, requiring companies to only collect the minimum data necessary to provide their service, limiting exemptions from state consumer data privacy laws, and providing a private right of action for consumers. With respect to junk fees, the report contains model language that states can use to update their laws to require companies to have clearer fee disclosures and limit the fees that companies can charge consumers.

CFPB Releases Supervisory Highlights, Issue 38 (Advanced Technologies Special Edition)
On January 17, the CFPB released its Winter 2025 edition of Supervisory Highlights focused on advanced technologies used by covered entities, including auto and credit card lenders' use of credit scoring models that leverage artificial intelligence or machine learning technology.

CFPB Issues Report Warning Homeowners of the Risks and Costs of Home Equity Investment Contracts
On January 15, the CFPB published a report on home equity investment contracts that offer consumers an upfront cash payment in exchange for a future lump sum repayment based, in part, on the value of the consumer’s home. The CFPB warned consumers that they may have limited consumer protections under these contracts and that home equity contract companies may not provide standard mortgage disclosures, may require arbitration in the event of a dispute, may place a lien on the consumer’s home preventing the consumer from taking out new loans or refinancing the existing loan, and may be unwilling to work with homeowners struggling to make the ballon payment at the end of the contract, which could result in foreclosure. The CFPB advised consumers seeking help with a home equity contract to consult with an attorney or file a complaint with the CFPB.

Enforcement Developments

SEC Announces $3 Million Penalty in Settlement with Unregistered Broker Charged with Brokering Transactions in Stock of Private Companies Expected to Undertake IPOs
On January 17, the SEC announced that it had entered into a settled order resolving charges that Paul John McCabe, Jr., and his unregistered firm, PMAC Consulting, LLC, illegally brokered transactions involving the stock of private companies that were expected to undertake an IPO. McCabe was a registered representative of six different brokers between 1996 and 2016. In October 2016, McCabe terminated his Financial Industry Regulatory Authority (FINRA) registration with his latest broker, rather than produce information and documents requested by FINRA. In November 2016, he submitted a letter of Acceptance, Waiver and Consent to FINRA, consenting to a bar from associating with any member firm. The day before the termination of his registration in October, he formed PMAC Consulting as the sole owner, and thereafter continued to conduct a similar business with PMAC that he had conducted previously through the registered brokers. That business was to arrange purchases and sales of the shares of pre-IPO companies in secondary transactions. McCabe was usually paid a percentage of the transaction as a fee, and received more than $16 million in fees through PMAC Consulting for unregistered activity on behalf of several fund clients and nearly 100 sellers. We note the following points: (1) McCabe’s activity was not covered by the finder exception, both because of the scope of his business and the fact that these were secondary sales, not primary offerings by funds or companies; (2) the penalty of $3 million was substantially less than the $16 million in fees that McCabe was found to have received; (3) there was no indication in the order or press release that SEC staff considered potential aiding and abetting by McCabe’s clients, perhaps due to the fact that there were so many customers on both sides of the transactions and no strong evidence of knowing or complicit activity (for example, using agreements drafted to mask the nature of McCabe’s services and the basis for his fee). It is worth observing that when the SEC investigates potential unregistered broker activity, a history of prior registration, termination of registration, and orders prohibiting registration are clear red flags.

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