The CFPB and the FTC recently released their long-awaited Memorandum of Understanding (MOU), outlining how they plan to work together on non-bank enforcement, rulemaking and research in the consumer financial services market.  For non-banks subject to the CFPB’s jurisdiction, there is plenty of cause for concern in the MOU, principally arising from the sharing of information between the two agencies.

Most of the MOU is unremarkable.  The two agencies have agreed to consult with each other about investigations, enforcement actions, settlements, proposed new rules, and research projects.  In general, the MOU highlights the desire of the two agencies not to get in each other’s way with regard to these activities, and not to investigate or sue the same target at the same time. 

Where it gets worrisome is when the MOU turns to the subject of information sharing.  In particular, the CFPB has agreed that it “shall,” on request from the FTC, provide examination reports from its supervision of non-banks to the FTC.  Moreover, if the FTC requests any “Confidential Supervision Material” — which means information provided by a non-bank to the Bureau during an examination — the CFPB will provide it, unless it decides it has “good cause not to do so.”

The obvious import of this arrangement is to equip the FTC — an enforcement agency — with information developed during the Bureau’s examination process for the purpose of allowing the FTC to take enforcement actions.  Thus, a non-bank that becomes the subject of a CFPB examination must anticipate that the examination is the prelude to enforcement activity, and that either the CFPB or the FTC may decide to engage in enforcement as a result of the examination.  Even worse, the non-bank must assume that any information it shares with the Bureau will be shared not only with the Bureau’s massive enforcement staff, but also with the FTC.

In the abstract, it probably seems like a good idea to the Bureau to operate in this way, because it maximizes the enforcement opportunities arising from any particular examination.  And certainly, the idea of promoting ever-greater levels of government enforcement activity is consistent with the oft-repeated statements of both the FTC and the CFPB that more “cops on the beat” is a good thing.  We see that same sentiment evident in the CFPB’s decision to have its enforcement attorneys attend examinations of supervised entities.  But lost in this enthusiasm for enforcement is the reality that a more cooperative supervisory relationship between the CFPB and the non-banks would promote more openness and candor, and would allow consumer protection issues to be resolved more quickly and efficiently than through enforcement. By essentially inviting the FTC to access its examination materials on demand, the CFPB will undermine the basis for cooperation with non-banks and will make the resolution of issues more expensive and time-consuming.