At a panel discussion today on the prepaid account rule, held as part of the meeting of the American Bar Association Committee on Consumer Financial Services in Carlsbad, CA, Kristine Andreassen, the team leader for the CFPB prepaid account rule, left the door open for changes to be made and said that the Bureau wants to hear about problems or issues with the rule. She stated that the rules “are never set in stone” and advised that clarifications could come in the form of informal guidance or a formal modification to the rule. Ms. Andreassen also indicated that a small entity compliance guide should be issued within the next two months. Ms. Andreassen did not assuage concerns raised by Nessa Feddis of the American Bankers Association and our own Jeremy Rosenblum concerning the rule’s failure to clearly define the difference between prepaid cards subject to the rule and debit cards associated with “checking accounts,” which are subject to an entirely different (and in important respects more liberal) regulatory regime.
The CFPB has published a final rule to adjust for inflation the civil penalties within its jurisdiction. The adjustments are required by the Federal Civil Penalties Inflation Adjustment Act of 1990 which, pursuant to a 2015 amendment, required federal agencies to adjust the civil penalties within their jurisdiction by July 1, 2016 and by January 15 every year thereafter. (In June 2016, the CFPB published an interim final rule to make the adjustments required by July 1, 2016.)
The civil penalties adjusted by the CFPB are the Tier 1-3 penalties set forth in Section 1055 of Dodd-Frank, as well as the civil penalties in the Interstate Land Sales Full Disclosure Act, Real Estate Settlement Procedures Act, SAFE Act, and Truth in Lending Act. (To obtain the new penalty amounts, the CFPB multiplied each penalty amount by the “cost-of-living adjustment” multiplier and rounded to the nearest dollar. The multiplier used was 1.01636.) The new penalty amounts apply to civil penalties assessed after January 15, 2017.
The CFPB states in the supplementary information accompanying the final rule that it did not have to publish a notice of proposed rulemaking and provide an opportunity for comment because the adjustments are technical and non-discretionary and “merely apply the statutory method for adjusting civil penalty amounts.” The CFPB also states that OMB Guidance reaffirms that agencies need not complete a notice-and-comment process before making the annual adjustments for inflation.
Battle lines over Director Cordray’s future at the CFPB are predictably forming along party lines. Earlier this week, two Republican senators sent a letter to Vice President-elect Pence urging Director Cordray’s removal by President-elect Trump. Also earlier this week, a group of 21 Democratic members of the House Financial Services Committee, including ranking member Maxine Waters, sent a letter to President-elect Trump “to caution [him] against entering into a protracted-and likely unsuccessful-legal battle to oust [Director Cordray] before his term expires in July 2018.”
In their letter, the Republican senators assert that the CFPB is unconstitutionally structured, pointing to the D.C. Circuit’s PHH decision as support. The senators argue that despite the CFPB’s petition for en banc rehearing in PHH, “the president retains constitutional authority to remove the director until a valid court order says otherwise.” (We previously blogged about an article written by a University of Virginia School of Law associate professor that asserted the new President could remove Director Cordray before the PHH appeal is resolved if the Executive Branch determines that the Dodd-Frank Act’s “for cause” restriction on removal is unconstitutional.)
The Democratic lawmakers do not mention the PHH decision in their letter and appear to assume that the new President could only remove Director Cordray “for cause.” They defend Director Cordray’s efforts to respond to allegations of discrimination at the CFPB and promote diversity and inclusion. The lawmakers claim that “no President has ever removed an independent agency head for cause,” urge the President-elect “not to bow to [the demands of many powerful special interests that would like to see Director Cordray leave] to initiate costly, meritless litigation,” and announce that they “stand ready to oppose any efforts [the new President] may make to do so.”
Since the CFPB is often described as Senator Elizabeth Warren’s “brainchild,” it is not surprising that she is reported to be rallying consumer advocates and others to launch a campaign to defend the CFPB. According to American Banker, speaking on a conference call sponsored by Americans for Financial Reform, Senator Warren told the 3,000 consumer advocates participating in the call that a grassroots effort is necessary to protect the CFPB from Republican efforts to restructure the agency and to test whether the Trump administration and Republican lawmakers are prepared to battle with Democrats and consumer advocates over the agency’s future. (Americans for Financial Reform describes itself as “a nonpartisan and nonprofit coalition of more than 200 civil rights, consumer, labor, business, investor, faith-based, and civic and community groups.”)
American Banker reports that “progressives plan to flood Congressional offices with demands to defend the CFPB and Dodd-Frank just as various constituencies targeted House Republicans last week when they sought to gut the little-known Office of Congressional Ethics.”
According to Politico, President-elect Trump met earlier this week with former Republican Congressman Randy Neugebauer, who previously chaired the House Financial Services Committee’s Financial Institutions and Consumer Credit Subcommittee. While serving in Congress, Mr. Neugebauer was a strong proponent of CFPB reform. American Banker has reported that Mr. Neugebauer is being considered as a possible replacement for Director Cordray.
We have previously written about the Congressional Review Act (“CRA”), which was enacted as part of the Contract with America Advancement Act of 1996. The CRA created a fast-track legislative process for Congress to nullify a covered federal rule by passing a joint resolution of disapproval that would then be presented to the President for approval or veto. Today we write about a proposed CRA reform measure that would enact a change in the congressional review procedure for “major rules” which has been characterized as “seismic.”
In the more than 20 years since the CRA was enacted, it reportedly has been used only once to disapprove a covered rule adopted by a federal agency. Specifically, the controversial ergonomics rule adopted by the Occupational Safety and Health Administration toward the end of the Clinton Administration was successfully nullified pursuant to the CRA when the subsequent inauguration of a Republican President resulted in the same political party controlling both Houses of Congress and the Presidency. The anomalous nature of this event is not surprising given that the political scenario required to enact a resolution of disapproval rarely occurs.
Dissatisfied with the ineffectiveness of the CRA as a means of asserting Congressional oversight over agency rulemaking, the House of Representatives (the “House”) recently passed a CRA reform measure known as the Regulations from Executive in Need of Scrutiny Act of 2017 (the “REINS Act”). Officially titled an act to amend the CRA “to provide that major rules of the executive branch shall have no force or effect unless a joint resolution of approval is enacted into law,” the stated purpose of the REINS Act is “to increase accountability for and transparency in the Federal regulatory process.” As expressed in its stated purpose, this measure reflects the view that “[o]ver time, Congress has excessively delegated its constitutional charge [to legislate] while failing to conduct appropriate oversight and retain accountability for the content of the laws it passes.” A House Committee Report issued during the last Congress indicates, for example, that “the Obama Administration issued on average 81 new major regulations per year” from 2009 through 2013. H.R. Rep. No. 114-214, pt. 1, at 10 (2015).
While it also would amend the CRA in other respects, the proposed REINS Act bears watching as it moves to the Senate because it would change fundamentally the review procedure for “major rules” subject to the CRA. Subject to limited exceptions, the REINS Act would effectively stand the CRA on its head with respect to covered major rules by establishing special Congressional procedures and timelines within which a joint resolution of approval must be enacted into law before such a rule may take effect. This is the converse of the current “negative option” approach for major rules under which a rule takes effect unless a joint resolution of disapproval is enacted. In short, an affirmative ratification requirement would be substituted for a disapproval option. The REINS Act explains that, “[b]y requiring a vote in Congress, [it] will result in more carefully drafted and detailed legislation, an improved regulatory process, and a legislative branch that is truly accountable to the American people for the laws imposed upon them.”
Generally speaking, a covered major rule could not take effect under the REINS Act unless a joint resolution of approval is enacted into law within 70 legislative (or session) days of receiving the rule and the accompanying report from the adopting agency. However, a major rule could take effect for a 90-calendar-day period if the President issues an executive order determining that the major rule was issued pursuant to a statute implementing an international trade agreement, was necessary because of an imminent threat to health, safety or other emergency, or was necessary for the enforcement of criminal laws or national security. If a joint resolution approving a major rule is not enacted within the required time period, the REINS Act provides that a joint resolution of approval concerning the same rule may not be considered in the same Congress by either the House or the Senate.
A “major rule” would include any covered rule, including an interim final rule, that “has resulted or is likely to result in . . . (A) an annual cost on the economy of $100,000,000 or more, adjusted annually for inflation; (B) a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions; or (C) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets.” The “major rule” status determination would be made by the Administrator of the Office of Information and Regulatory Affairs of the Office of Management and Budget. Under the affirmative approval approach reflected in the REINS Act, rules of this nature also might be referred to more colloquially as rules in need of congressional scrutiny.
The House Committee Report issued during the last Congress observed that, “[a]though joint resolutions have in numerous cases been introduced to pressure agencies to modify or withdraw their rules, as time shows that Congress is unlikely to use the CRA effectively to disapprove of rules, the use of joint resolutions as a source of pressure [on administrative agencies] becomes less and less effective.” H.R. Rep. No. 114-214, pt. 1, at 9 (2015). However, if the REINS Act were to be passed by the Senate and signed by the President, there would be a dramatic shift in the balance of federal regulatory power between Congress and administrative agencies, and Congress would be compelled to take a position on major rules. Consider, for example, the effect that the need to enact a joint resolution of approval might have on the highly controversial CFPB rulemaking proceedings relating to arbitration agreements and payday, vehicle title, and certain high-cost installment loans.
The REINS Act was received in the Senate on January 6, 2017, and referred to the Senate Committee on Homeland Security and Government Affairs. We will continue to monitor this significant measure.
Early this morning, the CFPB released the findings of its national debt collection consumer survey. Both the headline of the CFPB’s press release and Director Cordray’s remarks highlight the survey’s finding that “over one-in-four consumers contacted by debt collectors feel threatened” during the collections process. The press release also highlights likely areas of on-going CFPB focus with respect to collections: failing to honor cease-and-desist requests, collecting on debt impacted by incorrect information (e.g., wrong amount, do not owe, different family member), failing to abide by call-time limitations, excessive contact, and default judgment rates in debt collection litigation.
The press release announcing the survey also includes links to “consumer debt collection stories” and a new white paper on online debt sales. That is no coincidence. Debt sales continue to be a significant area of regulatory focus at both the federal and state level, and debt sale consent orders typically address debt collection issues. The CFPB also uses consumer experience stories to put a personal touch on its key areas of focus.
Both the survey and the press release likely serve the dual function of justifying the CFPB’s current regulatory focus and laying the groundwork for current leadership’s future enforcement and rulemaking priorities. They may also signal to the FTC and state regulators areas for potential focus, particularly if the incoming administration replaces key CFPB leadership.
It also bears note that the survey concluded that “[c]onsumers are most often contacted about medical and credit card debts.” Credit card debt remaining a potential regulatory focus is no surprise. However, the mention of medical debt struck us as interesting, especially when combined with the consent order announced by the CFPB earlier this week against medical debt collection law firms. Both seem to suggest potential for increased (or at least continued) regulatory attention on medical collections. And if the efforts of the new administration and Congress to shift healthcare insurance towards a self-pay model succeed, medical collection activity also stands to increase nationwide. As a result, perceived compliance gaps or issues in collection efforts on such accounts present areas for ongoing oversight and compliance investments for healthcare providers and their outside collection agencies and law firms for the foreseeable future.
As we have previously discussed, on October 15, 2015, the Consumer Financial Protection Bureau (CFPB) released a final rule amending Regulation C, which implements the Home Mortgage Disclosure Act (HMDA), requiring certain data on mortgage applications and loans to be collected in 2017 by “Covered Institutions.” The 2017 HMDA institutional chart provides guidance on how to determine whether an institution is covered by Regulation C in 2017.
We also reported on various resources available for HMDA filers. Recently, the “Resources for HMDA Filers” webpage has been updated and is accessible here. As you will see, the 2017 Loan/Application Register (LAR) Formatting Tool has been released. It appears that the focus is lenders with small loan volumes of covered loans and applications, as the Tool is based on Microsoft Excel. In addition, please note that the Filing Instructions Guide for data collected in 2017 is still the July 2016 guide, but the Filing Instructions Guide for 2018 is updated to a January 2017 guide.
The CFPB announced that it has entered into a consent order with two law firms specializing in the collection of medical debts and their president for alleged FDCPA violations. The consent order also settles allegations that the respondents violated Regulation V (which implements the Fair Credit Reporting Act). The consent order requires the respondents to pay $577,135.20 in consumer redress and a $78,800 civil money penalty to the CFPB.
According to the consent order (whose findings of fact and conclusions of law are neither admitted nor denied by the respondents), the respondents violated the FDCPA by engaging in the following conduct:
- Sending collection letters on formal law firm letterhead containing a signature block with the computerized signature of an individual attorney, underneath which the words “Attorney at Law” were printed, and making collection calls in which the non-attorneys making the calls identified themselves as calling from a law firm. According to the CFPB, these letters and calls constituted deceptive acts or practices in violation of the FDCPA because the respondents thereby “represented, directly or indirectly, expressly or impliedly” that the collection letters were from an attorney or that an attorney was meaningfully involved in reviewing the consumer’s case or had made a professional judgment that sending a collection letter or making a collection call was warranted.
- Having affidavits signed by clients notarized by law firm employees who did not take any steps to verify the truth of the signatures and filed the affidavits in collection lawsuits. According to the CFPB, the filing of the affidavits constituted deceptive acts or practices in violation of the FDCPA because the respondents thereby “represented, directly or indirectly, expressly or by implication” that the affidavits were verified and notarized in accordance to Oklahoma law which requires notaries to take steps to verify that a signature is true.
- Failing to maintain any policies or procedures regarding the accuracy and integrity of the information the respondents furnished to consumer reporting agencies as required by Regulation V.
The consumers to receive redress under the consent order are those who made a payment within 90 days of receiving a demand letter from the respondents during a specified period that threatened litigation. In addition to paying consumer redress and a civil money penalty, the consent order prohibits the respondents from continuing to engage in the alleged unlawful conduct that was the subject of the enforcement action and requires them to disclose certain information in all written and oral collection communications where an attorney “has not been meaningfully involved” in reviewing the consumer’s account and “has not made a professional assessment” of the debt. For example, all such communications must include a clear and prominent disclosure that no attorney has reviewed the account at issue and demand letters must omit the name of any attorney and the phrase “Attorney at Law” from the signature block.
The order also prohibits the respondents from referring to the potential filing of a collection lawsuit or commencing a collection lawsuit unless an attorney has reviewed specified account-level information, made a professional assessment of the delinquency, and obtained client permission to file the lawsuit. In addition, the respondents must include a statement in all demand letters and collection phone calls regarding the consumer’s right to request such account-level documentation and revise and enhance their written policies and procedures regarding the accuracy and integrity of information furnished to consumer reporting agencies.
In April 2016, the CFPB announced that it had entered into a consent order with a debt collection law firm and two of its partners to settle allegations that the firm’s litigation practices violated the FDCPA.
We have previously written about the Congressional Review Act (“CRA”), a law enacted in 1996 that establishes a procedure by which Congress can nullify a covered rule adopted by a federal agency. According to a Congressional Research Service (“CRS”) memorandum dated January 3, 2017, the CRA “was largely intended to assert control over agency rulemaking by establishing a special set of expedited or ‘fast track’ legislative procedures for this purpose, primarily in the Senate.”
Before a covered rule can take effect, the CRA requires the federal agency promulgating the covered rule to submit, to each House of Congress and to the Comptroller General, a report that includes a copy of the rule, a general statement relating to the rule, and the proposed effective date of the rule. The CRA affords Congress an opportunity to review the rule and, within specified time periods, to submit and act upon a joint resolution disapproving it. While a joint resolution of disapproval must be approved by both Houses of Congress, it cannot be filibustered in the Senate and can be passed with only a simple majority. A joint resolution of disapproval that is passed by both Houses of Congress is then sent to the President for executive approval or veto.
For purposes of the review procedure, a “joint resolution” is defined, in part, as one which resolves “That Congress disapproves the rule submitted by the _____ relating to _____, and that such rule shall have no force or effect” with “[t]he blank spaces being appropriately filled in.” This statutory text appears to contemplate a joint resolution relating only to a single rule.
Recently, however, the House of Representatives passed the Midnight Rules Relief Act of 2017 (H.R. 21) by a vote of 238 to 184. If passed by the Senate and approved by the President, this measure would amend the CRA “to provide for en bloc consideration in resolutions of disapproval for ‘midnight rules’ and for [related] purposes.” Specifically, assuming that the time periods for submitting and acting upon a disapproval resolution have not expired, the measure provides that “a joint resolution of disapproval may contain one or more . . . rules if the report . . . for each such rule was submitted during the final year of a President’s term.” (Emphasis added.) In addition to authorizing the inclusion of more than one such “midnight” rule in a joint resolution of disapproval, the measure also would add to the CRA a provision specifying the language to be used for a joint resolution disapproving multiple midnight rules.
Representative Goodlatte, one of the co-sponsors of the measure, explained during the House debates that this legislation is necessary to facilitate Congressional disapproval of multiple midnight regulations: “Administration after administration, there is a spike in rulemaking activity during the last year of a President’s term – particularly between election day and Inauguration Day, but even in the months before then. . . . [T]he Congressional Review Act currently allows Congress to disapprove of regulations – including midnight regulations – only one at a time. A wave of midnight regulations can easily overwhelm Congress’ ability to use one-rule-at-a-time resolutions as an effective check.” He further stated that, “[a]ny outgoing Administration understanding that it has this Sword of Damocles hanging over its head will surely hesitate much more before abusing midnight rules.”
In addition to any new midnight rules that may be submitted to the new Congress for review before the end of President Obama’s term, the CRS memorandum dated January 3, 2017 unofficially “estimates that agency final rules submitted to Congress on or after June 13, 2016, will be subject to renewed review periods in 2017 by a new President and a new Congress.” (“Renewed” review periods refers to a “reset” of the review period in the next session of Congress that occurs “if Congress adjourns its annual session sine die less than 60 legislative days in the House of Representatives or 60 session days in the Senate after a rule is submitted to it.”) As things currently stand, the prepaid card rule adopted on or about October 5, 2016 would appear to be the only significant CFPB rule potentially impacted by this measure. However, the proposed arbitration rule also may be impacted if the CFPB finalizes it during the waning days of the Obama Administration.
The Midnight Rules Relief Act of 2017 was received in the Senate on January 5, 2017, and has been referred to the Senate Committee on Homeland Security and Government Affairs. We will continue to monitor this measure.
The plaintiffs in State National Bank of Big Spring, Texas, et al. v. Lew, et al. want the D.C. federal district court to hold a status conference to determine how their case “can be most efficiently adjudicated” in light of the CFPB’s petition to the D.C. Circuit for rehearing en banc in PHH.
In July 2016, the D.C. federal district court rejected the plaintiffs’ attempt in State National Bank of Big Spring to invalidate the actions taken by Director Cordray while he was a recess appointee. The district court deferred ruling on the plaintiffs’ separation of powers constitutional challenge pending a decision by the D.C. Circuit in PHH. The D.C. Circuit subsequently ruled in PHH that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional.
In their unopposed motion for a status conference, the plaintiffs in State National Bank of Big Spring argue that judicial economy would be served if the district court “were to pave the way for consolidation of this case with PHH on appeal by entering partial summary judgment in favor of Plaintiffs on their standalone claim that the Dodd-Frank Act’s for-cause removal provision …is unconstitutional.” The plaintiffs assert that the district court could then certify the partial summary judgment order to the D.C. Circuit under 28 U.S.C. Section 1292(b) as “involv[ing] a controlling question of law as to which there is a substantial ground for difference of opinion,” thereby allowing the D.C. Circuit “to efficiently resolve in a single sitting all pending merits questions within its jurisdiction pertaining to the standalone constitutionality” of the for-cause removal provision. Plaintiffs’ remaining claims would be reserved in the district court for further adjudication following en banc resolution of PHH.
The plaintiffs indicate in their motion that while the government defendants do not oppose their request for a status conference, the defendants do oppose certification. They also note that if the two cases are not consolidated, the D.C. Circuit could vacate the panel’s decision on RESPA grounds and avoid the constitutional question. According to the plaintiffs, that would leave the district court in the “unenviable position” of having to resolve the constitutional issue.
The Trump transition team has released the names of three more individuals who will be members of the CFPB landing team. “Landing teams” are members of the incoming president’s transition team tasked with gathering information about their assigned agency.
We previously reported that Paul Atkins would be on the landing team for the CFPB as well as the landing teams for the FDIC and OCC. According to the President-elect’s website, Mr. Atkins will also be a member of the FTC landing team. Mr. Atkins is an attorney who served as a commissioner on the SEC from 2002 to 2008. He is currently CEO of a company that provides consulting services regarding financial services industry matters, including regulatory compliance, risk and crisis management, public affairs, independent reviews, litigation support, and strategy.
The other CFPB landing team members are:
- Kyle Hauptman. Mr. Hauptman is currently a Senior Development Manager at the American Enterprise Institute (AEI) and a member of the SEC’s Advisory Committee on Small and Emerging Companies. (AEI describes itself as “a public policy think tank” whose work “advances ideas rooted in our belief in democracy, free enterprise, American strength and global leadership, solidarity with those at the periphery of our society, and a pluralistic, entrepreneurial culture.”)
- Consuala “CJ” Jordan. Ms. Jordan is currently President and CEO of a government relations firm that specializes in strategic business development and President of the National Black Republican Leadership Council.
- Julie Bell Lindsay. Ms. Lindsay is an attorney who currently is the Managing Director and General Counsel of Capital Markets and Corporate Reporting at Citigroup Inc.