On March 19, 2024, the Consumer Financial Protection Bureau (“CFPB”) published a blog touting letters it has sent to New York Governor Kathy Hochul, New York State Senate leaders, and New York State Assembly leaders to highlight the importance of a ban on abusive or unfair conduct that is being considered in pending New York legislation.

In the 2023 legislative session, State Senator Leroy Comrie and Assemblywoman Helene Weinstein introduced companion bills titled the “Consumer and Small Business Protection Act” in the Senate and Assembly that would expand Section 349 of the state’s general business law (which currently only prohibits deceptive acts) to prohibit unfair, deceptive, or abusive acts. The bills would allow any individual or non-profit organization entitled to bring an action under Section 349 “on behalf of himself or herself and such others to recover actual, statutory and/or punitive damages or obtain other relief as provided for in this article.” Currently, private actions can only be brought under Section 349 for injunctive relief. The bills would allow statutory damages of $1000 plus actual damages to be awarded in private actions and make the award of reasonable attorneys’ fees and costs to a prevailing plaintiff mandatory rather than discretionary. As we previously blogged, the New York legislature adjourned on June 10, 2023 without any action on two bills but the bills were automatically reintroduced when the legislature reconvened in January. We assume that the CFPB’s letters were directed at the bills since the letters failed to cite the bill numbers or identify the name of the proposed Act.

The CFPB letters, which are signed by Assistant Director Brian Shearer of the Office of Policy Planning and Strategy, urge the NY legislature to follow Congress’s “careful and deliberate multi-part prohibition” and include the “reasonable reliance” component in the proposed abusive conduct ban. Assistant Director Shearer also comments that the inclusion of an unfairness standard has been important to the CFPB and FTC in their efforts to combat junk fees and deficient data security and that the clarification in the bills that an act or practice may be deceptive even when the representation is not directed at a consumer would align with the CFPA’s deceptive conduct prohibition.

Section 1036 of the Consumer Financial Protection Act (CFPA) prohibits unfair, deceptive, or abusive acts or practices. An act or practice is unfair when: (1) it causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers; and (2) the injury is not outweighed by countervailing benefits to consumers or to competition. Section 1042(a) of the CFPA authorizes “the attorney general (or the equivalent thereof) of any State” to bring “a civil action…to enforce the provisions of [the CFPA] or regulations issued under [the CFPA] and to secure remedies under provisions of [the CFPA] or remedies otherwise provided under other law.” It also authorizes “[a] state regulator” to bring “a civil action or other appropriate proceeding to enforce the provisions of [the CFPA] or regulations issued under [the CFPA] with respect to any entity that is State-chartered, incorporated, licensed, or otherwise authorized to do business under State law…and to secure remedies under provisions of [the CFPA] or remedies otherwise provided under other provisions of law with respect to such an entity.” Section 1042(a) includes limits on such authority, including with respect to actions against national banks and federal savings associations, and establishes conditions that a State Official must satisfy to exercise such authority, including notifying the CFPB before filing a CFPA claim and providing a description of the action. It also gives the CFPB a right to intervene in the state’s lawsuit. Despite the existing authority to enforce Section 1036, the CFPB believe the State of New York needs its own state law prohibiting unfair, deceptive and abusive practices.

Acting Outside of CFPB’s Statutory Authority

A review of the CFPA does not reveal a clear source of authority for the CFPB to advocate for state legislation. The CFPA provides the following authority to the CFPB:

  • Section 1021 (b) authorizes the CFPB to “exercise its authorities under Federal consumer financial law for the purposes of ensuring that, with respect to consumer financial products and services … consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination.”
  • Section 1021 (c) sets forth the CFPB’s primary functions as the following; “(1) conducting financial education programs; (2) collecting, investigating, and responding to consumer complaints; (3) collecting, researching, monitoring, and publishing information relevant to the functioning of markets for consumer financial products and services to identify risks to consumers and the proper functioning of such markets; (4) subject to sections 1024 through 1026, supervising covered persons for compliance with Federal consumer financial law, and taking appropriate enforcement action to address violations of Federal consumer financial law; (5) issuing rules, orders, and guidance implementing Federal consumer financial law; and (6) performing such support activities as may be necessary or useful to facilitate the other functions of the Bureau.”
  • Section 1031 of the CFPA gives the CFPB the authority to “prescribe rules applicable to a covered person or service provider identifying as unlawful unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.”

This is not the first time the CFPB has sought to act outside of its statutory authority to influence actions taken by other regulatory bodies. In July 2023, Director Chopra issued a press release announced the start of an informal dialogue between the European Commission and the CFPB on a range of critical financial consumer protection issues. In August 2023, U.S. Representative Young Kim (CA-40) along with 18 members of Congress wrote a letter to CFPB Director Rohit Chopra expressing their concern with his “informal dialogue” with the European Commission without an explicit authorization from Congress and asked Director Chopra to terminate the dialogue.

New York’s Consumer Protection Agenda

Earlier this year, New York Governor Hochul announced “a sweeping consumer protection and affordability agenda”, including proposed actions to “strengthen consumer protections against unfair business practices” and “establish nation-leading regulations for the Buy Now Pay Later loan industry.” In December 2023, New York enacted two new consumer protection laws, which aim to protect consumers from (1) unwanted subscriptions by requiring notice to consumers for upcoming automatic renewals with clear instructions for canceling, and (2) confusion over prices by requiring merchants to post the highest price a consumer may pay for a product regardless of payment method.