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Will the CFPB issue a final arbitration rule before Jan. 20?

Posted in Arbitration, CFPB Rulemaking

Last week, the Wall Street Journal reported that the CFPB is pushing to finalize its arbitration rule before Donald Trump’s inauguration as President on January 20.  The comment period on the proposed rule closed on August 22, 2016.

The article suggested that the CFPB may also attempt to finalize its rule on payday, title, and high-cost installment loans by January 20.  However, the possibility of the CFPB accomplishing that seems more remote given that the comment period on the CFPB’s proposal closed on October 7, 2016 and the CFPB received an unprecedented level of comments, numbering approximately one million.

If the CFPB were to issue a final arbitration rule or any other new final rule by January 20, it could find its efforts thwarted by Congress.  A relatively obscure law entitled the “Congressional Review Act” (CRA) establishes a special set of procedures through which Congress can nullify final regulations issued by a federal agency.  (Indeed, according to an article issued by the Congressional Research Service (CRS), the CRA could potentially be used to overturn final CFPB rules issued after mid-May 2016, which would include the CFPB’s final prepaid card rule issued on October 5, 2016.)

The CRA (5 U.S.C. Sections 801-808) was enacted in 1996 as part of the Small Business Regulatory Enforcement Fairness Act (SBREFA).  Under the CRA, an agency must submit a final rule to Congress and the Government Accountability Office before the rule can take effect.  Upon receipt of the rule by Congress, members of Congress have a specified time period during which they can submit and take action on a joint resolution disapproving the rule.  If the resolution is passed by both the House and Senate, it is sent to the President for signature or veto.  Most significantly, the CRA’s special procedures establish a process under which a joint resolution of disapproval cannot be filibustered in the Senate and can be passed with only a simple majority.

The enactment of a CRA joint resolution disapproving a final rule prevents the rule from taking effect.  If a rule has already become effective, it no longer continues in effect and “shall be treated as though such rule had never taken effect.”  The joint resolution’s enactment would also bar an agency from reissuing the rule “in substantially the same form” or issuing a “new rule that is substantially the same” as the disapproved rule “unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.”  A CRS report on the CRA states that the CRA does not define the meaning or scope of “substantially the same,” what criteria should be considered in determining if a reissued or new rule is “substantially the same,” or who would make such a determination.

The CRA also provides that “[n]o determination, finding, action, or omission under this chapter shall be subject to judicial review.”  The CRS report indicates that two federal appeals courts and several federal district courts have determined that this CRA provision prohibits judicial review of any question arising under the CRA while one federal district court ruled that it could review a claim based on noncompliance with the CRA.

According to the CRS, the CRA procedure has only successfully overturned one agency final rule—a 2000 OSHA workplace-related rule.  The reason most commonly cited for why only one rule has been successfully overturned using the CRA over the 20 years since its enactment is that a de facto supermajority vote is required to enact a CRA resolution of disapproval.  While all congressional votes related to such a resolution can be simple majority votes, if the resolution is vetoed by the President, a two-thirds majority of both houses of Congress would be necessary to override the veto.  It is expected that a President will veto a joint resolution attempting to strike down a rule issued by his or her own Administration.  (The CRS indicates that in the 114th Congress (2015-2016), President Obama has vetoed four CRA disapproval resolutions.)

The election of Donald Trump as President presumably makes it unlikely that a CRA joint resolution disapproving a final CFPB arbitration rule would face a Presidential veto.  Having retained control of the House and Senate, Republicans would therefore be able to use the CRA to nullify a final CFPB arbitration rule through a simple majority vote and not have to overcome the hurdle of a supermajority vote.

In addition to the CRA, CFPB rulemaking could face another potential roadblock should the D.C. Circuit’s decision in CFPB v. PHH Corporation take effect.  That roadblock is Executive Order 12866, which requires a federal agency that is not considered an “independent regulatory agency” to submit regulations that qualify as a “significant regulatory action” to the Office of Information and Regulatory Affairs (OIRA) within the Office of Management and Budget for review before publication in the Federal Register.  For the reasons discussed in our recent blog post, the CFPB could be required to submit any rules it has not yet finalized for OIRA review and even face challenges to its final rules, including those that have already become effective, on the basis that such rules were not, but should have been, reviewed by OIRA.


CFPB amends commentary on adjustments to exemption thresholds; makes no changes to 2017 thresholds

Posted in CFPB Rulemaking

The CFPB has adopted changes to its Reg Z commentary to memorialize the calculation methods used each year to adjust the thresholds for exempt consumer credit transactions and for transactions exempt from the special appraisal requirements for higher-priced mortgage loans and to its Reg M commentary to memorialize the calculation method used each year to adjust the threshold for exempt consumer leases.  The Fed and OCC have adopted corresponding changes to their commentaries.  The changes are effective January 1, 2017.

Each agency’s rules and accompanying commentaries provide that the exemption thresholds will be adjusted annually effective January 1 of each year based on any annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) that was in effect on the preceding June 1.  If there is no annual percentage increase in the CPI-W, the agencies do not adjust the exemption thresholds from the prior year.  The agencies base this position on Section 1100E(b) of the Dodd-Frank Act, which states that the thresholds must be adjusted by the “annual percentage increase” in the CPI-W (emphasis added).

New commentary adopted by each agency:

  • provides that if the CPI-W in effect on June 1 does not increase from the CPI-W in effect on June 1 of the previous year, the threshold amount effective the following January 1 through December 31 will not change from the previous year.
  • sets forth the calculation method the agencies will use in years following a year in which the exemption threshold was not adjusted because there was no increase in the CPI-W from the previous year.

The agencies also announced that based on these calculation methods, they have made no changes to the three exemption thresholds.  Effective January 1, 2017 through December 31, 2017, these exemption thresholds remain as follows:

  • smaller loans exempt from the appraisal requirement for “higher priced mortgage loans,” $25,500
  • consumer credit transactions exempt from Truth in Lending Act/Regulation Z, $54,600 (but loans secured by real property or personal property used or expected to be used as a consumer’s principal dwelling and private education loans are covered regardless of amount)
  • consumer leases exempt from Consumer Leasing Act/Regulation M, $54,600




CFPB’s proposed disclosure rule represents unconstitutional prior restraint on speech

Posted in CFPB Enforcement

The CFPB’s proposed amendments to its rule on the disclosure of records and information is the subject of a blog post written by Ballard Spahr attorneys Burt M. Rublin and Daniel L. Delnero for the Washington Legal Foundation.

Entitled “CFPB Proposal Unconstitutionally Imposes Prior Restraint on Regulated Entities’ Speech,” the blog post focuses on a provision in the CFPB’s proposed rule published in the Federal Register on August 24, 2016.  The provision would prohibit the recipient of a civil investigative demand (CID) or letter from the CFPB providing notice and opportunity to respond and advise (NORA) from disclosing the CID or NORA to third parties without prior consent of a high ranking CFPB official.  The blog post explains why the proposal is not only ill-advised as a matter of public policy but is also unconstitutional both as a prior restraint on speech and a content-based restriction.

The CFPB’s proposal also includes a provision that would expand its discretion to share confidential supervisory information with state attorneys general and other agencies that do not have supervisory authority over companies.  We have previously blogged about the concerns raised by this provision.


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D.C. Circuit orders PHH to respond to CFPB’s petition for rehearing en banc; invites response from Solicitor General

Posted in CFPB Enforcement, Mortgages

The D.C. Circuit has entered an order directing PHH Corporation to file a response to the CFPB’s petition for rehearing en banc in CFPB v. PHH Corporation.

The order, filed November 23, 2016, requires PHH to file its response within 15 days.  It also invites the Solicitor General to file a response to the petition for rehearing en banc, expressing the views of the United States, but does not set a date by which the Solicitor General must file any response.  We expect the Solicitor General to support the CFPB’s petition and given the impending change in Administrations, to file a response promptly.

The order states that absent further order of the court, the court will not accept a reply to the responses.



CFPB’s Prepaid Card Rule: Short Form Disclosure Requirements

Posted in Prepaid Cards

The CFPB’s Final Rule on prepaid cards includes, in addition to the long form disclosure requirements discussed in our November 21st blog post, highly detailed requirements for providing “preacquisition” disclosures to consumers of the basic terms of the prepaid card account. These “Know Before You Owe” disclosures are set to go into force on October 1, 2017. For consumers who pick up a prepaid card at a retail storefront, these disclosures will appear on the packaging of the card itself, while for consumers who obtain their cards or accounts online, the disclosures will be provided to them electronically. Unlike the long form disclosures, there are no major exceptions to the requirement to provide the short form disclosures prior to opening a prepaid account. And whereas the long form disclosures are intended as a full accounting of the fee programs applicable to an account, the short form disclosures are carefully designed by regulation to highlight what the CFPB has deemed to be the most important fees for consumers in comparing prepaid products.

The short form disclosures can be roughly broken up into two groups: top line and below the line disclosures. The top line disclosures are presented in large text and represent the four key groups of fees that must be disclosed, regardless of whether any fee is being charged. These top line fee disclosures are the “periodic fees” or fees charged on a recurring basis, fees charged on purchases, any fees associated with making ATM withdrawals, and “cash reload” fees. The “cash reload” fee must include all charges imposed by both the financial institution and any third parties.

Below these disclosures are a listing of a few other fees that must also be disclosed, regardless of whether a fee is charged. These second grouping of fees are ATM balance inquiry fees, customer service fees, and inactivity fees.

Next, are a distinct class of “incidental fees.” The disclosure must include a statement of how many other fee types exist for the prepaid account. Although all the remaining fee types need not be listed, the two fee types not already disclosed that generate the highest revenue from the consumer must be, so long as they generate at least 5% of revenue for the prepaid account program.

Whenever the amount of a fee may vary, the rule generally requires that the highest price for that service be disclosed, but the disclosure may include a symbol, like an asterisk, to indicate that the fee may vary. That indication must consist of a statement substantially similar to the phrase “This fee can be lower depending on how and where the card is used.” Similarly, the “periodic fee” may separately include a different symbol indicating what may cause that fee to vary.

Underlying the “incidental fee” disclosure requirement is a 24-month “look-back” assessment period for determining the highest revenue-generating fees, over which the business must renew its calculations for all programs. The revenue calculations may group together types of fees that shared the same schedule. When a program has not been in effect for 24 months at the time the initial assessment must be performed, businesses are expected to make a reasonable projection of future fee generation.

The short form disclosure must also include FDIC insurance disclosure and registration statements. Although the rules go into effect October 1, 2017 with respect to both long and short form disclosures, for cards sold in retail stores, packaging produced “in the normal course of business” prior to that date need not be pulled and replaced, so long as consumers are provided with the disclosures within 30 days of obtaining their account information.

Trump transition team names former SEC commissioner to CFPB landing team

Posted in CFPB General

According to Politico, the Trump transition team has created “landing teams” that will be tasked with going into federal agencies to prepare for the change in Administrations.

Politico has reported that Paul Atkins, who leads the transition team for independent regulatory agencies, will be on the landing team for the CFPB as well as the landing teams for the FDIC and OCC.

Mr. Atkins’ biography on Wikipedia indicates that he is an attorney who served as a commissioner on the SEC from 2002 to  2008.  It states that he has most recently been the 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.



CFPB files lawsuit against structured settlement purchaser

Posted in CFPB Enforcement

The CFPB has filed a lawsuit in a Maryland federal district court against: (1) Access Funding, LLC (Access), a limited liability company that purchases structured settlements from consumers; (2) Access’ managing member limited liability company and Access’ successor limited liability company; (3) three individual principals of Access; and (4) an attorney who allegedly provided advisory services to consumers who sold structured settlements to Access.

The complaint alleges that many of the consumers who sold settlements to Access were lead-paint poisoning victims with cognitive impairments and that such consumers received “a steeply discounted lump sum in return for signing away their future payment streams.”  It also alleges that Access steered Maryland consumers to the attorney defendant so the attorney could satisfy a requirement of Maryland law for a consumer to submit a letter stating that he or she consulted with an independent financial advisor (IPA) for a court to approve a settlement sale.  Access allegedly paid the attorney $200 for each IPA letter.  The complaint also alleges that, while consumers waited to finalize the sale of a settlement, Access provided advances to many consumers who had an immediate need for cash and then told consumers that they were liable to repay the advances if they did not complete the sale and, if they were unable to repay the advance, that they were obligated to complete the sale.

The CFPB’s complaint claims that the defendants’ conduct violated the Consumer Financial Protection Act’s (CFPA) UDAAP prohibition.  More specifically, it alleges:

  • The attorney engaged in (1) unfair conduct because he provided virtually no advice to consumers and did not disclose his relationship with Access, (2) deceptive conduct because he represented to consumers that he provided independent financial advice, and (3) abusive conduct because consumers did not understand that he was not providing independent professional advice or that he did not take their individual circumstances or interests into account.
  • Access, Access’ managing member, and the individual principals knowingly or recklessly provided substantial assistance to the attorney’s UDAAP violations.
  • Access, Access’ managing member, and the individual principals engaged in abusive conduct in connection with the advances because consumers did not understand the risks or conditions of the advances, including that the advances did not bind them to complete the transactions.

In asserting jurisdiction over Access, the CFPB has not asserted that the purchase of structured settlements is a credit transaction or a consumer financial service.  Rather, the CFPB focuses on the advances made by Access, alleging that Access is a “covered person” under the CFPA because it “provided advances to consumers that were to be repaid through a deduction from the proceeds of structured-settlement transfers once those transactions were completed.  These advances were extensions of credit to consumers, and therefore consumer-financial products or services.”

The principals are alleged to be “covered persons” because their status with Access made them “related persons” under the CFPA.  The managing member is alleged to be “legally responsible for the liabilities of Access Funding.”

Earlier this year, the CFPB denied a petition by J.G. Wentworth, a purchaser of structured settlements, to set aside a CID as beyond the CFPB’s statutory authority.  One of the CFPB’s grounds for denying the petition was its claim that J.G. Wentworth may be providing “financial advisory services” to consumers in connection with offers to purchase structured settlements or annuities, which would constitute a “consumer financial product or service” subject to Dodd-Frank’s UDAAP prohibition.  (The CFPB has filed a petition to enforce the CID which is currently pending in Pennsylvania federal district court.)  In its complaint against Access, the CFPB alleges that the attorney defendant is a “covered person” because he provided “financial advisory services” in the form of advice to consumers regarding the structured settlements.

CFPB posts 2017 final lists of rural and rural or underserved counties

Posted in Mortgages

The CFPB has posted its 2017 final lists of Rural and Rural or Underserved Counties on its website.  The CFPB has previously posted lists of such counties for calendar years 2011-2016.

The lists are relevant to exemptions in several CFPB mortgage rules, including the CFPB’s rule requiring creditors to establish escrow accounts for certain first-lien higher-priced mortgage loans.

CFPB to participate in interagency MLA webinar

Posted in Military Issues

On December 1, 2016, the  FDIC will co-host an interagency webinar that will focus on Military Lending Act regulations and the Department of Defense’s recently-released interpretive rule.

In addition to a CFPB representative, the other webinar participants will consist of representatives of the FDIC, OCC, and Federal Reserve.



CFPB asks for rehearing en banc in PHH case

Posted in CFPB Enforcement, Mortgages

As we expected, the CFPB filed a petition with the D.C. Circuit this past Friday asking it to grant a rehearing en banc of its decision in CFPB v. PHH CorporationUnder D.C. Circuit rules, PHH may not file a response to the petition unless a response is ordered by the court.

In PHH, the D.C. Circuit ruled that that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional.  It also rejected the CFPB’s interpretation of RESPA, which departed from HUD’s prior interpretation, to prohibit captive mortgage re-insurance arrangements such as the one at issue in PHH.  The court also held that even if the CFPB’s interpretation was correct, the CFPB’s attempt to retroactively apply its new interpretation violated due process.

In the petition, the CFPB describes the D. C. Circuit’s constitutionality ruling as “set[ting] up what may be the most important separation-of-powers case in a generation.”  According to the CFPB, the case presents “an issue of exceptional importance because it unduly limits Congress’s flexibility to respond to ‘the various crises of human affairs,’ [citing the U.S. Supreme Court’s 1819 McCulloch v. Maryland decision], by creating independent administrative agencies headed by a single director.  And it may affect not only the Bureau but also other agencies headed by a single director removable only for cause (Social Security Administration; Federal Housing Finance Agency; Office of Special Counsel).” (citations omitted)  The CFPB argues in its petition that the ruling conflicts with U.S. Supreme Court precedent and should therefore be reconsidered by the court sitting en banc.

The CFPB also argues that D.C. Circuit’s RESPA ruling should be reviewed by the court sitting en banc because it was based on errors of statutory construction and “fundamentally defeats the statutory purpose.”  Observing that the court’s retroactivity holding “is perhaps not worthy of en banc review on its own,” the CFPB nevertheless asks for an opportunity to address the holding if there is an en banc review of the court’s RESPA interpretation because it “may have been based on the panel’s misinterpretation of section 8 of RESPA.”

Although the D.C. Circuit also rejected the CFPB’s argument that statutes of limitations do not apply to its administrative enforcement actions, the CFPB has not asked for reconsideration en banc of this ruling.  By not seeking review of that ruling, the CFPB has presumably agreed that going forward, it will be subject to the same statute of limitations in administrative proceedings as would apply to it in a lawsuit filed in court.

D.C. Circuit rules provide that a majority of the circuit judges who are in regular active service and who are not disqualified may order that an appeal be reheard by the court en banc.  There are currently 11 active judges, 7 of whom were appointed by either President Obama or President Clinton.  (The Democratic appointees include Chief Judge Merrick B. Garland who was appointed to the U.S. Supreme Court by President Obama.  We understand Judge Garland has recused himself from deciding cases while his nomination is pending.  While it is assumed his nomination will not proceed due to the election results, the timing of his return to full active status is uncertain.)  The circuit rules do not establish a deadline for a decision on a petition for a rehearing en banc.