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| 1 minute read

Ninth Circuit Expands CFPB's Regulatory Enforcement Net

The Consumer Financial Protection Bureau (CFPB), which enforces federal consumer financial laws, has been an active regulator.  On December 13, 2022, the Ninth Circuit handed the CFPB a win that expands its regulatory enforcement net.

A bit of background.  The CFPB enforces the Consumer Financial Protection Act (Act), which prohibits a "covered person" from engaging in deceptive conduct.  12 U.S.C. § 5536.  One type of "covered person" is a person that provides a "consumer financial product or service."

In CFPB v. Aria, No. 21-55525, the Ninth Circuit held, on an issue of first impression, that a company that provides higher-education "scholarships" is a person that provides a "consumer financial product or service" and is thus a "covered person" under the Act.  The Court observed that the "ordinary meaning of financial is broad," and rejected the argument that scholarships are not financial in nature because they don't have to be repaid.

The Court, on another issue of first impression, then adopted the "net impression test" to determine whether the scholarship solicitations at issue were deceptive.  Under this test, a "solicitation may be likely to mislead by virtue of the net impression it creates even though the solicitation also contains truthful disclosures."  Here too the Court agreed with the CFPB that the net impression created by the solicitations was likely to mislead reasonable consumers.

The upshot?  Companies offering products or services that are even loosely financial may be deemed "covered persons" under the Act, and such companies should be scrupulous about the accuracy of their solicitations.


regulatory & investigations