Putting Money Back Into Consumers’ Pockets: An Empirical Study of the CFPB’s Civil Penalty Fund

One of the Consumer Financial Protection Bureau’s (“CFPB”) primary goals is to protect consumers. Protecting consumers necessarily means ensuring that companies and individuals stop violating the consumer laws. But stopping illegal conduct in the future does not help the consumers who have already been harmed. In many of the cases prosecuted by the CFPB, the defendants illegally took money out of the pockets of consumers: they charged fees that were expressly illegal; they charged consumers more than the consumers owed or more than the defendants had disclosed; and they deceived consumers about what the consumers were buying or how much it would cost. Remediating this harm—giving back money actually taken from consumers through the defendants’ illegal conduct—is an essential part of protecting consumers, and through the end of its 2019 fiscal year, the CFPB often required the defendants to pay consumers directly for the harm identified by the CFPB. In approximately 13% of the cases in which some relief was ordered, however, the defendants did not have the financial wherewithal to remediate consumers fully: they were bankrupt; they were banned from their respective industries or ordered to cease operations altogether; and in some cases, the principals were jailed. If consumers had to rely on these defendants for relief, they likely would be, quite simply, out of luck. Through the use of a previously unstudied mechanism, the Civil Penalty Fund, however, the CFPB is providing relief to all of them—hundreds of thousands of con- sumers across twenty-seven cases. Congress created the Fund in the Dodd-Frank Act and required that all civil money penalties collected by the CFPB be placed into the Fund. Further, Congress required that the CFPB use the Fund in the first instance to provide monetary relief to consumers who otherwise would not receive compensation for harm caused by the defendants in CFPB enforcement actions. And the defendants in these twenty-seven cases caused hundreds of thousands of consumers substantial amounts of monetary harm. Despite the fact that these companies had limited resources, they caused a total of $671.2 million in uncompensated harm with an average of over $24.9 million per case and a median of $10 million per case. Through the end of the CFPB’s 2019 fiscal year, the CFPB had used the Fund to send more than 905,000 checks, with an overall average of $494. In 70% of the cases, the average check sent was $1,000 or more, and more than 177,000 checks were sent in cases where the average check sent was at least $1,000. This Article expands on the growing body of scholarly literature regarding public enforcement of consumer laws. Although that scholarship has addressed the effectiveness and propriety of public enforcement, even raising concerns about judgment-proof defendants, there is virtually no substantive mention of the Civil Penalty Fund or its operations despite the magnitude of monetary relief it provides to consumers. This Article is the first empirical analysis of the Fund’s operation and the assessment and collection of civil money penalties that are used by the Fund to remediate consumers. After explaining the Fund’s operation, the Article finds that the Fund is an efficient way to provide significant monetary relief to consumers who otherwise would not receive any compensation for their losses from defendants’ unlawful conduct, including through private litigation. The Fund also is putting money back into consumers’ pockets. In all but one of the cases, the defendants either charged fees expressly prohibited by law, took amounts that were not disclosed or owed, deceived consumers about the cost or material aspects of the services that they were purchasing, or some combination thereof. The Article finds that the structure of the Fund creates positive incentives for regulators to bring important cases. As is noted in the literature, states and other regulators also bring enforcement actions against similar defendants—those who cause consumers monetary harm but cannot pay it back. Based on the evidence regarding the Civil Penalty Fund’s operation, this Article therefore recommends that states adopt similar consumer restitution funds. The Article details several issues that legislatures should consider in implementing their own funds and ends by providing draft language for creating and implementing such a fund.