CFPB Monitor

News Guidance Perspectives of CFPB | Ballard Spahr Law Firm Blog

D.C. Circuit denies motions to intervene in PHH case

Posted in CFPB Enforcement

The D.C. Circuit panel that issued the PHH decision last October has issued a per curiam order denying the three motions to intervene that were filed in the case last month.

The motions were filed by: a group of Democratic AGs from 16 states and the District of Columbia; Senator Sherrod Brown and Representative Maxine Waters; and 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.

Presumably, the next development in the case will be a decision on the CFPB’s petition for rehearing en banc.



Text of Senate bill released to replace CFPB leadership with five-person board

Posted in CFPB General

Last month, we blogged about reports that a bill (S. 105) has been introduced by three Republican Senators to change the CFPB’s single-director leadership structure to a five-person commission.

Although the bill’s text was not available when we previously blogged, we have now been able to obtain a copy of S. 105.  The bill, which was introduced by Republican Senators Deb Fischer, John Barrasso, and Ron Johnson, is entitled the “Consumer Financial Protection Board Act of 2017.”

Instead of a commission, the bill would create a bi-partisan five-member “Board of Directors” serving staggered five-year terms (with three of the initial members, including the Chairperson, to serve an initial 30-month term).  Board members would be appointed by the President, who could remove a member for “inefficiency, neglect of duty, or malfeasance in office.”  The President would be authorized to appoint a member to serve as “Chairperson of the Board.”  No more than three board members could belong to the same political party.

The CHOICE Act, the bill released in July 2016 by House Financial Services Committee Chairman Jeb Hensarling to replace the Dodd-Frank Act and passed by the Committee in September 2016, would change the CFPB’s leadership to a five-person commission (and rename the CFPB the “Consumer Financial Opportunity Commission”).  Although the CHOICE Act is expected to be reintroduced early this year, it includes a much wider range of controversial CFPB and non-CFPB changes.  Because S. 105 is limited to creating a board of directors to run the CFPB (and unlike the CHOICE Act would retain the CFPB’s name), it might provide a better vehicle for legislative compromise.


PHH opposes motion to intervene filed by Democratic lawmakers

Posted in CFPB Enforcement

PHH has filed a response in opposition to the motion filed with the D.C. Circuit by Democratic lawmakers Senator Sherrod Brown and Representative Maxine Waters to intervene in the PHH appeal.  The lawmakers are, respectively, the Ranking Members of the Senate Banking Committee and the House Financial Services Committee.

In opposing the motion, PHH makes the following primary arguments:

  • The lawmakers do not have Article III standing.  In their motion to intervene, the lawmakers argued that they have a legally protected interest that would be impaired by the litigation because should the CFPB not defend its constitutionality under the new Administration’s direction, their votes in support of Dodd-Frank which established the CFPB as an independent agency would be nullified.  The lawmakers also asserted that Congress is a proper party to defend a law’s constitutionality.  PHH argues that the lawmakers are not “Congress” but only individual members and, because they lack authorization to represent Congress, they do not have standing to defend a law.  PHH also challenges the lawmakers’ nullification argument, asserting that nullification only occurs when a legislator’s vote is denied determinative effect and the votes of the two lawmakers were not dispositive of Dodd-Frank’s passage nor were they denied their effect.
  • Based on the lawmakers’ statement in their motion to intervene that if en banc review is denied and the United States does not file a certiorari petition they “will file a petition for certiorari with the Supreme Court,” PHH argues that the purpose of the lawmakers’ motion is to enable them to file a certiorari petition.  PHH asserts that the decision whether the CFPB should seek certiorari in a given case is legislatively committed to the Executive Branch by the Dodd-Frank provision requiring the CFPB to seek approval from the United States AG to file a certiorari petition.
  • The lawmakers’ motion is untimely because federal appellate rules require a motion to intervene to be filed within 30 days after a petition for review is filed and PHH filed its petition for review in June 2015.  PHH argues that the results of the Presidential election should not excuse the delay in filing because the possibility that the new Administration might not defend the CFPB’s constitutionality “was entirely foreseeable from the beginning of this suit, when petitioners unambiguously and forcefully raised their separation-of-powers challenge.”  PHH also argues that even if concerns over political changes could excuse the delay, granting intervention would result in severe prejudice to PHH because it “would inject new party opponents into the case and cause considerable additional delay and expense for [PHH].”

On the same day the Democratic lawmakers filed their motion to intervene, a motion to intervene was filed 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.  In its response in opposition to the motion to intervene filed by the Democratic Attorneys General of 16 states and the District of Columbia, PHH indicated that it would be responding to the motion to intervene filed by the Democratic lawmakers as well as the motion to intervene filed by the consumer advocacy groups.  Thus, we expect PHH will soon be filing a response in opposition to the latter motion.



CFPB continues work on student loan payback playbook disclosures

Posted in Student Loans

The CFPB recently revised the prototype student loan Payback Playbook disclosures it has been developing with the Departments of Education and Treasury.  These revisions were based on feedback from nearly 3,500 individual student loan borrowers, student loan market participants, higher education policy experts and other stakeholders in response to the April 2016 Notice and Request for Information Regarding Student Loan Borrower Communications.  The CFPB also sent a letter to the Department of Education summarizing the revisions, feedback and the findings of an independent research firm retained by the CFPB to perform user testing on the Prototype Playbook.

The Payback Playbook disclosures are designed to be issued by student loan servicers to borrowers in order to help borrowers secure a monthly payment they can afford, thus mitigating delinquencies and defaults.  There are two versions of the Payback Playbook:  a General Playbook and an “At-Risk” Playbook.  The General Playbook displays a side-by-side comparison of a borrower’s current repayment plan and two alternative plans, one of which is an income-driven-repayment option personalized to reflect the borrower’s current financial circumstances.  The “At-Risk” Playbook is a “streamlined disclosure” targeted to borrowers with an increased risk of default, such as borrowers who are delinquent  or otherwise demonstrate characteristics that suggest an increased likelihood of economic hardship.  This disclosure identifies the borrower’s current repayment plan and also features a single income-driven-repayment option.  The revised disclosures are available here.

The original student loan Payback Playbook prototype disclosures were released in April 2016 and the public was able to provide comments until June 12, 2016.  Based on the comments received, and testing by an independent research firm, the CFPB made five general observations that informed its revisions to the Playback Playbook disclosures:

(1) Actionable Information: The disclosures need to contain information that will drive borrowers to take specific action (e.g., to contact their servicer or visit to switch plans or to get more information) without providing too much detail, which could overwhelm borrowers and deter them from reviewing the document or taking further action.  Accordingly, the disclosures are intended to reflect a “concept-driven, plain-language” approach rather than an attempt to offer exhaustive details and descriptions of costs and alternatives.  The disclosures only present a limited selection of alternatives (i.e., one or two alternatives) that are tailored to be most appropriate for the individual borrower based on the borrower’s financial circumstances.

(2) Personalization: The CFPB favors an approach that would require servicers to utilize consumer tax data provided by the Department of Treasury and Internal Revenue Service to personalize the disclosures so they include estimated monthly payment amounts, repayment terms and other key information based on the consumer’s income and family size.  These disclosures are to be estimates so as to not be misleading to the consumer.

(3) User-centered Visual Design: The feedback favored  a “minimalist approach to presenting key information, bolded text, large font size, and the use of white space to draw consumers’ attention to relevant information.”  Electronic disclosures might also have to use color to draw attention to important information.

(4) Adaptation to Specific Borrower Segments, Including At-Risk Borrowers: The CFPB noted that “at-risk” borrowers should be presented with language that clearly articulates the benefits and availability of a zero dollar income-driven-repayment payment.  Specific disclosures might also be adopted for specific consumer segments such as public service workers and members of the military.

(5) Targeted Distribution: The CFPB recommended that the Department of Education conduct further evaluation to assess the effectiveness of distribution methods for these disclosures.  Some of the comments indicated that it would be helpful to retrieve these disclosures in real time on a secure, borrower-facing portal and others indicated that it would be helpful to include these disclosures in regular periodic statements.

In its letter, the CFPB noted that it looks forward to receiving feedback from the Department of Education.



Community banks trade group asks Trump Administration to curb fair lending enforcement

Posted in Fair Lending

The Independent Community Bankers of America issued a statement calling on the Trump administration “to rein in the overzealous application of fair lending laws.”  ICBA stated that community banks are threatened by a recent trend of “unwarranted enforcement actions” that “harm community banks and the customers they serve by undermining the availability of credit in local communities and throughout the economy.”

Noting the commitment of community banks to fair lending, the ICBA’s president indicated that “community banks are experiencing enforcement overreach that diverts an abundance of resources from serving their local communities to complying with and responding to unwarranted fair lending allegations.”

The ICBA’s statement noted the DOJ’s recently-filed fair lending action against KleinBank, which it called “a misguided and baseless claim against [the] family-owned [bank], a 110-year-old institution that has never been cited for fair lending violations by its primary regulator, the Federal Deposit Insurance Corp.”  The DOJ’s complaint, which relates to the bank’s residential mortgage lending business, alleges that KleinBank violated the Fair Housing Act and the Equal Credit Opportunity Act by engaging in a pattern or practice of unlawful redlining of the majority-minority neighborhoods in the Minneapolis-St. Paul metropolitan area.  From 2010 to at least 2015, the bank is alleged to have avoided serving the credit needs of individuals seeking residential mortgage loans in majority-minority census tracts in the Metropolitan Statistical Area encompassing Minneapolis and St. Paul.  For a more detailed discussion of the DOJ’s redlining claim, see our legal alert.

According to the ICBA, the KleinBank action “and similar actions directly attack the community banking model, in which hometown financial institutions serve their local communities and economies.  Requiring community banks to expand their market presence into neighboring counties would force them to alter their model and sound business practices.”

The DOJ’s focus on redlining is consistent with the fair lending focus of the CFPB, which recently identified redlining as one of its fair lending priorities for 2017.  The CFPB, in the Fall 2016 edition of Supervisory Highlights, lists factors it considers when assessing redlining risk and explains how it performs an analysis of redlining risk, such as its use of Home Mortgage Disclosure Act and census data to assess an institution’s lending patterns and its comparison of an institution to peer institutions.  These factors, which are described in detail in the Interagency Fair Lending Examination Procedures, include the CRA assessment area and the market area more generally.


Ninth Circuit affirms tribal lenders subject to CFPB investigative demands

Posted in CFPB Enforcement, Payday Lending

The Ninth Circuit recently issued its opinion in CFPB v. Great Plains Lending, LLC, et al., in which three tribal-affiliated, for-profit lending companies (“Tribal Lenders”) challenged the authority of the CFPB to issue civil investigative demands (CIDs) against Native American tribes.

In 2012, the CFPB issued CIDs against the Tribal Lenders regarding their advertising, marketing, origination, and collection of small-dollar loan products. In response, the Tribal Lenders claimed that the CFPB lacked jurisdiction to investigate them and, after their offer of cooperation was rejected by the Bureau, challenged the CIDs in a California federal court. The district court granted the CFPB’s petition to enforce the CIDs and the Tribal Lenders appealed.

Summarizing precedent, the Ninth Circuit concluded that Dodd-Frank—a “law of general applicability”—applies to tribes unless: 1) the law touches on exclusive rights of tribal self-governance; 2) the application of the law to tribes would violate treaties; or 3) Congress expressed its intent that the law should not apply to tribes. The Tribal Lenders did not argue that the CIDs violated a treaty and their lending involved non-tribal customers. Accordingly, the panel’s decision scrutinized whether Congress intended the Act’s investigative authority to include tribes.

Dodd-Frank provides that the Bureau may issue a CID whenever it has reason to believe that a “person” may have information relevant to a violation. The Act defines “person” as “an individual, partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative, organization, or other entity.” In contrast, the Act defines “States” to include, in part, “any federally recognized Indian tribe as defined by the Secretary of the Interior.” The Tribal Lenders argued that the definitions were mutually exclusive. In other words, Congress intended to exempt tribes from the CFPB’s investigative authority by way of excluding tribes from the definition of “person.”

The Ninth Circuit was not persuaded. The panel emphasized that Dodd-Frank created a list of exempt entities with “great specificity” and this list of exemptions did not included tribal entities.  In the court’s view, the Tribal Lenders’ “definitional” argument only established “attenuated references” that did not amount to an express or implied intent to exempt tribes. Notably, however, the Ninth Circuit’s inquiry was limited to whether the CFPB’s authority was “plainly lacking” because courts apply less scrutiny to jurisdictional challenges in pre-complaint investigations.

While this decision addresses the powers of the CFPB under Dodd-Frank, and not the powers of state authorities or private litigants, it nevertheless creates a significant gap in the protection that Tribes and their partners perceived they had in providing consumer financial services to the public.

CFPB files complaint alleging defendants ran unlawful debt relief operation

Posted in CFPB Enforcement

The CFPB has filed a complaint in a California federal district court against three law firms and two individual attorneys alleging that they offered debt relief services to consumers in violation of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA).

The CFPB’s complaint alleges that in offering debt relief services, the defendants “aligned themselves” with Morgan Drexen, Inc., the company (and its CEO) sued by the CFPB in 2013 for allegedly charging advance fees for debt relief services in violation of the TSR and engaging in deceptive acts and practices in violation of the CFPA.  In June 2015, based on a finding that the company had violated the TSR and CFPA, the court issued a permanent injunction prohibiting Morgan Drexen from collecting any more money from customers and charging upfront fees for debt relief services.  The company then shut down its operations and a trustee appointed by the bankruptcy court took control of the company’s assets.  In March 2016, the court entered a final judgment in favor of the CFPB that required the bankrupt Morgan Drexen to pay nearly $133 million in restitution and a $40 million civil money penalty.  The judgment followed a stipulated final judgment against Morgan Drexen’s CEO approved by the court in October 2015 which, based on the CEO’s inability to pay, required him to pay $500,000 in consumer redress and a $1 civil money penalty.

In the new complaint, the CFPB alleges that the defendants had consumers sign two contracts, one for debt settlement services and the other for bankruptcy-related services, to disguise upfront payments for debt relief services as fees for bankruptcy-related services that consumers had not sought.  According to the complaint, although consumers entered into contracts with the defendants, Morgan Drexen conducted nearly all of the debt relief work.  However, after the CFPB filed its enforcement action against Morgan Drexen, the company’s debt relief work was transferred to the defendants.

The complaint alleges that the defendants violated the TSR by charging unlawful advance fees for debt relief services and engaging in marketing in which defendants represented, directly or by implication, that consumers were not charged advance fees.  It alleges that the defendants also violated the TSR by providing substantial assistance to Morgan Drexen and its CEO while “knowingly or consciously avoiding knowing” that Morgan Drexen and its CEO were engaged in practices that violated the TSR.  The complaint further alleges that the defendants’ alleged  TSR violations constitute violations of the CFPA’s UDAAP prohibition.  The complaint seeks various remedies under the CFPA, including injunctive relief, restitution, and civil money penalties.


President Trump signs executive order to reduce regulations; application to CFPB doubtful

Posted in CFPB Rulemaking

President Trump has signed an executive order entitled “Reducing Regulation and Controlling Regulatory Costs.”

Like the regulatory freeze memo issued on Inauguration Day by Reince Priebus, the President’s Chief of Staff, the executive order appears to apply only to “an executive department or agency.” Since the D.C. Circuit’s PHH decision changing the CFPB’s structure from an independent to an executive agency has not yet taken effect, the Executive Order should not currently apply to the CFPB.

According to a Reuters report, the White House has confirmed that the new executive order does not apply to independent agencies.  However, as we have previously discussed, the Trump Administration could take 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 agency.

The executive order includes the following requirements:

  • If an agency publicly proposes a new regulation for notice and comment, it must identify at least two existing regulations to be repealed.
  • For FY 2017, the total incremental cost of an agency’s new regulations, including repealed regulations, to be finalized this year shall be no greater than zero unless otherwise required by law or consistent with written advice provided by the Director of the OMB.  Any new incremental costs associated with new regulations shall be offset by the elimination of existing costs associated with at least two prior regulations.
  • During the Presidential budget process, the Director shall identify a total amount of incremental costs that will be allowed for each agency in issuing new regulations and repealing regulations for the next fiscal year.


PHH files supplemental response to CFPB’s rehearing petition; opposes state AGs’ motion to intervene

Posted in CFPB Enforcement

This past Friday, PHH filed a supplemental response to the CFPB’s petition for en banc rehearing and a response opposing the motion filed by Democratic Attorneys General of 16 states and the District of Columbia to intervene in the PHH appeal.

Supplemental Response.  The D.C. Circuit invited the Solicitor General to file a response to the CFPB’s petition expressing the views of the United States.  After the Department of Justice filed a response, PHH filed a motion for leave to file a supplemental response.  In that motion, PHH asserted that because the DOJ had argued that the D.C. Circuit should grant the CFPB’s petition on several grounds that were not pressed in the CFPB’s petition, PHH was seeking an opportunity to be heard on the views expressed by the United States.  Despite the CFPB’s opposition to PHH’s motion, the D.C. Circuit granted PHH’s motion and required PHH to file its supplemental response by January 27.

In its supplemental response, PHH asserts that the United States did not dispute the panel’s conclusion that the CFPB’s structure is unconstitutional or the panel’s remedy to address the constitutional violation (i.e. severance of the for-cause removal provision) but only challenged the panel’s reasoning in reaching that outcome.  While rejecting the United States’ reading of U.S. Supreme Court precedent with regard to the role of separation of powers in protecting individual liberty, PHH also argues that even under “the United States’ crabbed reading of [such precedent], the panel undoubtedly reached the correct result.”  According to PHH, “the United States identifies no reason for the full Court to grant rehearing simply to retrace the panel’s steps and arrive at the same place.”

PHH also calls “passing strange” the United States’ suggestion for the en banc court to conclude that it should not reach the separation of powers issue under the doctrine of constitutional avoidance while simultaneously arguing that the en banc court should review the panel’s separation of powers analysis.  PHH observes that the “United States cites no examples of an appellate court granting rehearing en banc for the purpose of not reaching an issue.” (emphasis provided).  PHH argues that because the panel properly reached the separation of powers question, the court should reject the United States’ suggestion that the court should grant rehearing on the question but then decline to decide it.

PHH also observes in its supplemental response that the United States did not contest the D.C. Circuit’s RESPA interpretation or its due process holding and instead only addressed its separation of powers holding.  PHH argues that the panel’s RESPA interpretation and due process holding were correct and that “there is no possible basis to rehear either the panel’s RESPA or due-process holdings.” 

Response to Motion to Intervene.  Last week, a motion to intervene was filed with the D.C. Circuit by the Democratic Attorneys General of 16 states and the District of Columbia.  In its response, PHH argues the motion should be denied for reasons that include the following:

  • The motion was untimely because federal appellate rules require a motion to intervene to be filed within 30 days after a petition for review is filed and PHH filed its petition for review in June 2015.   The state AGs’ argument that good cause exists to extend the deadline is “implausible” because the results of the presidential election are not relevant to the question of intervention and even if they were relevant, the state AGs did not explain the reason for “their additional two-and-a-half-month [post-election] delay before seeking to intervene.”  In addition, “intervention would be grossly unfair to petitioners, who suddenly would be faced with the burden of litigating any further judicial proceedings against seventeen new (and sovereign) party opponents.”
  • The state AGs lack standing to intervene because they have no legally protected interest.  With regard to RESPA, the state AGs’ involvement is not “necessary or appropriate to protect the Executive Branch’s interest in the interpretation and enforcement of RESPA.”  With regard to the CFPB Director’s independence, the state AGs “have no standing to defend the constitutionality of a federal statutory provision that applies only to one federal Officer–the Director of the CFPB.”  The panel’s decision does not, as the state AGs contend, “effectively giv[e] the President veto power over” the state AGs’ attempts to enforce the CFPA under Section 1042 because the CFPA merely requires the state AGs to notify the CFPB of an intended enforcement action before filing and allows the CFPB to intervene.  The state AGs “remain free to pursue their own enforcement actions, and the courts would remain the ultimate arbiters of any disagreements.”  The state AGs also provide no explanation for “their illogical and ultimately speculative contention that a constitutionally accountable CFPB would somehow ‘undermine’ regulatory coordination.  To the contrary, states routinely coordinate with constitutionally accountable federal agencies, such as the Department of Justice.”
  • The motion “is simply an effort by the state AGs to intervene in order ‘to file a petition for certiorari,’ as they admit, in the event the Solicitor General does not.”  The state AGs should not be given control over efforts to seek Supreme Court review.  More specifically, granting intervention would circumvent the CFPA provision requiring the CFPB to seek approval from the United States AG to file a certiorari petition–which is “one of the only means that Congress provided the President to supervise litigation involving the CFPB.”

In addition to the state AGs’ motion, two other motions to intervene were filed last week.  One motion was filed by Democratic lawmakers Senator Sherrod Brown and Representative Maxine Waters who are, respectively, the Ranking Members of the Senate Banking Committee and the House Financial Services Committee.  The other motion was filed by Maeve Brown (who chairs the CFPB’s Consumer Advisory Board), Americans for Financial Reform, Center for Responsible Lending, Leadership Conference on Civil and Human Rights, Self-Help Credit Union, and United States Public Interest Research Group.  In a footnote to its response, PHH states that it “will promptly and separately respond to those motions.”


Democratic lawmakers, consumer advocacy groups seek to intervene in PHH appeal

Posted in CFPB Enforcement

This past Monday, the Democratic Attorneys General of 16 states and the District of Columbia filed a motion with the D.C. Circuit seeking to intervene in the PHH appeal.  Today, two more motions to intervene were filed.  One motion was filed by Democratic lawmakers Senator Sherrod Brown and Representative Maxine Waters who are, respectively, the Ranking Members of the Senate Banking Committee and the House Financial Services Committee.  The other motion was filed by Maeve Brown (who chairs the CFPB’s Consumer Advisory Board), Americans for Financial Reform, Center for Responsible Lending, Leadership Conference on Civil and Human Rights, Self-Help Credit Union, and United States Public Interest Research Group.

Like the Democratic AGs, in claiming that they are entitled to intervene as of right, the new movants rely primarily on the argument that they cannot rely on the CFPB under the Trump Administration to adequately represent their interest in defending the CFPB’s status as an independent agency.  As grounds for why they have a legally protected interest which would be impaired by the litigation, Senator Brown and Representative Waters point to their votes for the Dodd-Frank Act and claim that if the CFPB, acting at the new Administration’s direction, does not defend its constitutionality, “movants’ votes to establish the Bureau as an independent agency will be nullified without full judicial review of the constitutional question presented in this case.”  The consumer advocacy groups rely on their roles as advocates for various consumer interests for their claim that they have a legally protected interest while the credit union movant and Ms. Brown rely on, respectively, the impact of CFPB regulations and enforcement on its members and the need for a CFPB “Director [who] is independent and responsive to the [Consumer Advisory] Board’s recommendations and analysis.”  (The motion states that the credit union has $650 million in assets, which is less than the $10 billion threshold for CFPB supervision.)  According to the advocacy groups, the credit union, and Ms. Brown, the action threatens to impair their interests because of the potential for pending CFPB policy initiatives and enforcement to be derailed if the panel’s ruling stands.

Should the D.C. Circuit deny the petition for en banc rehearing or grant the petition and affirm the panel’s decision, the CFPB would be required under the Dodd-Frank Act to seek approval from the Department of Justice to file a petition with the U.S. Supreme Court for a writ of certiorari.  It is widely assumed the new Attorney General or a new Solicitor General would not give such approval.  In their motion to intervene, the Democratic state AGs, in arguing that their motion would not prejudice any party to the case, stated only that if their “participation is necessary to file a petition for certiorari, they would do so under the normal timing and procedural restraints applicable to such a petition, giving the other parties in this case every ordinary opportunity to be heard in response.”

The new motions go further by explicitly raising the possibility that the new Administration’s Department of Justice may refuse to allow the CFPB to file a petition for certiorari.  In addition, Senator Brown and Ms. Waters state that if en banc review is denied, “movants will file a petition for certiorari with the Supreme Court” while the consumer advocacy groups and other movants state that their intervention is necessary “to ensure that this Court and, if necessary, the Supreme Court of the United States have the ability to reach the merits of this critically important issue. ”