The Future of Financial Services Enforcement at the FTC

Over 25 years ago, C.K. Prahalad and Gary Hamel coined the term “core competencies,” which consists of the “collective learning” in an organization. Prahalad and Hamel contended that by identifying this intellectual core, businesses could obtain a competitive advantage by focusing on their unique strengths; firms could separate the wheat from the chaff, allocating resources away from nonessential things and towards core activities that provide substantial value to consumers.
As the acting director of the Federal Trade Commission’s Bureau of Consumer Protection, I have the privilege of managing part of an agency that has over 100 years’ worth of collective learning. That history has allowed the FTC to develop some extraordinarily effective tools to combat harmful conduct. The FTC’s core competency with regard to financial services is now civil law enforcement, with business guidance, consumer education, and research and policy development activities supporting and furthering such enforcement.
Yet even “old dogs” like the FTC need to learn new tricks. As Acting Chairman Maureen Ohlhausen observed, the FTC must evolve so that its law enforcement and other financial services work still serve the interests of consumers in a rapidly changing world. The fundamental question for the FTC is how to apply its core law-enforcement competency in light of on-going changes in law, technology, and markets. The FTC and the Bureau of Consumer Protection in the past identified some financial markets on which the agency was focusing its work. This article addresses the broader question of how, under the new leadership of Acting Chairman Ohlhausen, the FTC is likely to apply its core law-enforcement competency in light of on-going changes in law, technology, and markets. This article provides some initial thoughts on an overall FTC approach to consumer financial services enforcement. For purposes of this article, “financial services” does not include privacy and data security, which are topics best addressed separately and comprehensively.
Combating Financial Fraud
As part of her positive consumer-protection agenda, Acting Chairman Ohlhausen has emphasized generally that she will “re-focus the agency on our bread-and-butter fraud enforcement mission.” As she explained, “[t]hese cases may not forge new legal ground or prompt huge headlines, but such actions defend consumers harmed by an unscrupulous con artist and assist the legitimate business owner who loses business to the cheat. These obvious benefits explain why such efforts have long had broad bipartisan support both at the FTC and in Congress.” Fighting fraud, in short, is good policy and good politics. When it comes to allocating its scarce resources, stopping fraudulent schemes allows the FTC to get the most consumer-protection bang for its buck.
The FTC’s general refocusing on fraud enforcement applies to the financial-services context as well. Under the leadership of Acting Chairman Ohlhausen, the FTC will direct its enforcement work even more at preventing, deterring, and remedying fraudulent practices in financial services. In particular, the FTC will focus on fraud that causes harm to financially distressed consumers. Fighting fraud will be the centerpiece of the FTC’s financial-services enforcement agenda.
The FTC has a strong record of bringing cases to halt serious misconduct by providers of financial services. It has long brought actions to protect consumers from abusive debt collectors (such as “phantom” debt collectors), unscrupulous payday lenders, and fraudulent debt-relief operations. For example, the FTC recently brought an action against S&H Financial Group and its officers, alleging that they masqueraded as a law firm and used unlawful intimidation tactics in collecting debts, even going so far as to make phony claims that people would be arrested or imprisoned if a debt was not paid. In another recent action, Strategic Student Solutions, the FTC alleged that a student loan debt-relief operation bilked millions of dollars from consumers by falsely promising to reduce or eliminate the consumers’ student loan debt and offering nonexistent credit-repair services.
The FTC will continue strong and sustained enforcement against bad actors that harm consumers of financial services; however, FTC enforcement will also target entities that support the ecosystem of fraud. These include money-transfer companies, payment processors and platforms, loan lead generators, and others that directly participate in another’s fraud or provide substantial support while ignoring obvious warning signs of another’s illegal activity. For example, the FTC recently announced a $586 million