Last week, the U.S. Supreme Court granted the unopposed request of the Community Financial Services Association for a 30-day extension until January 13, 2023 to file its brief in opposition to the CFPB’s certiorari petition seeking review of the Fifth Circuit panel decision in Community Financial Services Association of America Ltd. v. CFPB.  In that decision, the panel held the CFPB’s funding mechanism violates the Appropriations Clause of the U.S. Constitution.  It is likely that the Supreme Court will consider both the CFPB’s certiorari petition and a forthcoming cross-petition for certiorari by the CFSA at its February 17, 2023 conference.

Although it had 90 days from the panel’s decision to file a certiorari petition, the CFPB filed its petition less than a month after the decision was issued.  In the petition, the CFPB indicated that it had expedited the filing “to facilitate consideration of this case this Term.”  In seeking the extension for filing its brief in opposition, CFSA asserted that a 30-day extension was “particularly warranted because the government chose to file its petition more than 60 days before it was due, advancing a lengthy merits argument far more extensive than the one it presented below, including new historical research.”

In its extension request, CFSA indicated that it is also planning to file a cross-petition for certiorari to ask the Supreme Court to review the Fifth Circuit’s rejection of other challenges to the CFPB’s payday loan rule.  It will file its cross-petition on January 13, the same day it files its opposition to the CFPB cert petition.

CFSA also indicated in its extension request that it understood that the CFPB planned to file its brief in opposition to CFSA’s cross-petition early enough to allow the Court to consider both petitions at its February 17, 2023 conference and then, if certiorari is granted, to expedite merits briefing to permit argument and decision this Term.  According to CFSA, even if the Court were to grant certiorari, “it is neither necessary nor appropriate to resolve the significant and novel questions presented here this Term” for the following reasons: (1) the Fifth Circuit’s judgment only vacates the payday loan rule which never went into effect, (2) the CFPB can seek stays of relief in future cases if the Fifth Circuit’s decision “were extended in ways that more significantly impact” the CFPB, and (3) “the parties and the Court would benefit from briefing, arguing, and deciding this case in a more deliberate fashion than a January grant would permit.”  Nevertheless, to facilitate the Court’s ability to consider both petitions at the February 17 conference, CFSA agreed to waive the 14-day waiting period under Rule 15.5 for distributing the cross-petition and the CFPB’s brief in opposition to the Court, which will allow distribution on February 1.

The CFPB responded to the CFSA extension request by stating that it did not oppose the 30-day extension sought by the CFSA and will respond to CFSA’s cross-petition on January 25.  The CFPB reasserted its argument that the Supreme Court should grant its certiorari petition and order expedited briefing so the case can be argued and decided this Term.  It stated: 

Delaying resolution of this case beyond this Term—and thus likely until sometime in 2024—would severely prejudice the Consumer Financial Protection Bureau (CFPB), consumers, and the entire financial industry…. Although the court of appeals’ vacatur affects only the regulation challenged here, the court’s sweeping holdings threaten the validity of virtually every action the CFPB has taken in the 12 years since it was created—as well as its ongoing activities.  Those holdings will remain governing Fifth Circuit precedent until this Court intervenes, and they have already created severe disruption and uncertainty for the CFPB and for the financial services industry, which has ordered its affairs in reliance on the CFPB’s regulations and administrative actions….If the Court does not hear the case until next fall, that disruption and uncertainty would likely persist until sometime in 2024.

The CFPB also argued that the questions to be raised in the CFSA cross-petition “have no legal or logical connection to the important question presented in the government’s petition, and there is no comparable urgency requiring that they be decided promptly,” and thus “the questions presented by the cross-petition could be briefed and argued next Term if this Court grants certiorari.”  The Fifth Circuit rulings that CFSA is likely to ask the Supreme Court to review in its cross-petition are: (1) the payday loan rule was not invalid because it was promulgated by a CFPB Director who was unconstitutionally insulated from removal by the President, (2) the CFPB acted within its UDAAP authority in promulgating the payday loan rule, (3) the payday loan rule’s payment provisions were not arbitrary and capricious in violation of the Administrative Procedure Act either as a whole or as applied to debit and prepaid card transactions or as to separate installments of multi-payment installment loans, and (4) the CFPB’s UDAAP rulemaking authority did not represent an unconstitutional delegation of legislative power by Congress because Congress provided a specific purpose, objectives, and definitions to guide the Bureau’s exercise of its rulemaking authority.

On December 16, 2022, from 2 p.m. to 3:30 p.m. ET, Ballard Spahr’s Consumer Financial Services will hold a webinar, “How the Supreme Court Will Decide Threat to CFPB’s Funding and Structure.”  For more information and to register, click here.

On November 17, 2022, the Consumer Financial Protection Bureau (“CFPB”) announced in a blog post that it is in seeking to build a new data set that “will allow for a more robust understanding of market trends” in the auto market.  According to the CFPB, over 100 million Americans have an auto loan, and auto loan balances (currently estimated at $1.5 trillion nationally) are on pace to surpass student loans as the second-largest debt category in 2023.  Notwithstanding the enormous size of this type of consumer credit, the CFPB maintains that data available to sufficiently understand the market is unavailable.

In announcing this request, “Enhancing Public Data on Auto Lending,” the CFPB stated:

Financial markets and policymakers have long had access to granular mortgage data that has provided insight into patterns in lending and risk.  Because student loans are largely administered by the federal government, we know more about them too.  But, despite its size, we know much less about the auto lending market.  As a result, the CFPB is announcing an effort to work with industry and other agencies to develop a new data set to better monitor the auto loan market.

As an example of data gaps in the auto loan market, the CFPB has pointed to repossession data, which is based on proprietary estimates and does not provide a level of granularity that allows for a deeper analysis.  The Bureau has also pointed to an inability to comprehensively study the subprime and deep subprime auto markets, since many lenders providing auto loans to consumers in those credit segments don’t furnish data on those loans to credit reporting agencies.  The CFPB has expressed a clear concern about the treatment of those customer segments during the COVID 19 pandemic, and we suspect the lack of visibility into the most vulnerable consumers in the auto finance market is a major impetus for this attempt to develop a better data set.  Additional examples of CFPB reports and comments regarding subprime auto loans can be found here and here.

The CFPB hopes that additional data will give it a more robust understanding of market trends, enabling it to identify emerging risks and opportunities as they occur.  The Bureau hopes this will lead to a more competitive auto finance market for consumers and greater visibility into market trends and opportunities for lenders. 

As of this writing, approximately two dozen comments had been received in response to the request.  Posted comments can be found here.  Comments posted to date are predominantly from individuals giving their two cents on the auto finance market and do not appear to add much insight as to how to address the data gaps already identified by the CFPB. 

It is our hope that consumer and industry stakeholders are able to provide meaningful input that will help expand this effort by the CFPB to better understand the auto finance market during the comment period.  Enhanced data and a deeper understanding of the auto finance market would certainly help inform other regulatory efforts, such as the FTC’s proposed Motor Vehicle Dealers Trade Regulation Rule.

The CFPB’s blog post includes instructions for submitting comments.  Comments can be submitted on the federal rulemaking portal or directly to the CFPB by email, mail, or hand delivery to CFPB headquarters in Washington, D.C.  The deadline to submit information and comments responsive to the request is December 19, 2022.

The Federal Communications Commission ruled this month that “ringless voicemail” to wireless phones is a “call” made using an artificial or prerecorded voice and therefore subject to the Telephone Consumer Protection Act robocall prohibition.  The TCPA prohibits making any non-emergency call using an automatic telephone dialing system or an artificial or prerecorded voice to a wireless telephone number without the prior express consent of the called party.  The FCC’s ruling is consistent with court decisions to date.

The FCC’s declaratory ruling denied a petition filed in 2017 by a company that is the distributor of technology that allows voicemail messages to be delivered directly to consumers’ voicemail services.  The petitioner argued that the process by which the ringless messages are deposited on a carrier’s platform is not a call to a mobile phone number.  In its petition, it described the technology as follows:

[The technology] is able to deliver messages directly to voicemail without dialing a consumer’s cellular telephone number and in such a way that the consumer is unable to receive a voice channel communication.  [This] direct to voicemail insertion technology bypasses the telephone and subscriber altogether, creating direct communication between [the technology developer’s] servers and the voicemail system of the carrier telephone company.  [The] technology interconnects the carrier telephone companies’ voicemail servers directly with [the technology provider’s] internal network.  This allows [the technology developer’s] computers to communicate directly with the carrier telephone companies’ computers without ever placing a call to the subscriber.  Consumers may then retrieve the messages from the voicemail service provider, often by dialing a separate phone number and entering a password.

The FCC rejected the petitioner’s argument that ringless voicemail is not a TCPA call because it does not pass through consumers’ phone line and that the TCPA protects only calls made directly to a wireless handset.  In the FCC’s view, there is no functional difference from the consumer’s perspective between ringless voicemail and the Internet-to-phone texting that the FCC previously found subject to the TCPA.  In such text messaging, the telephone number assigned to the consumer serves as a necessary and unique identifier.  In the ringless voicemail context, the telephone number assigned to a consumer’s wireless phone and associated with the voicemail account is also a necessary and unique identifier for the consumer.   

The FCC also found its conclusion consistent with the ordinary meaning of “call.”  According to the FCC, ringless voicemails met the Webster dictionary definition of a “call” by “directing the messages by means of a wireless phone number and by depending on the transmission of a voicemail notification alert to the consumer’s phone (causing the consumer so retrieve the voicemail message).”  In addition, the FCC considered its conclusion to be consistent with the TCPA’s purpose and history.  The FCC specifically noted that ringless voicemails create the same consumer problem created by automated or prerecorded calls—they “crowd potentially wanted messages out of the consumer’s voicemail capacity.”  In addition, they cause consumers to have to “waste time listening to unwanted messages before deleting them because there is no mechanism [i.e. call-blocking apps] for consumers to stop unwanted ringless voicemail calls before they reach the voicemail box.”

The FCC rejected the argument that it should not take action due to regulatory and technology changes since 2017, commenting that the fact that other types of ringless voicemail may have developed since then did not change its analysis of the type of ringless voicemail described in the petition.  The FCC stated:

Our declaratory ruling applies to any ringless voicemail technology that uses the end user’s mobile telephone number to direct the ringless voicemail message to the end user’s mobile phone  and our analysis of consumer harm would apply to any technology that does so.

On December 22, 2021, New York State Senate Bill 2767A was signed into law. The Bill establishes the Private Student Loan Refinancing Task Force (the “Task Force”), which was charged with “study[ing] and analyz[ing] ways lending institutions that offer non-federal student loans to students of New York institutions of higher education can be incentivized and encouraged to create student loan refinance programs.” As part of that directive, on November 8, 2022, the Task Force requested information from “interested stakeholders” concerning private-sector refinancing of student loans. Responses are requested by December 8, 2022.  That won’t give the Task Force much time to “study and analyze” the responses, as its report to the Governor and Legislature must be submitted no later than December 31, 2022.

Contained in the Task Force’s information request is a lengthy list of questions, which include:

  • What options are available for student loan borrowers to refinance private student loans both in New York State and outside the state? Who is offering these loans? What are the terms? Are they limited to certain types of student loans?
  • What is the volume of private student loans refinanced, the terms of the borrowers’ prior loans, the terms of the borrowers’ refinancing loans, the unmet need for student loan refinancing, and the impact of these refinancing loans in New York and nationwide?
  • How does the prospect of government loan forgiveness or cancellation affect student loan refinancing?
  • How and to whom is student loan refinancing currently marketed in New York State?
  • What disclosures are made to borrowers who refinance into private loans, including disclosures concerning the effects of refinancing and the potential loss of any benefits on borrowers who refinance their federal loans?  What disclosures should be required?
  • What can the public or private sectors do to make safe and affordable private student loan refinancing more accessible to borrowers?
  • Are there any statutory or regulatory actions that could make private student loan refinancing safer, more affordable, and more accessible? Are there other programs or public incentives that could make private student loan refinancing safer, more affordable, and more accessible? What are the estimated costs, benefits, outcomes, and other effects of these programs?

While the final result of the Task Force’s review is yet to be determined, other states have recently looked at issues surrounding the private refinancing of student loans. In 2021, Maine passed disclosure requirements addressing the refinancing of education loans into private education loans. Specifically, the law requires the lender to provide the borrower with a disclosure that the benefits and protections applicable to the existing loan may be lost due to the refinancing. See Me. Rev. Stat. tit. 9-A, § 16-103(b) and applicable FAQs.  It would not be surprising to see New York reach a similar conclusion.

In a recent blog post, the CFPB announced that it has started sharing consumer complaint data with local governments through its Government Portal.  The Government Portal gives local, state, and federal government agencies access to more granular information about consumers’ complaints and companies’ responses than the public is able to view through the CFPB’s public-facing Consumer Complaint Database.  The CFPB indicated that this initiative is intended to “increase the impact of our complaint data” by giving cities and counties information that will allow them to “increase their efforts to protect consumers at the local level.”  The initiative is consistent with statements made by Director Chopra regarding increased CFPB collaboration with other enforcement authorities.

The cities and counties initially chosen by the CFPB to receive access were those the CFPB deemed “best positioned to benefit from the CFPB’s complaint data” consisting of:

  • Local governments with civil or criminal prosecutorial authority to monitor and enforce their own consumer protection laws as well as force-multiply enforcement of federal consumer financial protection laws such as those available under the Consumer Financial Protection Act; and
  • Local governments that have, or that are working to create, financial empowerment offices and financial empowerment strategies to improve financial stability for low- and moderate-income households.

To be onboarded onto the Government Portal, cities and counties must sign a confidentiality and data access agreement with personal data protection requirements.  A city or county that is onboarded is able to:

  • See in real-time what consumers are experiencing in the financial marketplace and how companies are responding
  • Download complaints, including consumer- and company-provided documents.
  • Filter and export information to allow targeted analysis by time period, company, geography, and more
  • Compare problems their constituents are facing to other localities and nationwide
  • Securely refer individual complaints to the CFPB
  • Receive the list of companies responding to complaints through CFPB’s process

The CFPB states that in a period of less than three months, more than a dozen cities and counties have expressed interest in accessing the Government Portal.  The participating jurisdictions include:

  • Department of Consumer and Business Affairs, Los Angeles County, CA
  • Office of the Harris County Attorney, Harris County, TX
  • Montgomery County Office of Consumer Protection, Montgomery County, MD
  • Sacramento County District Attorney’s Office, Sacramento, CA
  • Los Angeles Office of the City Attorney, Consumer and Workplace Protection, Los Angeles, CA
  • New York City Department of Consumer and Worker Protection, New York City, NY
  • City of Albuquerque Consumer Protection, Office of Policy, Albuquerque, NM
  • City of Austin, Regulatory Monitor, Office of Telecommunications & Regulatory Affairs, Austin, TX
  • Office of the Columbus City Attorney, Columbus, OH
  • Office of Oakland City Attorney, Oakland, CA

The CFPB’s initiative expands enforcement risk by making local governments aware of potential violations of law as to which they have enforcement authority. 

The CFPB recently released two reports concerning tenant background checks.  One report, “Consumer Snapshot: Tenant Background Checks,” discusses consumer complaints received by the CFPB that relate to tenant screening by landlords.  The other report, “Tenant Background Checks Market,” looks at the practices of the tenant screening industry.

Consumer Snapshot.  The report describes the tenant screening process faced by rental applicants. It highlights the following common issues reported in complaints:

  • Negative information that does not belong to the consumer, which the report attributes to the use of “name-only” matching and “wildcard” (i.e. partial name) searches by tenant screening companies;
  • Inaccurate or misleading information about evictions and rental debt, with the CFPB noting that based on applicants’ experiences, the presence of eviction records, regardless of accuracy and outcome, has a high likelihood of leading to denials of rental housing; and
  • Errors in criminal record information, with the CFPB noting that inaccuracies in criminal records may have an outsized impact on Native American, Black, and Hispanic communities because of their disproportionate representation in the criminal justice system and despite known issues with inconsistent public records systems across jurisdictions, many tenant screening companies conduct minimal manual verification of information and continue to report inaccurate and incomplete civil and criminal public records.

The CFPB states that “[t]he issues described in CFPB complaints and qualitative research suggest that some tenant screening companies are not meeting the legal requirement under the FCRA ‘to follow reasonable procedures to assure maximum possible accuracy’ of the information in the reports they compile.”  In discussing the challenges faced by applicants in addressing errors, the CFPB highlights the use of proprietary scoring models or algorithms by tenant screening companies to classify a renter as more or less risky.  The CFPB reports that complaints and interviews showed a lack of consistent compliance with FCRA adverse action notice requirements by landlords who took adverse action based on tenant screening reports and with FCRA dispute requirements by tenant screening companies.  It concludes the report with the statement that “[t]he experiences documented in this report illustrate that tenant screening reports are an increasing area of concern for many across the country.”

Market Report. The CFPB’s industry research used for the report focused on publicly available information from a sample of 17 tenant screening companies that offer services to landlords across the country.  These companies were selected based on their perceived prevalence in sources such as: public-facing websites, analyses by industry observers, academic research, consumer complaints submitted to the CFPB, and recent lawsuits.  The CFPB estimates that a majority of landlords use tenant screening reports when considering rental applicants.

The report contains a description of the rental housing landscape, an overview of the tenant screening industry, a description of the features of tenant screening reports, and a discussion of the federal, state, and local laws that apply to the creation and use of tenant screening reports.  It also contains a section entitled “Market Challenges” in which the CFPB discusses the following issues that “have the potential to create or reinforce market distortions and harms for landlords and renters”:

  • Many tenant screening companies appear to over-include criminal and eviction court records as a result of automated matching procedures, including “wildcard” matching, that lead to erroneous matches.  With respect to eviction records, some tenant screening companies and their data vendors appear to lack adequate procedures to account for the complexities of and errors inherent in such records.  With respect to criminal records, the CFPB found many instances where tenant screening reports appeared to include obsolete non-conviction criminal records or incomplete arrest record information and also found that tenant screening companies and their data brokers may also fail to have procedures to remove criminal records that were expunged or sealed.  As to both eviction and criminal records, the CFPB raises questions about the value of such records in predicting tenant behavior and discusses emerging trends by state and local jurisdictions to limit access to eviction records and restrict the use of criminal history information inn rental decisions.
  • The CFPB also questions the relevance of credit report information and credit scores, which are often included in tenant screenings reports, as a predictor of an applicant’s likelihood to pay rent and be a responsible tenant.  The CFPB cites research suggesting that renters may be more likely to prioritize rental payments over the payment of other debts.  According to the CFPB, this calls into question the strength of the relationship between an applicant’s credit profile and the likelihood the applicant will pay rent.  The CFPB reports that some local governments limit the use of certain credit reporting information, including credit scores, in rental decisions.
  • The CFPB reports that in addition to credit scores, many tenant screening companies offer a customized rental risk score or a decision recommendation such as “accept,” “reject,” or “accept with conditions.”  Some tenant screening companies allow landlords to specify the criteria most important to them (e.g. income, employment, criminal history) and the report generates a recommendation on that basis.  Other companies create overall risk scores based on their own proprietary models.  The CFPB, contrasting such models with “documented model risk management in the financial services space,” indicates that it is unaware of objective validation of  such models or detailed descriptions of the specific variables or weights used in a given model.  The CFPB also observes that algorithmic screening and automated scoring can obfuscate the underlying reasons for adverse decisions on rental applications and create risks for landlords, such as not being able to provide enough information to allow applicants to challenge the results or correct inaccurate information and allegations of Fair Housing Act violations and other threats of civil litigation. 

The CFPB concludes the report with a list of future actions it plans to take regarding the tenant screening market.  In addition to additional monitoring and research, the CFPB plans to:

  • Identify guidance or rules it can issue to ensure legal compliance by the “background screening” industry;
  • Determine how to require the “background screening” industry to develop and maintain appropriate and accurate consumer reporting practices in accordance with applicable law;
  • Coordinate enforcement with the FTC to hold tenant screening companies accountable for having reasonable procedures to assure accurate information in their reports; and
  • Coordinate with federal and local government agencies to ensure tenants receive timely information about potential inaccuracies and adequate adverse action notices.

Having stood up and promoted the whistleblower program at the CFPB, it appears that Richard Cordray may now be taking similar steps at Federal Student Aid (“FSA”).  On November 10, the Department of Education (“ED”) and FSA issued a bulletin inviting whistleblowers to provide information about potential violations of the Higher Education Act (“HEA”) and its implementing regulations.  FSA issued the bulletin to encourage tips from current and former employees, vendors, contractors of institutions of higher education, third-party servicers, third party lead generators, students, and anyone else with relevant information.  The bulletin directs individuals with information on potential violations to submit their tips and information directly to the FSA Office of Enforcement.

While the FSA Office of Enforcement has cautioned that it cannot guarantee complete anonymity, it has said that it will make a good faith effort to honor confidentiality requests.  However, confidentiality will apply only to identity and contact information, not to the information provided about the violation of law, and only to the extent consistent with law enforcement needs.  To discourage anonymous reporting, FSA has noted that submitting information without a name and appropriate contact information will prevent it from reaching out to ask follow-up questions and may limit its ability to investigate or take further action to stop alleged misconduct.  FSA has also reminded potential whistleblowers that federal law includes protections against retaliation for employees of ED contractors, subcontractors, grantees subgrantees, and personal services contractors, protections which we note are comparable to the protections granted to whistleblowers to the CFPB in Dodd-Frank Section 1057.  (Although the Dodd-Frank included whistleblower provisions for several federal agencies, some of which provide for the payment of bounties, it did not include a whistleblower provision for ED or FSA.)

The bulletin also provides the manner by which individuals may file complaints related to:

  • discrimination by a school based upon race, color, national origin, sex, disability, or age, or retaliating for making a civil rights complaint;
  • fraud, waste, abuse, mismanagement, or violations of laws and regulations involving ED funds or programs; and
  • issues with loan delinquency or default, wage garnishment, school closure or release of transcripts, application issues, and/or other student issues. 

We first review the origins of mortgage redlining and discuss the concept of reverse redlining and new theories of redlining.  We then look at a wide range of topics including: the application of redlining enforcement to non-banks; the use of the Equal Credit Opportunity Act and Fair Housing Act to challenge redlining; activity at state level targeting redlining; the types of evidence regulators will look for when examining for redlining or bringing an enforcement action; potential penalties for redlining violations; what steps may be required for remediation of redlining; and how a bank or non-bank can build a compliance program to avoid redlining.

Alan Kaplinsky, Ballard Spahr Senior Counsel in the firm’s Consumer Financial Services Group, hosts the conversation joined by Richard Andreano, a partner in the Group and Leader of the firm’s Mortgage Banking Group.

To listen to the podcast, click here.

With 72% voting in favor, Arizonans approved Proposition 209 decreasing the maximum lawful annual interest rate on “medical debt” from 10% to 3%, and increasing the amount of the homestead and other exemptions. These changes, which are effective immediately following certification of the vote and issuance of a proclamation by the governor (the governor does not have the authority to veto), only apply prospectively. “Medical debt” is defined as “a loan, indebtedness, or other obligation arising directly from the receipt of health care services or of medical products or devices.” Accordingly, in addition to judgments on medical debt, the 3% annual rate limit applies to loans or other financing for health care services or medical products or devices.

In addition to the annual interest rate cap, creditors should note significant increases in various exemptions. The following exemption amounts have been increased: (1) $400,000 (from $150,000) for the homestead exemption; (2) $15,000 (from $6,000) for household furniture, furnishing, goods, and appliances; (3) $15,000 (from $6,000) for the debtor’s equity in one motor vehicle ($25,000—from $12,000—if the debtor or the debtor’s dependent has a physical disability); and (4) $5,000 (from $300) for a single deposit account. These increased debt collection exemptions will prevent judgment creditors from collecting on their judgments to the extent judgment debtors claim the exemptions. The exemption amounts are also subject to annual cost of living adjustments starting in 2024.  

Finally, the portion of the debtor’s weekly disposable earnings subject to garnishment (other than for support payments) was decreased to the lesser of 10% of disposable earnings or 60 times the highest applicable federal, state, or local minimum hourly wage. The amount subject to garnishment was previously the lesser of 25% of disposable earnings or 30 times the minimum wage. If a court determines the garnishment would cause an extreme economic hardship to the debtor or the debtor’s family, the court can reduce the maximum garnishable amount to 5% of disposable earnings. Trade associations already explained the potential negative impacts if Proposition 209 was approved. The Arizona Bankers Association stated, “Prop 209 would severely restrict the ability of Arizona consumers and businesses to access critically important lines of credit.” And the Arizona Chamber of Commerce & Industry explained, “When lenders can’t collect outstanding debts, they’ll pass their losses onto their other customers, which means higher interest rates for everyday Arizonans.”

Pointing to a growth in consumer complaints related to crypto-assets, on November 10th, 2022, the Consumer Financial Protection Bureau (the “CFPB”) released a Complaint Bulletin, which analyzed in excess of 8,300 consumer complaints that the CFPB had received related to crypto-assets.  The CFPB reviewed complaints submitted to it during the period of October 2018 to September 2022, but noted that the majority of the complaints it received were submitted over the last two years, with the greatest number of complaints submitted by consumers in California and Florida.

Approximately 40% of the total crypto-related complaints reviewed by the CFPB involved fraud, theft, hacks, or scams.  However, that percentage has been steadily increasing since 2021, with 63% of complaints arising in September of 2022 involving claims of fraud.  Among the fraudulent activities identified were phishing and social engineering scams attempting to gain access to personal and account information.  The CFPB highlighted several of the types of recurring scams it saw in its review, including scams involving a relative level of technical sophistication  such as “SIM-Swapping,” where SMS messages are intercepted to exploit two-factor authentication used on crypto-asset platforms.

More traditional ploys were also highlighted, including “romance scams,” where scammers play on a victim’ emotions to extract money.  These scams included the so-called “pig butchering” scam, where fraudsters “pose as financial successes and spend time gaining the victim’s confidence and trust, coaching victims through setting up crypto-asset accounts.”  The CFPB notes that crypto-asset romance scams accounted for median individual reported losses of $10,000.  Even when a fraudulent transaction is caught relatively early, crypto-asset firms have stated that they are unable to reverse these transactions, referencing the immutability of many blockchain transactions.

The second largest subject of crypto-related complaints was general transaction issues.  The CFPB suggests that “many consumers have trouble executing transactions, especially during times of increasing crypto-asset prices.  These consumers often complain that they cannot complete transactions promptly, resulting in losses or the inability to realize profits.”  Among the additional reasons for transaction issues that the CFPB points to are crypto-assets “forking,” where crypto-assets split off into separate blockchains resulting in incompatibility when attempting to convert assets, and crypto-asset limitations on a specific platform.  The CFPB noted that “some consumers stated that they could not sell assets after learning that [the asset] would be de-listed by a platform (so that the consumer is no longer able to transact in that particular asset).  Other consumers experienced losses when attempting to transfer incompatible assets between different wallets or crypto-asset platforms.”

In response to these complaints, the CFPB provided a list of steps that consumers can take to protect themselves, including being vigilant for signs of a scam, reporting any suspicious claims of FDIC insurance, knowing the best way to contact a platform in the event of an issue, and knowing the owners of any crypto-asset platforms used.  Except for providing these steps, the CFPB did not indicate whether it has taken any investigative or other actions in response to the complaints.