Today's Trends in Credit Regulation

CFPB's Flexible Jurisdiction over the Grey Area of Ancillary Products
By Nicole F. Munro

Under the Dodd-Frank Act, the Consumer Financial Protection Bureau has certain kinds of authority over providers of consumer financial products and services. In addition, the Bureau has the ability to supervise the vendors that those companies use to provide consumer financial products and services.

These "service providers" are defined as vendors that provide a material service to a covered person in connection with the offering or provision by such person of a consumer financial product or service.

The term "financial product or service" includes extending credit and servicing loans, but also includes such other financial product or service as may be defined by the CFPB, by regulation, if the CFPB finds that such product or service is

  • entered into or conducted as a subterfuge or with a purpose to evade any federal consumer financial law; or
  • permissible for a bank or for a financial holding company to offer or to provide under any provision of a federal law or regulation applicable to a bank or a financial holding company, and has, or likely will have, a material impact on consumers.

A big question looms over those who provide ancillary products in connection with consumer finance - will the CFPB's attempt to stretch its jurisdiction beyond typical products that are credit related, or will it confine its authority to traditional financial products, leaving alone products that are, by design, non-financial?

Although some questions regarding the Bureau's jurisdiction over service providers have answers that are black and white, there's still plenty of grey area here, and, wherever there's grey, you can expect the Bureau to push its jurisdictional arguments to the maximum.

It's pretty clear that with aftermarket products that are financial in nature, such as GAP, the CFPB can exercise jurisdiction. When the products are non-financial, like service contracts, things get more complicated.

Based on what has come out of the Bureau so far, it looks like the CFPB will take the position that a non-financial product offered in connection with a financial product or service falls within the CFPB's jurisdiction. Arguably, this approach exceeds what is legally permitted under the CFPB's governing law.

Because non-financial products should not become financial products when offered with the credit sale of a vehicle or a loan secured by personal property, these products should be outside the CFPB's jurisdiction. So, while it's easy to concede that debt cancellation is a product the CFPB can regulate, products like paintless dent repair, tire and wheel, key replacement, auto clubs, and service contracts should not be subject to CFPB oversight.

Although outside of its statutory authority under Dodd-Frank, there is a risk - possibly a significant risk - that the CFPB might reach beyond its "financial products and services" jurisdiction and regulate non-financial products anyway. In that situation, it's likely that the CFPB will look to the marketing of the non-financial product in connection with the provision of a financial product or service. The CFPB might consider if that marketing is done in a manner that is unfair, deceptive, or abusive.

In recent enforcement actions, the CFPB has focused on the marketing of ancillary products. It has found that certain marketing practices engaged in by vendors of creditors are unfair, deceptive, or abusive. The unanswered question that remains is if the CFPB will look beyond marketing practices and into the components of the product if it sees bad behavior.

In summary, it's a pretty good call that the Bureau will claim jurisdiction over a product if one of the federal consumer financial laws addresses how the product or service is provided or imposes any statutory or regulatory duties on the creditor regarding the provision of the product or service. And, if there is some type of bad behavior associated with the product or service, you can bet the CFPB will stretch its long-arm jurisdiction (like Elastigirl) to ensure consumers are protected from the bad behavior.

What happens next is up to the industry. But unless an individual industry participant has the stomach and treasure for a turf battle, I'd put my money on the CFPB.

Nicole F. Munro is a partner in the Maryland office of Hudson Cook, LLP. Nikki can be reached at 410-865-5430 or by email at

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