The CFPB Enters Uncharted Territory as a Competition Authority

In July 2021, the White House ordered the Consumer Financial Protection Bureau (CFPB) to promote competition in consumer financial markets through enforcement actions or rule-making. As a result, the CFPB is now poised to begin regulating and enhancing competition in consumer finance. However, both the bureau and regulated entities will face new challenges in developing rigorous economic and econometric arguments in the consumer finance space.

The current director, Rohit Chopra, is familiar with competition issues as a former commissioner at the Federal Trade Commission (FTC), one of the government’s main competition authorities. To facilitate the CFPB’s new role, the bureau last May created the Office of Competition and Innovation to oversee the work of determining, among other things, how firms “may threaten fair competition” such as market concentration and barriers to entry. One way for the CFPB to enforce fair competition is to challenge practices in consumer financial markets that undermine consumer welfare. To do so, the bureau would likely employ economic and econometric analysis to demonstrate harm to consumers. Alternatively, the CFPB could use its Unfair, Deceptive, and Abusive Acts and Practices (UDAAP) power, given it under The Dodd-Frank Act, to make rules to prevent unfair, deceptive, or abusive practices by defining rules to promote its regulatory agenda as UDAAP violations.

With either approach, the bureau will face challenges in identifying and demonstrating competition issues, such as barriers to entry and market concentration. For example, according to the Department of Justice and FTC Merger Guidelines, examining market concentration requires a rigorous analysis of the relevant product and geographic markets, which can be a contentious issue in disputes. The requisite analyses for assessing these types of competition issues are well-developed in antitrust economics, but perhaps less frequently applied to consumer finance issues. In addition, many practices that are challenged by antitrust authorities are not per se illegal but require a “rule-of-reason” analysis that weighs alleged harms and benefits. This provides firms with an opportunity to identify potential pro-competitive benefits to the challenged conduct.

These types of competition issues will likely be new to both the CFPB and many entities that become targets for unfair competition enforcement actions. Regulated entities will need to respond to these challenges using rigorous economic and econometric arguments.