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FTC sends 2016 ECOA report to CFPB

Posted in Fair Lending, FTC

The FTC has sent its annual letter to the CFPB reporting on the FTC’s activities related to compliance with the Equal Credit Opportunity Act and Regulation B.

The FTC has authority to enforce the ECOA and Reg B as to nonbank providers within its jurisdiction.  However, like the FTC’s letters on its 2014 and 2015 ECOA activities, the letter on 2016 activities does not describe any 2016 FTC ECOA enforcement activity and only contains information about the FTC’s research and policy development efforts and educational initiatives.

With respect to research and policy development, the letter discusses the following initiatives:

  • Auto survey.  In December 2015, the FTC published a notice in the Federal Register seeking comments on its plans to conduct a survey of consumers regarding their experiences in buying and financing automobiles at dealerships.  The FTC published a second notice in September 2016 seeking clearance from OMB for the survey, addressing comments received in response to the 2015 notice, and inviting further comments.  (In addition to ECOA enforcement authority, the FTC has authority to issue unfair or deceptive trade practices rules for auto dealers under Section 5 of the FTC Act.  The survey could be a prelude to such rulemaking.)
  • Big data report.  In January 2016, the FTC issued a report warning that certain uses of big data consisting of consumer information may implicate various federal consumer protection laws.  The report focused on big data’s impact on low-income and underserved populations and protected groups and discussed the potential applicability of various laws, including the ECOA, to big data practices and provided a list of ”questions for legal compliance” for companies to consider in light of these laws.
  • Fintech forum.  In June 2016, the FTC launched a series of forums exploring emerging financial technology and its implications for consumers.  The first forum focused on marketplace lending and examined how marketplace lending operates, potential consumer benefits, consumer protection issues, and the potential applicability of various consumer protection laws.
  • Report on fraud in African American and Latino communities.  In June 2016, the FTC issued a report on its work on fraud prevention, enforcement, and consumer outreach and education in African American and Latino communities.
  • Changing demographics workshop.  In December 2016, the FTC held a workshop in which the topics discussed included how the population is changing, the impact of those changes on the marketplace, concerns about auto lending and discriminatory lending, and the FTC’s future role.
  • Interagency fair lending task force.  The FTC noted its continued membership in the Interagency Task Force on Fair Lending with the CFPB, DOJ, HUD, and the federal banking agencies.

With regard to the FTC’s consumer and business educational initiatives, the FTC discussed its publication of various blog posts in 2016, including posts about its work in combating fraud, its workshop on changing demographics, its fintech forum, and its big data report.


Democratic lawmakers/ Democratic state AGs/ consumer advocacy groups seek reconsideration en banc of motions to intervene in PHH case

Posted in CFPB Enforcement

After the D.C. Circuit panel issued a per curiam order on February 2 denying the three motions to intervene that were filed in the PHH case, we expected the next development in the case to be a decision by the D.C. Circuit on the CFPB’s petition for rehearing en banc.  Instead, the next development has been the filing of requests for the full court to reconsider the panel’s denial of the motions to intervene.

This past Friday, a petition for rehearing en banc was filed by Democratic AGs from 16 states and the District of Columbia and motions for reconsideration en banc were filed by Senator Sherrod Brown and Representative Maxine Waters and by Americans for Financial Reform, Center for Responsible Lending, Leadership Conference on Civil and Human Rights, United States Public Interest Research Group, Maeve Brown (who chairs the CFPB’s Consumer Advisory Board), and Self-Help Credit Union.

The motions to intervene were based in substantial part on the argument that because the movants can no longer rely on the CFPB and/or the DOJ under the Trump Administration to adequately defend the CFPB’s constitutionality and have a legal interest in the CFPB remaining an independent agency, intervention is necessary to protect the movants’ legal interests, including by filing a petition for a writ of certiorari.

The public interest groups state in their motion for reconsideration en banc that they had assumed their motion to intervene “would be circulated to the entire Court alongside the [CFPB’s] petition for rehearing” because they had been instructed by the clerk’s  office to file an original and 19 copies of their motion.”  They attach their original motion to intervene and incorporate the arguments for intervention by reference in the new motion but add “one request.”  Their request is that if the court deems their motion for reconsideration premature “because today the CFPB continues to defend itself…the motion be held in abeyance and ruled upon either at the conclusion of the appeal, or when it becomes apparent that the CFPB is changing its position (whichever comes first).”  They also state that because the CFPB  may depend on the DOJ to either file or respond to a petition for a writ of certiorari and the DOJ may have a different position on constitutionality than the CFPB, the court should grant their motion “at the conclusion of the case in any event to ensure that a party remains able to defend the constitutionality of the statute Congress enacted in the Supreme Court.”

The Democratic state AGs and lawmakers, instead of attaching their original motions to intervene, repeat their arguments for intervention in, respectively, their petition and motion for rehearing or reconsideration en banc.  The lawmakers, like the consumer advocacy groups, ask the court, in the alternative to granting their motion, to “hold it in abeyance pending further developments in this case.” 

Given the weakness of their arguments for intervention, we were not surprised that the movants’ original motions to intervene were quickly denied by the panel.  We do find it surprising however that the movants are continuing to press these arguments in their new filings.  Under the Federal Rules of Appellate procedure, no response can be filed to a petition for an en banc consideration unless the court orders a response.







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House Financial Services Committee Chairman Hensarling Proposes Changes to the CHOICE Act.

Posted in CFPB General

On Monday, Chairman Hensarling circulated a memorandum to the House Financial Service Committee Leadership Team suggesting key revisions to the CHOICE Act. It only addresses proposed changes to the CHOICE Act; several key features of the original version, including subjecting the CFPB to congressional appropriations, remain in place but are not addressed in the memorandum. The proposed changes would, however, affect key features of the Dodd-Frank Act, including capital requirements, stress tests, and the Consumer Financial Protection Bureau (“CFPB”). Several proposed changes to the CFPB differ significantly from the original version of the CHOICE Act.

The most striking difference between the memorandum and original CHOICE Act is the proposed structure of the CFPB. A key feature of the original CHOICE Act was replacing the single director with a bipartisan, five-member commission, similar to the FCC and FTC. The current proposal abandons that approach in favor of a “[s]ole director, removable by the President at-will,” effectively codifying the panel opinion in the PHH appeal.

The creation of a commission had wide industry support but was controversial among congressional Democrats. It is somewhat surprising that Chairman Hensarling would abandon a key provision of the original CHOICE Act, but the decision may reflect a political calculus. The CHOICE Act was first introduced in July 2016, when we had a Democratic President and Hilary Clinton was reported to be the clear frontrunner. It was widely believed that, given the opportunity, Mrs. Clinton would appoint a Director with views similar to those of Director Cordray. Now, however, Republicans control both houses of congress and the presidency. Making Director Cordray removable at will would allow President Trump to appoint a sole director who would have far greater ability to roll back Cordray-era measures than would a bipartisan, five-member commission.

Other proposals set forth in the memorandum would have a greater impact than making the director removable at will. The memorandum proposes restructuring the CFPB as a “civil law enforcement agency similar to the Federal Trade Commission.” It is not clear what, exactly, is meant by “civil law enforcement agency.” But other reforms proposed in the memorandum indicate that the intent is to eliminate the CFPB’s authority to supervise banks and non-banks and to curtail greatly the CFPB’s rulemaking power and largely limit it to enforcing existing statutes and regulations:

  • Rule-making authority limited to enumerated [federal consumer financial services] statutes
  • UDAP [sic] authority repealed in full
  • Supervision repealed
  • Enforcement powers limited to cease and desist and CID/Subpoena powers
  • Mandatory advisory boards repealed
  • Elimination of consumer education functions
  • Market monitoring authority repealed
  • Research function eliminated
  • Strengthen the existing Dodd-Frank language that the CFPB’s jurisdiction does not include entities regulated by the SEC or CFTC.

These proposals would drastically alter the CFPB and make it a less powerful and robust agency. The direct, consumer-facing aspects of education and complaint handling would largely be eliminated. The CFPB would also have a much smaller role in monitoring and researching financial markets; presumably, those functions would lie primarily with the Federal Reserve. The CFPB’s rulemaking authority would be reduced greatly, and its supervisory authority would be eliminated entirely. It would retain some enforcement authority, but its preferred enforcement mechanism – UDAAP – would be unavailable and it appears that the CFPB would be unable to obtain any monetary relief for consumers or civil money penalties.

Eliminating the CFPB’s UDAAP authority would have a significant impact on one of the most controversial aspects of the CFPB, which its critics have termed regulation by consent order. UDAAP allows the CFPB significant discretion to determine what is and is not an unfair, deceptive, or abusive act or practice. This broad authority allows it to find conduct illegal that is not prohibited by a more narrowly tailored statute, such as the Fair Debt Collection Practices Act or Fair Credit Reporting Act. Eliminating UDAAP would require the CFPB to rely on more specific statutes and regulations in enforcement actions, thereby reducing its ability to create new regulatory expectations through enforcement actions. Indeed, the impact of eliminating UDAAP authority may explain why the memorandum includes a proposal to “[r]e-draft Section 415 to prohibit any SEC rulemaking by enforcement” but does not include a similar restriction with respect to the CFPB.

Restricting the CFPB’s rulemaking authority may have a significant impact on rules that are in the pipeline. The Small Dollar Rule and Arbitration Rule both rely exclusively on the Dodd-Frank Act, and would therefore not be permissible. The Outline of Proposals related to debt collection could partially be grounded in the Fair Debt Collection Practices Act, but the CFPB would not be able to rely on UDAAP or other Dodd-Frank authority. This also means that the CFPB would not be able to issue a rule regarding first-party (i.e., creditor) debt collection, as it would have to rely on UDAAP. We have blogged extensively on this proposed and contemplated rulemaking activity.;;

At the end of the day, neither the original CHOICE Act nor the proposed amendments to it are likely to pass in the Senate. Republicans currently hold a narrow, 51-49 majority, and would need to pick-up several Democratic votes to overcome a likely filibuster unless the Republicans “go nuclear” – that is, change the Senate rules to eliminate the ability of the Democrats to filibuster the bill. Less ambitious reforms may be feasible, but fundamentally re-shaping the CFPB will likely prove difficult with the current makeup of the Senate. We also do not know what changes President Trump would like to make to the CFPB.

Director Cordray responds to questions on proposed arbitration rule

Posted in Arbitration, CFPB Rulemaking

Director Cordray has sent a letter to Senator Jeff Flake responding to a series of questions posed by the Senator on the CFPB’s proposed arbitration rule.  The comment period on the proposed rule closed on August 22, 2016.  Senator Flake posed his questions on August 19, 2016, but Director Cordray did not respond until January 30, 2017.  Senator Flake had prefaced his questions with the following pointed criticism of the proposed arbitration rule:

Since Congress passed the Federal Arbitration Act in 1925, federal law has protected the use of arbitration as a means to resolve private disputes.  As an alternative to expensive litigation, millions of Americans have since enjoyed the faster resolution time associated with arbitration.  Arbitration is also less costly than litigation for consumers because most arbitrators are limited in the fees they can charge for their services.  The use of class-action waivers, which the Supreme Court ratified as recently as 2011, allows financial institutions and consumers to resolve their disputes in arbitration rather than entering into costly class litigation.  Eliminating the availability of these waivers, as the Bureau proposes to do, would put financial institutions and their customers at the mercy of those looking to initiate lengthy court proceedings that yield little benefit to either the consumers or the institutions.

As you know, Section 1028 of the Dodd-Frank law required the Bureau to conduct a study on arbitration and authorized the Bureau to issue a regulation to “prohibit or impose limitations” on arbitration agreements.  However, under current statute, such regulations are permissible only if the study finds that they are “in the public interest and for the protection of consumers.”  Upon reviewing the study, I have concerns about the extent to which it justifies the Notice of Proposed Rulemaking.  First and foremost, the benefit of class settlements to consumers is very much an open question, yet the Bureau appears to have chosen a side while failing to fully consider the ramifications and effect on protections afforded consumers.  For example, the study did not investigate whether class counsel act in good faith as agents of class litigants.

Among the questions asked by Senator Flake was a question asking about the effect of the CFPB’s enforcement power on the net benefit of class actions and another asking whether, given that attorney’s fees typically comprise a substantial portion of the aggregate payments made in class action settlements, the CFPB considered placing a limit on the percentage of fees an attorney can seek in a lawsuit or had a view as to what would be a reasonable range of attorney’s fees by percentage of payments made in a settlement.  Despite the CFPB’s recovery of more than $11 billion for consumers through enforcement actions and over $300 million in supervisory actions, Director Cordray stated that “public enforcement is not itself a sufficient means to enforce consumer protection laws and consumer finance contracts.”  With regard to attorneys’ fees, Director Cordray referenced the courts’ role in reviewing the reasonableness of attorney’s fees when approving class action settlements and indicated that the CFPB had not used data obtained in its arbitration study “to determine whether a certain percentage would be a reasonable amount to award to plaintiffs’ attorneys.”

Although there was speculation that the CFPB might finalize its arbitration rule by Inauguration Day, the CFPB has not yet issued a final rule.  A final rule will likely be challenged under 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.  Last week, Senator David Perdue initiated the CRA nullification process with respect to the CFPB’s prepaid card rule.


CFPB January 2017 complaint report highlights mortgage complaints, complaints from Tennessee consumers

Posted in Mortgages

The CFPB has issued its January 2017 complaint report that highlights mortgage complaints.  The report also highlights complaints from consumers in Tennessee and the Memphis and Nashville metro areas.

General findings include the following:

  • As of January 1, 2017, the CFPB handled approximately 1,080,700 complaints nationally, including approximately 22,900 complaints in December 2016.
  • Debt collection continued to be the most-complained-about financial product or service in December 2016, representing about 31 percent of complaints submitted.  Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 65 percent of the complaints submitted in December 2016.
  • Complaints about student loans showed the greatest percentage increase based on a three-month average, increasing about 109 percent from the same time last year (October to December 2015 compared with October to December 2016).  In February 2016, the CFPB began accepting complaints about federal student loans.  Previously, such complaints were directed to the Department of Education.  As we have noted in blog posts about prior complaint reports issued beginning in April 2016, rather than reflecting an increase in the number of borrowers making student loan complaints, the increase most likely reflects the change in where such complaints are sent.
  • Prepaid card complaints showed the greatest percentage decrease based on a three-month average, decreasing about 59 percent from the same time last year (October to December 2015 compared with October to December 2016).  Complaints during those periods decreased from 458 complaints in 2015 to 189 complaints in 2016.  Prepaid cards also showed the greatest decrease based on a three-month average in the November and December 2016 complaint reports.
  • Payday loan complaints in December 2016 were 23 percent less than payday loan complaints in November 2016, representing the product with the greatest month-over-month decrease in complaints.
  • Alaska, Georgia, and Louisiana experienced the greatest complaint volume increases from the same time last year (October to December 2015 compared with October to December 2016) with increases of, respectively, 357,46, and 32 percent.
  • Wyoming, Vermont, and Delaware experienced the greatest complaint volume decreases from the same time last year (October to December 2015 compared with October to December 2016) with decreases of, respectively, 20, 19, and 12 percent.

Findings regarding mortgage complaints include the following:

  • The CFPB has handled approximately 260,500 mortgage complaints.
  • The CFPB found a trend of consumers increasingly identifying issues relating to the issue of “making payments” (which covers loan servicing, payments, escrow accounts).
  • Consumers reported issues involving escrow account shortages, such as the misapplication of funds resulting in an increase in the monthly payment and a lack of explanation for shortages. Other escrow-related issues included the servicer’s purchase of hazard insurance despite the consumer’s provision of proof of coverage and the servicer’s failure to timely submit insurance payments resulting in inadequate coverage.
  • Consumers complained about the loss of timely payments by servicers resulting in negative credit reporting and improper crediting by servicers of electronic monthly payments made via bill pay services through their financial institutions..
  • Consumers attempting to negotiate loss mitigation assistance complained that servicers were slow to respond, made repeated requests for already submitted documents, and provided ambiguous denial reasons.

Findings regarding complaints from Tennessee consumers include the following:

  • As of January 1, 2017, approximately 17,800 complaints were submitted by Tennessee consumers of which approximately 4,700 and 5,800 were from Memphis and Nashville consumers, respectively.
  • Debt collection was the most-complained-about product, representing 34 percent of all complaints submitted by Tennessee consumers, which was higher than the national average rate of 27 percent of all complaints submitted by consumers.
  • Average monthly complaints received from Tennessee consumers increased 8 percent from the same time last year (October to December 2015 to October to December 2016), lower than the increase of 12 percent nationally.


OIRA guidance confirms executive order to reduce regulations does not apply to independent agencies

Posted in CFPB Rulemaking

Interim Guidance issued by the Office of Information and Regulatory Affairs (OIRA) to implement President Trump’s executive order entitled “Reducing Regulation and Controlling Regulatory Costs” confirms that the order does not apply to independent agencies.  The executive order, issued on January 30, includes the requirement for an agency that publicly proposes a new regulation for notice and comment to identify at least two existing regulations to be repealed.

The guidance states that the executive order’s so-called “2 for 1” requirement and related limit on incremental cost resulting from any new regulations only apply to agencies required to submit significant regulatory actions to OIRA for review before publication in the Federal Register pursuant to Executive Order 12866.  As discussed in a previous blog post, the OIRA review requirement does not apply to agencies defined as an “independent regulatory agency” by 44 U.S.C. Sec. 3502(5), which include the CFPB.

Nevertheless, the guidance states that “we encourage independent regulatory agencies to identify existing regulations that, if repealed or revised, would achieve cost savings that would fully offset the costs of new significant regulatory actions.”

The guidance therefore confirms that unless the Trump Administration takes the position that it does not have to wait for the PHH appeal to be resolved before it considers the CFPB to no longer be an independent regulatory agency, the executive order does not currently apply to the CFPB except on a voluntary basis.


CFPB/NY AG lawsuit against RD Legal Funding may signal greater scrutiny of non-loan financial products such as merchant cash advances

Posted in CFPB Enforcement, Small Business

The CFPB and the New York Attorney General this week filed an action against RD Legal Funding, LLC, two of its affiliates, and their principal (collectively, “RD”), alleging that a litigation settlement advance product offered by RD is a disguised usurious loan that is deceptively marketed and abusive.  In particular, the Complaint alleges that the transactions were falsely marketed as assignments rather than loans, that the transactions violate New York usury laws, and that RD misrepresented when the funding would be provided and falsely claimed that it could “expedite funding and ‘cut through red tape’” associated with the settlements being financed.  The Complaint alleges that the transactions could not be assignments because the underlying settlements expressly prohibit assignment of claimant recoveries.

In the Complaint, both the CFPB and the AG allege several deception claims and an abusiveness claim under Sections 1031 and 1042 of Dodd-Frank.  The AG also alleges state law claims for civil and criminal usury, fraud, and violation of NY UDAP statutes.  Notably, one of the deception claims alleged by the CFPB is predicated on alleged state usury law violations, implicating one of several issues involved in the pending CashCall appeal.

The CFPB and the AG issued press releases and prepared remarks trumpeting the RD Legal Funding action as a defense of 9/11 heroes and NFL concussion victims who were “scammed” through “convoluted contracts.”  The public statements also focus on the cost of the financing, providing examples such as a 9/11 first responder who paid $15,000 on an advance of $18,000 when the settlement funds ultimately were received six months after the advance was made.

Before the lawsuit was filed, on January 4 of this year, two of the RD entities filed separate preemptive actions for declaratory and injunctive relief against the CFPB and the AG.  Among other things, these complaints challenge the CFPB’s jurisdiction over RD and the propriety of the AG’s threatened enforcement activity on the basis that RD does not extend credit, but rather engages in bona fide purchases of receivables.  The complaints quote extensively from the relevant agreements, including the assignment provisions and non-recourse language, neither of which appear to be “convoluted” as the CFPB and AG allege.  The complaint against the CFPB also attaches a prior Civil Investigative Demand served on RD.

While the action filed this week may have been driven primarily by the sympathetic facts alleged in the Complaint, it may foreshadow a broader enforcement effort by the CFPB, state Attorneys General, and other state regulators directed at litigation funding companies, merchant cash advance providers, and other finance companies whose products are structured as purchases rather than loans.  (While the CFPB’s jurisdiction over small business finance is limited, this is not true of other enforcement authorities, such as state AGs.)  Notably, the CFPB previously has taken action against structured settlement and pension advance companies, in the former case leading to a jurisdictional challenge supported by the U.S. Chamber of Commerce.  It therefore is critical for all players in this space to revisit true sale compliance, both in the language of their agreements and in the company’s actual practices.

D.C. Circuit hears oral argument on CFPB authority to issue CID to college accrediting organization

Posted in CFPB Enforcement, Student Loans

Last week, the D. C. Circuit held oral argument in the CFPB’s appeal from the D.C. federal district court’s April 2016 ruling that the CFPB exceeded its statutory authority when it issued a CID to the Accrediting Council for Independent Colleges and Schools (ACICS) in August 2015.

After denying ACICS’s petition to modify or set aside the CID in October 2015, the CFPB filed a petition in D.C. federal district court to enforce the CID.  The CID’s statement of purpose indicated that the purpose of the CFPB’s investigation was “to determine whether any entity or person has engaged or is engaging in unlawful acts and practices in connection with accrediting for-profit colleges, in violation of sections 1031 and 1036 of the [CFPA prohibiting unfair, deceptive, or abusive acts or practices], or any other Federal consumer financial protection law.”  The CFPB argued that because it has authority to investigate for-profit schools in relation to their lending and financial advisory services, it also has authority to investigate whether any entity has engaged in any unlawful acts relating to accrediting such schools. 

The district court observed that ACICS had “repeatedly and accurately explained [that] the accreditation process simply has no connection to a school’s private student lending practices” and that ACICS was not involved in financial aid decisions, meaning that it played “no part in deciding whether to make or fund a student loan.”  While noting that the CFPB might be “entitled to learn whether ACICS is connected to potential violations of the consumer financial laws by schools its accredits,” the court stated that the CID’s “statement of purpose and the CFPB’s actual requests belie any notion that its inquiry is limited in this way.  Indeed, the statement of purpose says nothing about an investigation into the lending or financial-advisory practices of for-profit schools.” 

At the oral argument in the D.C. Circuit, the CFPB’s attorney sparred with Judge David Sentelle as to whether the CFPB had satisfied the CFPA requirements that a CID must “state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation.”  In particular, Judge Sentelle questioned whether the CID’s use of the phrase “unlawful acts or practices” and reference to the CFPA and “any other Federal consumer financial protection law” was sufficiently specific to provide notice of how the conduct under investigation related to financial activity regulated by the CFPB.  The CFPB’s attorney argued that the CFPB was not required to describe the nature of the potentially unlawful conduct under investigation with greater specificity in a CID.

The CFPB’s attorney stressed the CFPB’s authority under the CFPA to issue a CID to anyone who might have information relevant to violations of laws enforced by the CFPB even if the CFPB could not enforce such laws directly against the CID recipient.  To explain why ACICS might have relevant information, he pointed to the CFPB’s enforcement actions against for-profit colleges accredited by ACICS that made loans to their students and allegedly made misrepresentations to their students about the schools’ accreditation status.  The CFPB’s attorney also resisted Judge Karen Henderson’s suggestion that for purposes of whether the CID constituted “fair notice” to ACICS, given the CFPB’s obligation under the CFPA to identify “the provision of law” applicable to the alleged violation under investigation, it would have been “an easy enough matter” for the CFPB to have added the CFPA’s definitions of “federal consumer financial law” and “financial product or service” to put ACICS on notice “of what you were looking at.”

ACICS’s attorney asserted that the CID did not conform to the authority of the CFPB because conduct “in connection with accrediting for-profit colleges” did not implicate any consumer financial  laws enforced by the CFPB.  In response to Judge Robert Wilkins’ suggestion that ACICS was asking the court to take a “strict construction” of the CID’s wording and ignore other information about the nature of the CFPB’s investigation, ACICS’s attorney argued that even under a broad view, the phrase “in connection with” could not be used to expand the CFPB’s jurisdiction beyond information that could be relevant to a violation of a consumer financial protection law.

Judge Wilkins reacted to that argument by commenting that ACICS was aware of the nature of the potential violations being investigated and that an accrediting organization could have relevant information.  ACICS’s attorney asserted, in response, that the stated purpose of the investigation was for the CFPB to look at “conduct in connection with accrediting” for-profit schools rather than to look at for-profit schools and that nothing in “accrediting non-profit colleges” touched on laws that the CFPB has authority to enforce.  She also argued that the CID’s deficiency was not one of “semantics,” as Judge Wilkins suggested, but rather that the CID did not fulfill its purpose of providing notice of alleged unlawful conduct “that touches anything the CFPB has the authority to enforce.”

An affirmance by the D.C. Circuit is likely to lead other courts to more closely scrutinize CFPB CIDs for whether they adequately put the recipient on notice of the nature of the investigation and whether the investigation is within the CFPB’s jurisdiction.





President Trump issues executive order on core principles for regulating the financial system

Posted in CFPB General, CFPB Rulemaking

On February 3, 2017, the President issued an Executive Order titled “Core Principles for Regulating the United States Financial System.”  The Executive Order is a high-level policy statement consisting of a series of Core Principles that are designed to inform the manner in which the Administration regulates the financial system.

On March 6, 2017, Ballard Spahr will hold a webinar: “Leveling the Playing Field: CFPB Regulations and Guidance Targeted for Review by Treasury under President Trump’s February 3 Executive Order.”  In the webinar, we will identify CFPB regulations, guidance and policies which may run afoul of the core principles.  Click here to register.

The Executive Order was addressed during a press briefing held on the day it was issued.  During the press briefing, the White House Press Secretary explained that the Executive Order establishes “guideline principles that set[] the table for a regulatory system that mitigates risk, encourages growth, and more importantly, protects consumers.”  The Press Secretary asserted that the Dodd-Frank Act, which he said is “hindering our markets, reducing the availability of credit, and crippling our economy’s ability to grow and create jobs,” did not “address the causes of the financial crisis” or adequately address the risk posed by institutions that are “too big to fail.”

The Executive Order seeks to address these concerns by establishing seven “Core Principles,” which are the goals that will guide the Administration’s approach to financial services regulation.  Although none of them expressly mention the CFPB or consumer financial protection, four of the core principles implicate the regulation of consumer financial services:

  • Empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;
  • Foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;
  • Make regulation efficient, effective, and appropriately tailored; and
  • Restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.

For example, the principle requiring a more rigorous regulatory impact analysis apparently foreshadows an emphasis by the Administration on the cost of regulation and its potential adverse economic effects.  While the final principle speaks for itself, additional context is evident from a remark that the Press Secretary made during his press briefing.  Specifically, the Press Secretary asserted that the Dodd-Frank Act “imposed hundreds of new regulations on financial institutions while establishing [an] unaccountable and unconstitutional new agency that does not adequately protect consumers.”

The CFPB and its advocates would vigorously contest the assertion that the Bureau has not adequately protected consumers, and some already have done so in response to the issuance of the Executive Order.  For example, in a press release condemning the Executive Order, Illinois Attorney General Lisa Madigan stated that “[t]he CFPB has a tremendous record of uncovering and ending unfair financial practices that undermine Americans’ financial security.”  Attorney General Madigan further stated that”[m]any predatory and unlawful financial practices that targeted consumers were at the heart of the country’s economic collapse.”

In addition to specifying a series of Core Principles, the Executive Order directs the Secretary of the Treasury to consult with the heads of the member agencies of the Financial Stability Oversight Council (FSOC) and report to the President “on the extent to which existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies promote the Core Principles and what actions have been taken, and are currently being taken, to promote and support the Core Principles.”  (The Director of the CFPB is one of the voting members of the FSOC.)  The Executive Order further requires that the report “identify any laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies that inhibit Federal regulation of the United States financial system in a manner consistent with the Core Principles.”  The report must be submitted within 120 days of the date of the Executive Order, which contemplates that additional reports will be submitted “periodically thereafter.”

In response to a question regarding whether the Administration planned on working with Congress to repeal provisions of the Dodd Frank Act, the Press Secretary responded that “I think we’re going to continue not just to act through administrative action, but through working with Congress and figuring out a legislative fix.”  During the press briefing, a member of the press also asked whether the Administration intended “to keep Richard Cordray as the head of” the CFPB.  The Press Secretary responded that, “I don’t have a staff announcement on the CFPB right now, but we’ll see where we go.”

CFPB and Virginia AG settle claims against pawnbroker for alleged TILA/CFPA/VA law violations

Posted in CFPB Enforcement

The CFPB and the Virginia Attorney General announced that they had entered into a proposed consent order with  Woodbridge Coins and Jewelry Exchange, Inc., a Virginia-based pawnbroker, to settle a lawsuit filed in a Virginia federal court alleging the pawnbroker’s closed-end pawn contracts violated the TILA, the CFPA, and Virginia law.

According to the complaint, the pawnbroker charged a finance charge consisting of four monthly fees: interest, maintenance, storage, and clerical.  The complaint alleges that the total finance charge disclosed on most of the pawnbroker’s contracts did not equal the sum of these four fees and that most contracts disclosed an understated APR.  These inaccurate disclosures are alleged to constitute violations of TILA, Regulation Z, and the CFPA.

The complaint further alleges that the pawnbroker charged interest and a maintenance fee in amounts greater than permitted by Virginia law and that Virginia law did not permit the pawnbroker to charge a clerical fee.

Under the proposed consent order, the pawnbroker is required to pay restitution to consumers of approximately $56,000 representing the amount of fees charged in excess of the amounts permissible under Virginia law, $17,638.61 in disgorgement to the CFPB, a $5,000 civil money penalty to the CFPB, and reimbursement of $6,225.75 to the Commonwealth of VA in reimbursement of attorney’s fees and related costs and expenses.  (In contrast to civil money penalties that are deposited into a civil penalty fund administered by the CFPB and whose permitted usage is specified by the Dodd-Frank Act, funds paid for disgorgement are deposited into the U.S. Treasury for unspecified usage over which the CFPB has no control.)

In November and December 2016, the CFPB announced that it had filed lawsuits in Virginia federal district court against other Virginia-based pawnbrokers for similar alleged TILA and CFPA violations.