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.
The CFPB has issued its fourth report entitled “Report of the Consumer Financial Protection Bureau Pursuant to Section 1017(e)(4) of the Dodd-Frank Act.” That Dodd-Frank section requires the CFPB’s Director to submit an annual report to the House and Senate Committees on Appropriations “regarding the financial operating plans and forecasts of the Director, the financial condition and results of operations of the Bureau, and the sources and application of funds of the Bureau, including any funds appropriated in accordance with [Section 1017(e)].” (The CFPB’s previous report covered the period October 1, 2014 through September 30, 2015.)
The new report covers the period October 1, 2015 through September 30, 2016. It repackages (often verbatim) the information contained in three previous CFPB reports: the ninth Semi-Annual Report to the President and Congress covering the period from October 1, 2015 to March 31, 2016, the tenth Semi-Annual Report to the President and Congress covering the period from April 1, 2016 through September 30, 2016, and the FY 2016 financial report.
Just before year-end, the U.S. Court of Appeals for the Tenth Circuit, in Bandimere v. United States Securities and Exchange Commission, set aside an SEC decision finding the petitioner liable for violating various securities law on the grounds that the SEC’s administrative law judge (ALJ) who conducted the proceeding was unconstitutionally appointed. The Tenth Circuit held that the ALJ was an “inferior officer” who, pursuant to the Appointments Clause of Article II of the U.S. Constitution, could only be appointed by the President, a court, or the head of a “Department.” The parties agreed that the process used by the SEC to hire ALJs in which an ALJ is selected by the SEC’s Chief ALJ did not qualify as an appointment by the President, a court, or the head of a “Department.”
In holding that the SEC’s ALJ was an “inferior officer” who must be appointed in accordance with the Appointments Clause, the Tenth Circuit created a circuit split, thus making the case a good candidate for U.S. Supreme Court review. In August 2016, the U.S. Court of Appeals for the D.C. Circuit, in Raymond J. Lucia Companies, Inc. et al. v. Securities and Exchange Commission, rejected a similar constitutional challenge and ruled that the SEC’s ALJ was an “employee” rather than “inferior officer.” As a result, the D.C. Circuit held that the ALJ’s appointment by the SEC’s Office of Administrative Law Judges rather than an SEC commissioner was constitutional.
The Tenth Circuit’s ruling might be used to support an Appointments Clause challenge to the CFPB’s use of ALJs. As we have previously noted, because the CFPB is housed within the Federal Reserve, it could be argued that Director Cordray is not a “Department” head who can appoint “inferior Officers” under the Appointments Clause. Thus, if the CFPB were unable to establish that its ALJ was an employee rather than an inferior officer, its ALJ might be deemed unconstitutionally appointed.
The CFPB announced that the following individuals are joining its senior leadership team:
- Leandra English is returning to the CFPB to serve as the Chief of Staff. Ms. English previously served in several senior CFPB leadership roles, including deputy chief operating officer, acting chief of staff, deputy chief of staff, and deputy associate director of external affairs. Most recently, Ms. English served as the principal deputy chief of staff at the Office of Personnel Management.
- Jerry Horton will serve as the CFPB’s Chief Information Officer. Before joining the CFPB, Mr. Horton worked at the Department of State where he started and led the Office of the Chief Architect for State’s global information presence. He also previously served as the chief information officer at the U.S. Agency for International Development and at the U.S. Mint in the Department of the Treasury.
- Paul Kantwill will serve as the CFPB’s Assistant Director for Servicemember Affairs. Prior to joining the CFPB, Mr. Kantwill served as the director of the Pentagon’s Office of Legal Policy, Office of the Under Secretary of Defense, Personnel & Readiness. In that position, Mr. Kantwill was the Department of Defense’s legal policy expert on the financial industry and the effects of financial products and services on military members and their families.
- John McNamara will serve as the CFPB’s Assistant Director of Consumer Lending, Reporting, and Collections Markets. Mr. McNamara previously served in the same capacity in an acting role, and before that was the CFPB’s debt collection program manager.
- Elizabeth Reilly will serve as the CFPB’s Chief Financial Officer. Ms. Reilly previously served as the CFPB’s deputy chief financial officer.
The CFPB has released a new report, “Snapshot of older consumers and student loan debt,” that provides statistics on the growing number of consumers age 60 and over (older consumers) who owe student loan debt and the growing amount of such debt. The report also discusses complaints about student loan debt submitted by older consumers to the CFPB from March 2012 to December 2016. According to the CFPB, the report can offer insight to policy makers examining “potential changes to the higher education finance market, including changes to federal student loan programs,” as to “how changes in the availability of borrowing and repayment options may affect the long-term financial well-being of older consumers.”
The report includes the following statistics:
- The number of older consumers with student loan debt quadrupled from 2005 to 2015, increasing from about 700,000 to 2.8 million consumers.
- The average amount of student loan debt owed by older consumers roughly doubled from 2005 to 2015, increasing from $12,100 to $23,500, with older consumers owing a total of $66.7 billion in student loan debt as of 2015.
- Based on the CFPB’s analysis of survey data, 73 percent of older student loan borrowers (which appears to include co-signers) report that their student loan debt is owed for a child’s and/or grandchild’s education.
- The proportion of delinquent student loan debt owed by older consumers increased from 7.4 percent to 12.5 percent from 2005 to 2012, with 37 percent of student loan borrowers age 65 and older in default in 2015.
- The number of borrowers age 65 and older who had their Social Security benefits offset to repay a federal student loan increased from about 8,700 to 40,000 borrowers from 2005 to 2015.
The report indicates that as of January 1, 2017, consumers 62 and older submitted approximately 1,100 student loan complaints and approximately 500 debt collection complaints related to student loans. (Based on the CFPB’s December 2016 complaint report, the CFPB has received a total of 33,713 student loan complaints since July 2011. The report did not break out the number of debt collection complaints that were related to student loans.)
According to the CFPB, issues described in complaints submitted by consumers 62 and older included the following:
- Servicing practices that delay or prohibit enrollment in income-driven repayment (IDR) plans or limit the consumer’s ability to reduce his or her monthly payments when the consumer’s income changes, such as the servicer not advising the consumer about the ability to have monthly payment amounts reassessed under an IDR plan when income is reduced
- Misallocation of co-signer payments to other loans owed only by the primary student borrower which may cause the co-signer’s payment to appear short and result in late fees and interest as well as reporting of late or missed payments to consumer reporting agencies
- Difficulties in obtaining a co-signer release or accessing account information needed to monitor the account
- Offset of the consumer’s Social Security benefits following a default on a federal student loan despite the consumer’s right under federal law to make income-based payments to rehabilitate the loan
- Threats by debt collectors to collect on federally-protected benefits to repay private student loans
The report includes several suggestions and recommendations including:
- Review of the co-signing process for private student loans “to understand whether the origination process fully brings to the attention of older co-signers that they are taking on liability for the debt”
- Streamlined access to IDR plans for older borrowers whose only source of income is Social Security
The Attorneys General for the states of Connecticut, Indiana, Kansas, and Vermont recently took the unusual step of filing a joint motion to intervene to modify the settlement terms of a CFPB enforcement action.
The motion was filed in the CFPB’s action filed in a New York federal district court in December 2014 against Sprint Corporation that alleged Sprint had violated the Consumer Financial Protection Act by allowing unauthorized third-party charges on its customers’ telephone bills. To settle the action, Sprint and the CFPB entered into a Stipulated Final Judgment and Order (Stipulated Judgment) that required Sprint to pay $50 million in consumer refunds pursuant to a redress plan.
According to the memorandum in support of the joint motion to intervene, the redress plan provides that once the deadline for customers to file passes and Sprint refunds all charges for approved claims, Sprint must pay the balance of the $50 million to the CFPB. The CFPB, in consultation with the states (which were parties to separate agreements with Sprint relating to similar billing practices claims) and the FCC, must then determine if additional consumer redress is “wholly or partially impracticable or otherwise inappropriate.” If additional redress is determined to be “wholly or partially impracticable or otherwise inappropriate,” the CFPB, again in consultation with the states and the FCC, can apply the remaining funds “for such other equitable relief, including consumer information remedies, as determined to be reasonably related to the allegations set forth in the Complaint.” Any funds not used for such equitable relief are to be deposited in the U.S. Treasury as disgorgement.
The AGs claim in their motion that, after payment of claims, approximately $14 million of Sprint’s redress funds remain unused and that the CFPB, in consultation with the Vermont AG acting as liaison for the states and the FCC, has concluded that additional redress is wholly or partially impracticable or otherwise inappropriate and did not identify any other equitable relief towards which the CFPB could apply the remaining funds.
The AGs seek to modify the Stipulated Judgment to require the CFPB to deposit the remaining funds with the National Association of Attorneys General to continue and complete the development of the National Attorneys General Training and Research Institute (NAGTRI) Center for Consumer Protection. NAGTRI proposes to use the funds “to train, support and improve the coordination of the state consumer protection attorneys charged with enforcement of the laws prohibiting the type of unfair and deceptive practices alleged by the CFPB [in its action against Sprint].” The AGs state that neither the CFPB nor Sprint oppose their motion.
State AGs and financial regulators are widely expected to ramp up their enforcement of federal and state consumer financial protection laws in response to anticipated changes to the CFPB and other federal regulatory agencies in a Trump administration. In a recent webinar, “Beyond the CFPB-Preparing for State Enforcement Post-Election,” Ballard Spahr attorneys reviewed the enforcement authority of state AGs and regulators, surveyed enforcement and rulemaking activity in the financial services industry, and discussed what can be done by companies to prepare to defend against state enforcement activity.
The CFPB released two items at year-end: the results of its 2016 annual employee survey and its updated Diversity and Inclusion Strategic Plan (Strategic Plan) for 2016-2020.
Survey. Of the 1,567 CFPB employees surveyed, 1,372 (almost 87.6%) responded to the 2016 survey. We were pleased to see that the survey results appear to show that the CFPB has made progress in improving its work environment. In particular, in response to the question “what progress has the CFPB made in creating a workforce experience where everyone feels included, valued and empowered to do their best work,” 88.4% of the respondents found that the CFPB had made some degree of progress, ranging from “goal achieved” to “limited progress,” and of those respondents, 63% found that either “substantial progress” or “some progress” had been made.
Strategic Plan. The plan takes guidance from Section 342 of the Dodd-Frank Act and other federal initiatives and regulations focused on advancing diversity and inclusion. As released in November 2015, the plan was built around five pillars: workforce diversity, workforce inclusion, sustainability, minority- and women-owned businesses, and the transparency of diversity practices of regulated entities.
The updated plan adds a sixth pillar: employment practices of CFPB contractors. The plan states that through its Office of Minority and Women Inclusion, the CFPB will “use good faith effort (GFE) standards developed under Dodd-Frank Act to determine efforts of Bureau contractors to utilize women and minorities in their workforces.”
The final diversity and inclusion standards adopted by the CFPB, the federal banking agencies and other federal agencies in June 2015 include standards directed at the promotion of contractor diversity by regulated entities. However, those standards emphasize increased outreach to minority-owned and women-owned businesses. The Strategic Plan takes a broad view of the standards to address not only the diversity of the owners of CFPB contractors but also the diversity of a contractor’s workforce. The addition of this sixth pillar is likely an indication that the CFPB expects regulated entities to similarly consider not only the ownership of their contractors but also their contractors’ efforts “to utilize women and minorities in their workforces.”
Ballard Spahr’s Diversity Team advises clients on the design and implementation of diversity and inclusion programs and counsels CFPB-supervised entities on developing and implementing diversity programs.
The CFPB has published a notice in the Federal Register announcing that it is seeking applications from persons interested in becoming members of its Academic Research Council (ARC). Appointments to the ARC are typically for four years.
The CFPB seeks “tenured academics with a world class research and publishing background, and a record of public or academic service.” Applicants should be “prominent experts who are recognized for their professional achievement and objectivity in economics, statistics, psychology or behavioral science.” In particular, the CFPB is looking for “academics with strong methodological and technical expertise in structural or reduced form econometrics, modeling of consumer decision-making, behavioral economics, experimental economics, program evaluation, psychology, and financial choice.”
The CFPB states that it has a special interest in ensuring that women, minority groups and individuals with disabilities are adequately represented on the ARC. It further states that because it also has a special interest in establishing an ARC that is represented by diverse viewpoints and constituencies, the CFPB encourages applications for ARC membership from candidates who represent U.S. geographic diversity and the interests of special populations identified in Dodd-Frank such as servicemembers and older Americans.
Applicants for the ARC positions must submit a complete application package on or before February 14, 2017 to be considered for membership. (The application will be available online on January 16, 2017.) The CFPB expects to announce new ARC members in April 2017.
The CFPB has filed an amicus brief in the U.S. Supreme Court in support of the respondent/consumer in Midland Funding, LLC v. Aleida Johnson, a decision of the Eleventh Circuit that held Midland’s alleged filing of an accurate proof of claim in the consumer’s bankruptcy case on a time-barred debt violated the FDCPA.
In its brief, the CFPB argues that the Supreme Court should reject Midland’s arguments that the filing of a proof of claim that is accurate (i.e. provides correct information about an unpaid debt) but is for a debt that is time-barred does not violate the FDCPA, and even if the filing does violate the FDCPA, the Bankruptcy Code (Code) would preclude such application of the FDCPA. According to the CFPB, nothing in the Code allows a creditor to legitimately file a proof of claim that it knows is subject to disallowance under the Code because it is time-barred. The CFPB also argues that because a debt collector implicitly represents that it has a good faith basis to believe its claim is enforceable in bankruptcy when it files a proof of claim, the filing is misleading and unfair in violation of the FDCPA when the collector knows the claim is time-barred and therefore unenforceable in bankruptcy.
With respect to Midland’s preclusion argument, the CFPB asserts that Code does not preclude an FDCPA action based on the filing of a proof of claim for a time-barred debt. According to the CFPB, treating Midland’s alleged conduct as an FDCPA violation would not penalize Midland for conduct the Code authorizes and would not otherwise create any conflict between the FDCPA and the Code.