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CFPB and FTC reauthorize memorandum of understanding for an additional three years

Posted in Federal Agencies

Taking its inspiration from Elvis Costello’s song lyrics, “peace, love and understanding” is how the FTC describes its “cooperative relationship” with the CFPB in a blog post about the reauthorization of the Memorandum of Understanding (“MOU”) entered into by the two agencies on January 20, 2012.

The MOU had an initial term of three years, and when it was signed, Chris Willis wrote about the MOU’s implications for nonbank entities.  Among the topics it addressed were enforcement, rulemaking and guidelines, supervision and examination (including, most notably, the sharing of examination reports and confidential supervisory information), consumer complaints, and information sharing and confidentiality.

The new MOU, which also has a three-year term, makes what the FTC describes as “a few small administrative tweaks” to the initial MOU.  The reauthorization of the MOU is not surprising since, as the FTC writes in its blog post, the two agencies are “in harmony” about consumer protection.

CFPB to hold March 26 payday lending field hearing

Posted in Payday Lending

The CFPB has announced that it will hold a field hearing on payday lending on
March 26, 2015 in Richmond, Virginia.  Like other CFPB field hearings, the event will feature remarks from Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public.

At his appearance last week before the House Financial Services Committee, Director Cordray indicated the CFPB would soon be convening a small business panel to provide input on the payday and small dollar loan rules under consideration.  (The Small Business Regulatory Enforcement Fairness Act requires the CFPB to convene a small business panel before rolling out regulations that the CFPB expects to have a significant impact on a substantial number of small business entities.)

Given the CFPB’s practice of using field hearings as the venue for announcing new developments, we are expecting an announcement from the CFPB about its payday loan rulemaking plans.


The CFPB’s final arbitration study: what’s the real story?

Posted in Arbitration

Yesterday, the CFPB delivered to Congress the final results of its empirical study of consumer arbitration as mandated by Section 1028 of the Dodd-Frank Act.  It has been widely reported that the final results show that arbitration agreements are detrimental to consumers.  However, after a careful reading of the 728-page study, we found that it would be wrong for Congress or the CFPB to draw that conclusion.  In fact, we think the study confirms that arbitration does benefit consumers.  We have prepared a legal alert that details our analysis.

On March 18, 2015, Ballard Spahr attorneys will hold a webinar “The CFPB’s Arbitration Study: Where Do Things Go From Here?” from 12 p.m. to 1 p.m. ET.  More information and the registration form are available here.



More CFPB reform bills introduced in House

Posted in CFPB General

In addition to the bill introduced last week by Republican Congressman Randy Neugebauer that would replace the CFPB’s director with a five-member commission, four other CFPB reform bills have been introduced by Republican Congressman Sean Duffy.  A series of similar bills were approved by the House Financial Services Committee in November 2013 and incorporated into a bill that passed the House in March 2014 but never reached a vote in the Senate.

The four bills introduced by Mr. Duffy are:

  • The Bureau of Consumer Financial Protection Accountability Act of 2015 (H.R. 1261) which would make the CFPB subject to the congressional appropriations process
  • The Consumer Right to Financial Privacy Act of 2015 (H.R. 1262) which would require the CFPB to notify and obtain permission from  a consumer before collecting nonpublic personal information about such consumer.  The bill would expressly make the requirement applicable to CFPB contractors collecting information on the CFPB’s behalf.
  • The Consumer Financial Protection Safety and Soundness Improvement Act of 2015 (H.R. 1263) which would allow the Financial Stability Oversight Council to set aside a CFPB regulation with a majority rather than a two-thirds vote.
  • The CFPB Pay Fairness Act of 2015 (H.R. 1264) which would require the salaries of CFPB employees to be set in accordance with the regular government pay scale. (Currently, the CFPB can base salaries on the Federal Reserve Board’s higher salary schedules.)

CFPB releases final arbitration study results

Posted in Arbitration

As expected, the CFPB today released final results of its consumer arbitration study as mandated by Section 1028 of the Dodd-Frank Act.  Section 1028 provides that the CFPB, “by regulation, may prohibit or impose conditions or limitations on the use of” pre-dispute arbitration agreements concerning consumer financial products or services if it finds doing so “is in the public interest and for the protection of consumers.”

We will be reviewing the study carefully and will provide our reactions once we complete our review.  While the CFPB did not reveal what its next steps will be, its findings as described in its press release about the study seem to set the stage for a rulemaking that will not be favorable to the industry.  In our legal alert issued today, we have listed the study’s key findings as described by the CFPB in its press release and provide our initial observations.

On March 18, 2015, Ballard Spahr attorneys will hold a webinar “The CFPB’s Arbitration Study: Where Do Things Go From Here?” from 12 p.m. to 1 p.m. ET.  More information and the registration form are available here.






Alan Kaplinsky to present industry perspective at CFPB arbitration field hearing

Posted in Arbitration

The CFPB has asked Alan Kaplinsky to present the industry perspective at a field hearing on arbitration in Newark, New Jersey, tomorrow.  As the Bureau typically uses field hearings as the venue for announcing new developments, we expect that this hearing is likely to coincide with the release and submission to Congress of the Bureau’s arbitration study, which it conducted under Section 1028 of the Dodd-Frank Act.

Director Cordray will speak at the hearing, which also will feature testimony from consumer and industry representatives.  It will be held at 11 a.m. at Essex Community College’s J. Harry Smith Lecture Hall, 303 University Avenue, Newark, and will be live-streamed.

Alan pioneered the use of consumer arbitration clauses in bank and credit card agreements in the mid-1990s.  At that time, our clients were being sued in “judicial hellholes” where a company couldn’t even expect a fair shake.  In some cases, they’d find out about a class action the same day they received a court order certifying the class.

Now, thankfully, arbitration agreements are much more common.  Alan, my partners and I have fought vigorously to have them enforced and we have played a central role in the great debate over their use.  Some people, the plaintiffs’ bar in particular, say that arbitration takes away a consumer’s right to sue.  Not so.  We often urge clients to give consumers an unconditional right to opt out of the arbitration clause without affecting the terms of the contract.

We believe that arbitration is a fair and time-tested way of settling disputes.  It is also faster, cheaper, and more efficient than court litigation.  In fact, consumers fare far better in arbitration than they do as members of class actions.  Alan has more than 40 years of experience representing financial institutions of every size and scope and we have participated in scores of arbitrations.  He is the perfect choice for this panel.

The CFPB began seeking information about arbitration in April 2012, when it published a request for information about the scope, methodology, and data sources for its study.  Alan represented the American Bankers Association, Consumer Bankers Association, and Financial Services Roundtable in responding to that request.

In December 2013, the agency published preliminary results.  Section 1028 of Dodd-Frank requires the CFPB to conduct the study and allows it to regulate, limit, or even prohibit the use of arbitration in the offering of consumer financial products or services if doing so is found to be “in the public interest and for the protection of consumers.”

We believe that, once consumers are fairly presented with the facts, they will typically choose arbitration over litigation.  The Bureau could play a constructive role by presenting to Congress a balanced presentation of the benefits and drawbacks.  It is our sincerest hope that they have done that.

Director Cordray appears before House Financial Services

Posted in CFPB Rulemaking, Hot Issues, Overdrafts, Payday Lending, Prepaid Cards, Richard Cordray, TILA / RESPA

On Tuesday, March 3, CFPB Director Richard Cordray appeared before the House Financial Services Committee to answer questions regarding the Bureau’s Semi-Annual Report to Congress and the President, which it published on December 4 of last year.  As we anticipated shortly before Director Cordray’s testimony, the report merely provided a backdrop for the hearing, which, in reality, served as a forum for committee members to question the Director on a range of issues significant to their respective constituents.  Much like the report itself, Director Cordray’s testimony largely rehearsed information with which we were already familiar, much of which we have covered on this blog.  Among the talking points we expected, however, a few newsworthy points emerged:

  • The Bureau plans to use its five-year review of the ability-to-repay (ATR) rule, mandated by section 1022(d) of the Dodd-Frank Act, to assess whether to extend, modify, or make permanent the temporary provisions that currently exempt loans backed by Fannie Mae and Freddie Mac from critical portions of the rule’s rigorous underwriting requirements. In response to questions from the committee’s chairman, Rep. Jeb Hensarling, Director Cordray indicated that the Bureau installed the sunset provision at least in part to give Congress time to undertake substantial reform of Fannie and Freddie.  Cordray acknowledged, however, that in light of Congress’s inaction on GSE reform, industry uncertainty tied to the pending sunset of the exemption constitutes a “legitimate concern.”
  • The Bureau plans in short order to convene a Small Business Review Panel (SBRP) to analyze proposals under consideration for a rulemaking governing payday loans and payday lenders. Payday loans and deposit advance products first appeared on the CFPB’s unified agenda in the Spring of 2013, and Bureau staff have since published two whitepapers on the matter—one in April 2013 and another in March 2014.  Hence, the Bureau’s decision to engage the SBRP process, which is a necessary precursor to release of a notice of proposed rulemaking (NPR), comes as no surprise.  That said, it tees up circulation of a document that will offer useful insight into the likely substance and consequence of the forthcoming NPR—the SBRP’s final report.  With respect to timing of the SBRP process for a payday loan rulemaking, Cordray told Rep. Maxine Waters, the committee’s ranking member, to “check back soon.”
  • Director Cordray indicated that the Bureau continues to be interested in learning more about, and potentially crafting responses to, unintended consequences of its various mortgage rules, particularly consequences tied to specific products tailored to, and offered in, limited geographical areas. Rep. Michael Capuano, who represents a large swath of the Boston metro area, raised concern that loans for the purchase of so-called “triple-deckers” (i.e., the three-floor, three-unit dwellings that line many of Boston’s streets) cannot feasibly satisfy the definition of a single-family property under the ATR rule.  Likewise, Rep. David Schweikert, who represents much of Phoenix, expressed concern over the rules’ implications for seller financing arrangements and contracts for land sales, which are popular, relationship-based transaction mechanisms in deed-of-trust states.  Director Cordray invited both members to engage in further discussions at the staff level in an effort to better understand the issues.
  • The Bureau has no plans to push forward the August 1, 2015, effective date for the TILA/RESPA integrated disclosures rule. Director Cordray indicated that CFPB examiners had no intention of “bringing the hammer down on the first day,” but he repeatedly emphasized that institutions will have had 21 months from the date of the rule’s publication to prepare.
  • For better or worse, the Bureau’s much-discussed “Rate Checker” tool appears here to stay. The tool, which allows consumers to view mortgage rates being offered to borrowers in their area, has been the subject of sharp criticism.  Citing concerns over the tool’s accuracy, among other things, the American Banker’s Association called for the CFPB to remove the tool from its website altogether.  Facing questions from the committee about the tool’s accuracy, Director Cordray said only that the tool is “quite accurate,” and he encouraged committee members to direct their constituents to the tool for help in shopping for their next mortgage.

The hearing failed to provide any news of note on other significant issues, including the evolution, if any, of the Bureau’s rulemakings on prepaid cards and home mortgage disclosure, or the progress of pre-rulemaking activities on debt collection.  Director Cordray did indicate in passing that action on overdrafts would likely follow planned rulemakings on payday loans and debt collection, both of which are slated for later this year.  Presumably, then, movement on overdrafts appears relegated to late 2015 at the earliest.

The Director has yet to appear before the Senate Banking Committee, as he typically does following circulation of the Semi-Annual Report.  To date, Senate Banking has not published any schedule for a pending appearance by Director Cordray.

House Republicans introduce another bill to create commission to run CFPB

Posted in CFPB General

House Republicans are making another attempt to replace the CFPB’s director with a five-member commission.  A similar attempt passed the House early last year but did not reach a vote in the Senate.

H.R. 1266, introduced earlier this week by Republican Congressman Randy Neugebauer, is entitled the “Financial Product Safety Commission Act of 2015.”  It would rename the CFPB as the “Financial Product Safety Commission” and replace the CFPB’s director with a five-member commission.  Members would be appointed by the President and subject to Senate confirmation.  They would serve five-year terms, with the terms to be staggered so that initial members would serve terms of one to five years, and no more than 3 members could belong to the same political party.  The committee’s chair would also be appointed by the President.

Eight leading financial services trade group have sent a letter to Mr. Neugebauer expressing their support for the bill.  The trade groups consist of the American Bankers Association, American Financial Services Association, Consumer Bankers Association, Credit Union National Association, Financial Services Roundtable, Independent Community Bankers of America, National Association of Federal Credit Unions, and U.S. Chamber of Commerce.

While the fall elections giving the Republicans control of the Senate increase the likelihood of H.R. 1266 passing the Senate, a veto by President Obama can be expected.

Consumer advocate urges CFPB to ban debt sales with seller disclaimers

Posted in Debt Collection

We recently wrote about a new report from the National Consumer Law Center that urges the CFPB to ban the collection of debts on which the statute of limitations has run.  In a blog post published last Sunday on the Consumer Law & Policy Blog, Peter A. Holland, a lawyer and consumer advocate, argues that while “banning the sale of time-barred debt is an excellent start,” the CFPB should go even further “and mandate that banks sell only legitimate accounts, and institute an outright ban on the sale of the bogus, “dirty” accounts.”  More specifically, Mr. Holland wants the CFPB to consider ” an outright ban on the sale of any debt which is not accompanied by [the seller’s] affirmative representations and warranties of completeness, accuracy, reliability and enforceability.”

Mr. Holland also wants Forward Flow Agreements between debt sellers and debt buyers to “be made publicly available on a website, so that consumers, consumer attorneys and judges can decide for themselves just how accurate and reliable are the claims of the debt buyers [regarding the validity of the debts].”

We have considerable difficulty with Mr. Holland’s position.  First, his position appears to be based on the assumption that any “as is” sale of debts in which the seller does not make or disclaims any representations or warranties as to the validity and enforceability of the debts sold indicates that such debts are necessarily invalid or unenforceable.  That assumption ignores the reality that a buyer entering into such a an agreement is simply agreeing to accept the risks related to the debts as they exist on the seller’s system and to make its own assessment of validity and enforceability.  It does not mean that the buyer will attempt to collect any debts it determines are invalid or unenforceable.

Second, Mr. Holland fails to provide any principled reason for why someone who has incurred a debt through the sustained use of a bank credit card or by obtaining a loan but fails to make payments should be able to avoid paying the debt because of the possibility there may be an error, no matter how slight, in the bank’s account records.


Liberal and minority caucuses press Director Cordray for payday loan limits

Posted in Payday Lending

The leaders of four liberal and minority Congressional caucuses have written to Director Cordray to urge the CFPB to adopt “strong protections” for payday loans.  The letter was signed by the co-chairs of the Congressional Progressive Caucus and the chairs of the Congressional Hispanic Caucus, Congressional Black Caucus, and Congressional Asian Pacific American Caucus.

The caucuses want the CFPB to adopt rules for storefront and online payday loans that include the following:

  • An ability to repay standard that requires a lender to consider the borrower’s income and expenses
  • A prohibition on any series of repeat loans
  • A restriction on providing additional payday loans to a borrower who has had payday loans outstanding for a specified period that is no longer than 90 days in a 12-month period
  • A prohibition on the use of post-dated checks or electronic access to a borrower’s checking account as evidence of ability to repay

We recently wrote about two studies that cast serious doubt on the benefit to payday loan borrowers of ability-to-repay requirements and rollover limits.  (A third study questions the value of a payment-to-paycheck ratio ceiling, another payday loan limit thought to be under consideration by the CFPB and advocated by certain consumer groups.)  As it considers the caucuses’ request and similar requests from other proponents of such payday loan requirements and limits, we continue to hope that the CFPB will look carefully at these studies in developing a payday loan rule.