CFPB Monitor

News Guidance Perspectives of CFPB | Ballard Spahr Law Firm Blog

CFPB files amicus brief in Ninth Circuit in remanded Article III standing case

Posted in Credit Reports

This past May, the U.S. Supreme Court, in Spokeo, Inc. v. Robins, ruled 6-2 that a plaintiff alleging a Fair Credit Reporting Act violation does not have standing under Article III of the U.S. Constitution to sue for statutory damages in federal court unless the plaintiff can show that he or she suffered “concrete,” “real” harm as a result of the violation.  The U.S. Court of Appeals for the Ninth Circuit had concluded that it was constitutionally permissible for Congress to treat FCRA violations as “concrete, de facto injuries” that automatically satisfy the injury in fact requirement for Article III standing.  The Supreme Court found the Ninth Circuit’s standing analysis to be incomplete.  While it addressed the particularization of the plaintiff’s alleged injury necessary to establish an injury in fact, the Ninth Circuit did not address the concreteness of the alleged injury.  As a result, the Supreme Court vacated the Ninth Circuit’s judgment and remanded the case for the Ninth Circuit to consider whether “the particular procedural violations alleged in this case entail a degree of risk sufficient to meet the concreteness requirement” for Article III standing.

In the case, the plaintiff claims that the defendant website operator willfully violated the FCRA by allegedly publishing inaccurate personal information about him at a time when he was seeking employment.  More specifically, the plaintiff alleges that the defendant willfully violated the FCRA requirement to “follow reasonable procedures to assure maximum possible accuracy of the information” in a consumer report.

Briefs addressing the concreteness requirement have now been filed in the Ninth Circuit by the plaintiff and defendant.  In addition, the CFPB has filed an amicus brief in the Ninth Circuit in support of the plaintiff.  (The CFPB and DOJ filed an amicus brief opposing the Supreme Court’s grant of certiorari.  The brief was filed in response to a Supreme Court order inviting the Solicitor General to file a brief to express the Obama administration’s views on whether certiorari should be granted.  Following the Supreme Court’s grant of certiorari, the CFPB, together with the DOJ, filed a merits stage amicus brief in support of the plaintiff.)

In its Ninth Circuit amicus brief, the CFPB asserts that in Spokeo, the Supreme Court reaffirmed that intangible injuries can satisfy the concrete injury standard and indicated that, in assessing whether a particular intangible injury satisfies that standard, a court should consider whether Congress made a judgment that particular harms should be sufficient to institute an action in court.  The CFPB argues that Congress’s decision to grant consumers a right of redress for the dissemination of a false consumer report if it resulted from a consumer reporting agency’s willful failure to follow reasonable procedures reflects Congress’s judgment that disseminating an inaccurate consumer report presents an unacceptable risk of real harm to the individual whose information is falsely described and being subjected to that risk is in itself an intangible injury for which individuals can obtain redress in court.

As further support for its position, the CFPB argues that historical practice “confirms that the publication of a consumer report with the kinds of inaccuracies alleged here amount to concrete, actionable harm—for that harm is analogous to harms that have historically provided a basis for suit in common law defamation actions.”


CFPB to hold second research conference

Posted in CFPB General

The CFPB has announced that it plans to host its second research conference on consumer finance on December 15-16, 2016.  (The first such conference was held in May 2015.)

The announcement contains a call for complete papers or detailed abstracts that include preliminary results to be submitted by August 26, 2016.  The CFPB is encouraging the submission of a variety of research including, but not limited to, work on “the ways consumers and households make decisions about borrowing, saving, and financial risk-taking; how various forms of credit (mortgage, student loans, credit cards, installment loans, etc.) affect household well-being; the structure and functioning of consumer financial markets; distinct and underserved populations; and relevant innovations in modeling or data.”  A particular area of CFPB interest is the dynamics of households’ balance sheets.

According to the CFPB, the conference is intended “to connect the core community of consumer finance researchers and policymakers with the best research being conducted across the wide range of disciplines and approaches that can inform the topic.  Disciplines from which we hope to receive submissions include, but are not limited to, economics, the behavioral sciences, cognitive science, and psychology.”

The CFPB’s call for papers lists the names of ten academics who are members of the conference’s scientific committee.


CFPB to hold July 28 debt collection field hearing

Posted in Debt Collection

The CFPB has announced that it will hold a field hearing about debt collection on July 28, 2016 in Sacramento, California.  We expect the field hearing to coincide with the CFPB’s release of an outline of the proposals it is considering in preparation for convening a small business review panel required by the Small Business Regulatory Enforcement Fairness Act (SBREFA) and Dodd-Frank.  The outline will be a strong indicator of the approach the CFPB is likely to take in a proposed debt collection rule.

When developing rules that may have a significant economic impact on a substantial number of small businesses, the CFPB is required by SBREFA and Dodd-Frank to convene a panel to obtain input from a group of small entity representatives (SER) selected by the CFPB in consultation with the Small Business Administration.  Before meeting with the panel, the SERs will receive the outline of the CFPB’s proposals, together with a list of issues on which the CFPB seeks input.  Within 60 days of convening, the panel must issue a report that includes the input received from the SERs and the panel’s findings on the proposals’ potential economic impact on small business.  However, the CFPB will not make the “issued” report public until such later time as it releases a proposed rule.  The CFPB has previously convened SBREFA panels in connection with its mortgage loan, arbitration, and payday loan rulemakings.

In November 2013, the CFPB issued an Advance Notice of Proposed Rulemaking concerning debt collection.  In its Spring 2016 agenda released in May 2016, the CFPB stated that “it is in the process of analyzing responses to a survey seeking information from consumers about their experiences with debt collectors and is engaged in qualitative testing to determine what information would be useful for consumers to have about debt collection and how that information should be provided to them.”  Presumably the CFPB will discuss the results of its analysis and testing in the materials distributed to the SERs.


D.C. federal district court rejects recess appointment challenge

Posted in CFPB General

The D.C. federal district court has rejected the plaintiffs’ attempt in State National Bank of Big Spring, Texas, et al. v. Lew, et al. 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 to the CFPB pending a decision by the D.C. Circuit in PHH Corporation v. CFPB.

In that case, PHH is arguing that the Dodd-Frank Act’s placement of sweeping legislative, executive, and judicial power in the hands of a single director who is not accountable to the President or Congress makes the CFPB’s structure unconstitutional. The D.C. Circuit held oral argument this past April.  In its decision, the district court noted that the plaintiffs in State National Bank of Big Spring had filed an amicus brief in support of PHH in which they made largely the same constitutional argument that they made in their own case.

The district court had initially dismissed the second amended complaint in State National Bank of Big Spring on standing and ripeness grounds.  In July 2015, that decision was reversed in part by the D.C. Circuit, which ruled that the bank had standing to challenge the constitutionality of the CFPB and Director Cordray’s recess appointment.  With regard to the recess appointment challenge, in addition to remanding the case to the district court to consider the merits of the issue in light of the U.S. Supreme Court’s decision in Noel Canning, the D.C. Circuit also noted that it “leave[s] it to the District Court to consider the significance of Director Cordray’s later Senate confirmation and his subsequent ratification of the actions he had taken while serving under a recess appointment.”  In August 2013, following his confirmation by the Senate, Director Cordray published a notice in the Federal Register “affirm[ing] and ratify[ing] any and all actions” he took while a recess appointee.

In its decision on remand, the district court observed that the CFPB made no attempt to rebut the argument that Director Cordray’s recess appointment was unconstitutional, which the district court found to be “unsurprising in light of the Supreme Court’s decision in Noel Canning.”  The plaintiffs conceded that Director Cordray’s confirmation mooted their attempt in the lawsuit to use his recess appointment as grounds for challenging his authority to take any action as CFPB Director.  They argued, however, and the district court agreed, that the entire case was not moot because the court could still grant them partial relief by enjoining the enforcement of regulations that were promulgated prior to Director Cordray’s confirmation.  Nevertheless, the district court concluded that despite his unconstitutional recess appointment, Director Cordray’s subsequent confirmation and ratification “saves the regulations from plaintiffs’ challenge.”

In April 2016, in CFPB v. Chance Edward Gordon, a divided Ninth Circuit panel ruled that Director Cordray’s invalid recess appointment did not render the CFPB’s enforcement action against the defendant invalid because his subsequent valid appointment coupled with his ratification notice cured any initial constitutional deficiencies.



ABA to sponsor July 20 program on CFPB arbitration proposal

Posted in Arbitration

On July 20, 2016, from 11:00 AM – 12:00 PM ET, the American Bar Association is sponsoring a program, “CFPB’s Proposed Arbitration Ban — What You Need To Know.”   The panelists will discuss the pros and cons of the CFPB’s arbitration proposal and its implications for industry.  Alan S. Kaplinsky, who chairs Ballard Spahr’s Consumer Financial Services Group, will be a panelist.  The other panelists joining Alan include a CFPB representative.

The CFPB’s proposed rule would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service.  The proposed rule would also require a covered provider that is involved in an individual arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB.

A link to register for the program is available here.



Key Takeaways from the OCC Forum on Supporting Financial Innovation

Posted in CFPB General

While the CFPB has not yet held a public event devoted to FinTech or financial innovation, the Office of the Comptroller of the Currency (OCC) recently held a Forum On Supporting Financial Innovation in the Federal Banking System to discuss the agency’s approach to FinTech and other innovative products. The forum follows up on the OCC’s white paper with a similar name.

The all-day forum included a keynote address by the Comptroller of the Currency, Thomas J. Curry, and a series of panel discussions involving representatives from the OCC, large and small banks, a marketplace lender, consumer advocates, and various consultants.

We believe there are three key takeaways from the event.

First, the OCC seems to recognize that many consumers and small businesses have difficulty obtaining credit, and that efforts to protect borrowers through regulation can actually harm borrowers by reducing credit availability. This appears to be one reason why the OCC wants to encourage financial innovations. It also sees FinTech as an opportunity to improve the speed and accuracy of transactions, as well as the integrity of records. Mr. Curry stated that he would like FinTech firms to feel comfortable engaging with the OCC about their new financial technologies, given the OCC’s expertise in the field.

Second, what the OCC supports is “responsible” innovation. Multiple OCC representatives in their remarks stated that the OCC has “made a commitment” to supporting innovation, but every one of them simultaneously made clear that the agency will not “relinquish its responsibilities” or “abandon its core principles” in doing so. OCC representatives indicated that while the OCC would encourage pilot programs, for example, it is wary of providing safe harbors for such programs due to the potential for consumer harm. (We note that the OCC’s reluctance to provide safe harbors dovetails with the CFPB’s policy of providing only limited “no-action” letters, which are largely toothless: they can be modified or withdrawn by the CFPB at any time, are not binding on the CFPB in the future, and provide no immunity against private litigation or enforcement actions by other state and federal agencies.) It remains to be seen where the balance will be struck between attempting to protect borrowers and supporting new technologies and business methods that expand the availability of credit and improve the customer experience.

Finally, we noted some comments of concern regarding national bank charters and the possibility of creating a new type of charter for FinTech companies. Multiple speakers emphasized the “sanctity of the charter” and related agency expectations, expressing disapproval of banks acting as “rent-a-charters,” “booking agents,” or “flow-throughs,” which “have to stop.” If a new type of charter is created for FinTech companies, which seems unlikely, the OCC appears intent on making sure that there is nothing “light” about the regulatory expectations that would accompany such charters.

Agencies announce submission of diversity self-assessments to OMWIs can begin

Posted in Diversity and Inclusion

In a notice to be published in tomorrow’s Federal Register, the CFPB, OCC, Fed, FDIC, SEC, and NCUA announce that the Office of Management and Budget has approved the “information collection” contained in their “Final Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies.”  The Policy Statement, which implemented Dodd-Frank Section 342, became effective upon its publication in the Federal Register on June 10, 2015.  The notice informs regulated entities that they may now begin to submit self-assessments of their diversity policies and practices to the Director of the Office of Minority and Women Inclusion of their primary federal financial regulator.

The final standards envision that an entity will conduct an annual “self-assessment” of its diversity policies and practices in four areas: (1) organizational commitment to diversity and inclusion, (2) workforce and employment practices, (3) procurement and business practices, and (4) practices to promote the transparency of organizational diversity and inclusion.  The standards provide for “assessment factors” for each of these areas, encouraging entities to allocate time and resources to monitor and evaluate their performance under their diversity policies and practices on an ongoing basis.  The standards also contemplate that a regulated entity will disclose certain information relating to its diversity and inclusion efforts on its website or in other appropriate communications, and will provide to its primary federal financial regulator information relating to its self-assessment.

In conjunction with the issuance of the final standards, the agencies had published a 60-day notice requesting comments on the information collection process and parameters, and how this requirement might affect regulated entities.  The notice addressed the comments received during the 60-day comment period which included concerns about agency disclosure of confidential information contained in a self-assessment.  In response, the agencies offered no assurances that the information would remain confidential, stating simply, “To the extent that a submission includes confidential information, the Agencies will keep such information confidential to the extent allowed by law.”

Ballard Spahr’s Diversity Team is working with several clients on developing and implementing diversity programs.



GAO report shows continuing CFPB employee concerns related to fair treatment

Posted in CFPB General

A report last month issued by the Government Accountability Office (GAO)  found that a survey of nonexecutive CFPB employees revealed “heightened concerns related to fair treatment, trust that employees can raise concerns related to fair treatment, trust that employees can raise concerns without fear of reprisal, confidence in complaint processes, and other matters.”  The report, entitled “Additional Actions Needed to Support a Fair and Inclusive Workplace,” contains the results of a GAO review of personnel management and organizational culture issues at the CFPB that was conducted at the request of members of Congress.

The request followed a series of hearings held by the House Financial Services Committee that was triggered by news reports of a CFPB internal report indicating that CFPB staff evaluations showed a pattern of racial disparities.  Those hearings included testimony from CFPB employees who alleged they received discriminatory treatment.  In May 2015, the Office of Inspector General for the CFPB and Fed issued a report of its  findings following an audit assessing the CFPB’s human resources-related operations and other efforts for equal employment that was also conducted in response to a congressional request.

The GAO’s survey of nonexecutive employees had a 62 percent response rate.  The issues surveyed by the GAO included employee views on favoritism and discrimination, complaint processes, trust and perceptions of management retaliation, and management accountability and commitment to addressing concerns.  The GAO found that for several questions in these areas, more than 25 percent of respondents had unfavorable views and the proportion of unfavorable responses was about 35 percent in some CFPB offices and for some minority respondents, female respondents, respondents 40 years of age and over, and respondents who did not specify a race.

The report describes steps the CFPB has taken in the last two years to respond to concerns about favoritism or unfair employee treatment and promote diversity and inclusion.  The GAO stated that the CFPB’s efforts to address employee concerns about diversity, inclusion, fairness and culture represent a significant management initiative but found that the CFPB lacks a strategy for comprehensively reporting about its initiative.

The GAO also found that while the CFPB has strengthened its complaint processes, it does not have sufficient mechanisms for obtaining and addressing employee feedback about such processes.  In its conclusion, the GAO stated that “many of the CFPB’s initiatives [to improve personnel management and promote a more diverse, inclusive, and fair workplace] have been implemented only recently, and because changing employee perceptions and behaviors can take time, it is too soon to know the effectiveness of the CFPB’s efforts in these areas.”

The GAO’s report recommends that Director Cordray take two actions. First, he should develop and implement a strategy for comprehensively reporting on the CFPB’s implementation goals and progress on its initiatives related to promoting diversity, inclusion, fairness, and a stronger organization culture.  Second, in coordination with representatives of the CFPB’s employee union, he should develop tools to collect more comprehensive employee feedback on the complaint processes to understand and remedy factors that may reduce employee confidence in such processes.

The report includes Director Cordray’s response to the GAO’s draft report which states that the CFPB accepts the GAO’s recommendations and describes the CFPB’s work in connection with the recommendations.



House Financial Services Committee to hold hearing on marketplace lending

Posted in Marketplace Lending

Tomorrow, July 11, the House Financial Services Committee’s  Subcommittee on Financial Institutions and Consumer Credit will hold a hearing titled: “Examining the Opportunities and Challenges with Financial Technology (“FinTech”): The Development of Online Marketplace Lending.”  According to the Committee memorandum, the hearing “will give Committee members the opportunity to assess the development of the FinTech market, including how online lenders and banks interact.  Further, the hearing will evaluate the current regulatory structure and recent policy developments.”

In March 2016, the CFPB announced that it had begun to take complaints about marketplace lenders.


House approves FY 2017 appropriations bill containing curbs on CFPB authority

Posted in Arbitration

By a vote of 239-185, the House of Representatives has approved a fiscal year 2017 appropriations bill that contains various provisions intended to curb the CFPB’s authority.  Those provisions would fund the CFPB through the annual congressional appropriations process rather than through transfers from the Federal Reserve as currently provided by Dodd-Frank and change the CFPB’s leadership structure from a single Director to a five-member Board of Directors appointed by the President.

The bill also includes a provision that states none of the CFPB’s funding “may be used to regulate pre-dispute arbitration agreements…and any regulation finalized by the Bureau to regulate pre-dispute arbitration agreements shall have no legal force or effect until the requirements regarding pre-dispute arbitration specified in the report accompanying [the bill] under the heading “Bureau of Consumer Financial Protection” are fulfilled.”  On May 5, 2016, the CFPB issued a proposed rule that would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service.  The proposed rule would also require a covered provider that is involved in an individual arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB.

The “requirements regarding pre-dispute arbitration specified in the report accompanying [the bill]” include requirements related to  a further study that must be conducted by the CFPB.  The report lists various topics the CFPB must address in the study and mandates use of a research process “that includes peer review of the CFPB’s methodology and findings by a diverse group of individuals with relevant expertise in quantitative and qualitative research methods from the private and public sectors” but whose “expertise in research methods is unrelated to dispute resolution.”  The composition of the peer review panel is subject to rulemaking procedures, including notice and comment.  The CFPB must publish its tentative conclusions together with sufficient supporting and explanatory information, and solicit public comment.  In its report to Congress, the CFPB must explain its reason for disagreeing with significant comments. Concurrently with submitting its report to Congress, the CFPB must make a description of the peer review process publicly available.

The report also requires the CFPB to consider the costs and benefits to consumers in determining whether any final rule regulating pre-dispute arbitration rule is in the public interest and for the protection of consumers.  Such costs and benefits must include: (1) the practical effect on consumers’ access to low cost, fair, and efficient means of resolving claims for the types of injuries that consumers most often incur and that are less likely to be the subject of government enforcement actions; (2) the extent to which private class action proceedings on behalf of consumers regarding consumer financial products and services provide net benefits to consumers in light of the CFPB’s and other regulators’ enforcement and examination authority; (3) the practical effect of any regulation on the availability of pre-dispute arbitration; and (4) the impact of any regulation on the cost and availability of credit to consumers and small business.  The CFPB must find that the demonstrable benefits of any rule to consumers outweigh the costs to consumers, taking into account the foregoing factors and other relevant factors, and that the rule subjects pre-dispute arbitration to no more regulation than is necessary to serve the public interest and protect consumers.  The CFPB’s findings, together with its analysis and underlying data, must be published in the Federal Register.

The House Appropriations Committee had adopted an amendment to the appropriations bill that would block the CFPB from finalizing or enforcing a rule regulating payday lending until the CFPB submits a detailed report on the consumer impact to Congress and identifies existing credit products available to replace the current sources of short-term, small dollar credit.  However, because that amendment is not included in the version of the bill that is linked to the committee’s press release announcing the House’s approval of the bill, the status of the amendment is unclear.