On October 19, 2021, the Consumer Financial Protection Bureau (“CFPB”) issued its first enforcement action under newly-confirmed Director Rohit Chopra, taking aim at a company that the CFPB found to misuse its position of market dominance. The nature of the CFPB’s claims and the manner in which they were presented is telling of the CFPB’s likely approach to enforcement under Chopra. The agency issued a consent order against JPay, LLC, which the order describes as a company that contracts with federal, state and local departments of corrections (“DOCs”) around the country to provide various products and services, including debit cards provided to individuals upon their release from incarceration. The debit cards may contain the consumer’s own funds from commissary or other accounts and may also contain Gate Money—funds provided by the government to the individual to help ease the transition upon release from incarceration. The consent order focuses on the company’s practices related to such debit cards.
In the consent order, the CFPB found that the company negotiated exclusive agreements with various DOCs so that the company’s debit cards were the sole means by which individuals could obtain the funds due to them upon release. The consent order expressly notes the CFPB’s finding that the company “designed and implemented” the debit card product “to eliminate cash or check options previously offered” by the DOCs. The consent order also notes the agency’s finding that the company believed that entering into contracts with DOCs to provide the debit cards would help it compete for additional contracts to provide other services to DOCs and that the company’s “ability to gain additional DOC contracts was not derived from consumers’ demand for” the debit cards—i.e., normal market forces were not at play. As discussed below, these seemingly background findings became essential elements of the CFPB’s message and of one of its claims.
The CFPB found that the company violated the Electronic Funds Transfer Act and its implementing Regulation E by requiring consumers to establish an account with the institution that issued the debit cards in order to obtain Gate Money, which is a government benefit. The CFPB also found that the company engaged in both unfair practices, by charging fees that were not authorized by the cardholder agreement provided to consumers, and deceptive practices, by misrepresenting the applicable fees in the cardholder agreement and a fee summary provided to consumers. These claims are rather straightforward and ordinary.
Most interestingly, the CFPB found that the company engaged in unfair and abusive practices by imposing any fees at all—even those properly disclosed—on consumers who had no choice but to receive their money on the debit cards. These two claims (for essentially the same conduct) are the most telling aspect of the CFPB’s actions for several reasons. The abusiveness claim reflects the agency’s understanding of that aspect of the abusiveness prohibition that prohibits covered persons from taking “unreasonable advantage” of “the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service.” In this regard, the consent order first asserts that consumers were unable to protect their interests in selecting or using the debit cards “because they were required to receive the money owed to them at the time of their release on a [debit card], and because there was no reasonably available mechanism by which consumers could close their card account and obtain the balance of their cards without paying a fee.”
It then explains that the company took “unreasonable advantage” of this situation in two different ways: (a) by causing the fees to be charged, and (b) by entering into contracts with DOCs for the debit cards, thereby enabling the DOCs to eliminate cash and check options, under the belief that doing so could help the company compete for additional DOC contracts. The first of these allegations is typical of CFPB abusiveness claims, in which the company’s engaging in the challenged act or practice (here, charging fees) under the circumstances (here, lack of consumer choice) is alleged to constitute taking “unreasonable advantage” of the situation. But the second allegation of taking “unreasonable advantage” is novel. Essentially, the CFPB is saying that the company’s having entered into debit card contracts with DOCs in order to advance its market position was itself conduct that was unlawful under the circumstances. (Interestingly, the debt card contracts in question are not entered into with consumers, but with state and local governmental entities, which presumably had the ability and the power to reject the terms that the CFPB finds problematic.)
To ensure that the market dominance point was not lost on the public, Chopra issued a “Statement” about the enforcement action (separate and apart from the usual CFPB press release that accompanied the consent order’s release and in which, as is typical, the Director was quoted). The Statement emphasized the abusiveness claim and cast it in terms of abuse of market power, akin to an antitrust violation. Thus, Chopra noted that that while “Federal antitrust law prohibits unlawful acquisition of monopoly power[,] [i]n some cases, the misuse of a dominant position in the offering of consumer financial services, where consumers cannot easily switch, is unlawful under the Consumer Financial Protection Act’s prohibition on abusive practices.” Chopra then went on state that in this case the company “abused its market power created by single-source government contracts for prepaid cards, charging a fee even if customers did not want to do business with” the company. The message was unmistaken—where consumers lack choice, the CFPB will be scrutinizing company conduct and may view actions that leverage market power as abusive, even when the lack of choice is the result of a government actor.
As noted above, the CFPB also alleged that the charging of unavoidable fees was unfair—because it caused substantial injury to consumers that was not reasonably avoidable and not outweighed by countervailing benefits to consumers or to competition. In pleading unfairness, the CFPB first alleged that the fees charged to consumers constituted substantial injury, a fairly typical allegation in an unfairness claim. The CFPB then alleged that the injury (the fees) could not be reasonably avoided by consumers, using the exact same language that the agency used to allege that consumers were unable to protect their interests in pleading abusiveness: “because they were required to receive the money owed to them at the time of their release on a [debit card], and because there was no reasonably available mechanism by which consumers could close their card account and obtain the balance of their cards without paying a fee.” That is, the same set of facts that support a finding of “not reasonably avoidable” under the unfairness analysis also support a finding of an “inability of the consumer to protect [her] interests” under the abusiveness analysis. We have previously noted that the CFPB conceives of this aspect of abusiveness as akin to unfairness; the agency’s most recent consent order further solidifies this view.
A few final thoughts on Chopra’s Statement. As one of five Commissioners at the Federal Trade Commission (FTC), where the agency had both antitrust authority and traditional consumer protection authority, Chopra often issued Statements explaining his concurrence with or dissent from Commission action. His Statement as CFPB Director was striking for two reasons. First, his express reference to antitrust principles suggests that his worldview has been substantially colored by his time at the FTC, and that he views the CFPB’s consumer protection mission at least in part through a market-analytic lens. Second, he seems to not have gotten used to the fact that he no longer needs to issue separate Statements to explain his view of agency decisions. As the sole, final decisionmaker at the CFPB, the agency’s actions are presumed to reflect his views and priorities, and the agency press release presumably reflects those views and priorities as well; indeed, the press release accompanying the consent order also speaks of the company as the “dominant provider” of financial services to DOCs; describes how the company “leveraged its relationships with” DOCs; and references “captive consumers.” It is not clear why Chopra felt the need to issue a separate Statement to further express his views rather than simply have them expressed in the press release.