All signs point to aggressive consumer protection under Biden

“[The CFPB] is a very big dog, and by all indications it’s about to get a much longer leash. This agency is about to become more robust in terms of its supervisory agenda and its enforcement agenda.”

Elizabeth Papez, Partner, Gibson Dunn

“There is undoubtedly going to be increased focus on privacy and consumer protection issues to come,” Gibson Dunn Partner Alexander Southwell said on a Jan. 7 Webcast discussing the Biden administration’s anticipated consumer protection agenda. “This will be an era of aggressive enforcement on the federal level, but frankly also on the state level.”

Regarding the consumer protection priorities of the Department of Justice, expect the focus to remain on healthcare fraud, particularly concerning market manipulation, hoarding, and price gouging related to the coronavirus pandemic, as well as on investigating and prosecuting fraud cases involving major healthcare providers.

On Jan. 7, Biden announced the nomination of Judge Merrick Garland to serve as the next attorney general, Lisa Monaco as deputy attorney general, Vanita Gupta as associate attorney general, and Kristen Clarke as assistant attorney general for civil rights. “The takeaway from this is that these are all veteran, former Department of Justice senior personnel, so they bring tremendous experience in handling these issues,” Southwell said.

CFPB enforcement

Consumer financial protection will be another key priority in the form of a revitalized and newly empowered Consumer Financial Protection Bureau (CFPB). Created under the Dodd-Frank Act in 2010 following the financial crisis, the CFPB is the primary watchdog that regulates the offering and provision of consumer financial products and services and has vast supervisory and enforcement authority over financial service providers.

“It is a very big dog, and by all indications it’s about to get a much longer leash,” said Gibson Dunn Partner Elizabeth Papez. “This agency is about to become more robust in terms of its supervisory agenda and its enforcement agenda.”

One key factor is who will take the helm at the CFPB. In a 5-4 decision in the case Selia Law v. CFPB, the U.S. Supreme Court ruled the agency’s director can be removed by the president at will, rather than for cause—a decision that effectively paves the way for Biden to replace current CFPB Director Kathy Kraninger, whose term expires 2023, with a new acting director.

“We expect there to be a pendulum swing to some extent in terms of the new leadership,” said Robin Nunn, a partner at law firm Morgan Lewis. “A key issue for the CFPB will be a focus on enforcement,” she said, including “a more energetic focus on fair lending and unfair or deceptive abusive acts or practices” and “more aggressive policing of Wall Street and of large financial institutions,” both of which have taken a back seat under the Trump administration.

Multiagency collaboration

Compliance and legal teams further can anticipate “enhanced collaboration, coordination, and cooperation” in investigations and enforcement actions between federal and state agencies in a wide variety of consumer protection areas, noted Morgan Lewis Partner Rebecca Hillyer. “We have seen that type of collaboration in earlier administrations as well,” she said.

Hillyer cited as an example the $25 billion national mortgage settlement reached in February 2012 between the Department of Justice, Department of Housing and Urban Development, the CFPB, and 49 state attorneys general and the District of Columbia’s attorney general against the five largest national mortgage servicers. The $968 million settlement SunTrust Mortgage reached in 2014 with these same agencies is another example.

Being in the crosshairs of a multiagency investigation can come with both benefits and pitfalls. “One obvious potential benefit is that collaborative efforts can lead to more organized resolutions,” Hillyer said. “It can provide companies with a broader view of what is at stake from the get-go, which can allow for more informed decision-making when it comes to things like negotiating pushback of injunctive relief.”

Regarding the pitfalls, greater collaborative efforts between federal and state agencies may potentially increase the sheer number of investigations that move forward, Hillyer said. “Not every state or agency plays ball the same way,” she added. It’s important to be cognizant of the fact some states have stricter compliance requirements than others concerning the sharing of confidential data, the preserving of attorney-client privilege, or deadlines concerning document production, for example.

FTC priorities

The Federal Trade Commission is another agency where compliance and legal teams can expect a major shift in priorities—albeit, much of it remains in the balance, depending on when and whether Biden names a Democratic commissioner. As it stands currently, Republicans have a 3-2 majority, led by current FTC Chairman Joseph Simons.

If Simons steps down—not an unusual move when a shift in party lines takes place—that would leave the agency with a 2-2 split. “There is going to be a strong incentive to move as quickly as possible for getting a third Democratic commissioner appointed and confirmed to the Commission, so that the Commission can really start to move forward,” said David Monteiro, a former enforcement attorney with the FTC’s Bureau of Consumer Protection and now a partner at Morgan Lewis.

As a practical matter, the FTC chairman has significant influence over the aggressiveness and direction of the agency’s consumer protection priorities, “which include appointing new FTC bureau directors and filling other key posts within the agency, as well as setting priorities on investigations and policy initiatives,” said Ashley Rogers, a partner at Gibson Dunn.

“Based on what we’re hearing from our numerous contacts within the agency, we expect that we’ll see an amplification and intensification of priorities that the Democratic commissioners on the FTC have been pressing over the last several years,” said Ryan Bergsieker, a partner at Gibson Dunn. Commissioners Rohit Chopra and Rebecca Kelly Slaughter, specifically, have been very vocal in the changes they’d like to make.

As just one example, Commissioners Chopra and Slaughter have expressly stated they want to be more aggressive in trying to find legal theories to support monetary relief in enforcement actions generally and particularly in egregious cases, such as disgorgement of ill-gotten gains. “We expect that attention to these issues will increase in connection with anticipated leadership changes at the FTC,” Bergsieker said.

One wild card is whether the FTC can claim victory over legal challenges currently pending before the U.S. Supreme Court regarding its power of authority and, specifically, whether the agency can seek to recoup funds unlawfully obtained by individuals and companies resulting from violations of consumer protection laws. If the FTC loses, it will force the Commission to radically shift the enforcement strategy it has been following for the last several years, which has been heavily grounded on using Section 13b of the FTC Act to obtain equitable monetary relief for consumers.

Consumer protection attorneys say the importance of the case’s outcome cannot be overstated. “It really impacts the FTC’s mission and the size of the stick that it has to wield to bring companies into compliance,” Bergsieker said. Oral argument in that case, AMG Capital Management v. FTC, is set for Jan. 13.

As it is, the FTC is already stretched thin. “One thing to watch with respect to resources may be how the FTC uses its relationships and partnerships with other federal and state agencies as a force multiplier on consumer protection issues,” Bergsieker said. “We’ve seen some close coordination between FTC and state attorneys general on privacy investigations, particularly in the tech space, to include the sharing of information. We also expect to see coordination between the FTC and a revitalized CFPB, given the substantial overlap in the missions of those agencies, as has occurred previously under the Obama administration.”

It’s also important to keep in mind that priorities shift from administration to administration. “Don’t assume that because your industry hasn’t been the subject of FTC consumer protection scrutiny before that it won’t be in the future,” Monteiro said.

He also recommended keeping a careful eye on rulemaking proceedings by any agency with consumer protection authority. “Participating in the rulemaking process early when rules affect your company or industry in ways that are untenable and have a basis for regulatory challenge is critically important to making sure you’ve preserved the ability to make those arguments down the line,” Monteiro said.

Last but certainly not least, have your compliance house in order. Some of the most significant consumer enforcement actions in recent years resulted from companies failing to have in place a compliance management system that was adequate to mitigate the risk that was presented by the behavior of employees, Monteiro stressed. “Having in place a compliance management system tailored to the risk presented is an excellent way to mitigate the risk of future enforcement actions.”