On Wednesday, the U.S. Senate voted almost entirely along party lines to invalidate, under the Congressional Review Act, the Consumer Financial Protection Bureau’s (CFPB) (in)famous 2013 Bulletin on lending discrimination in the indirect auto market via discretionary mark-ups and dealer compensation policies.  The 2013 Bulletin, construing the Equal Credit Opportunity Act and its implementing rule, Regulation B, had served as the basis for a number of substantial CFPB enforcement actions against indirect auto lenders, with large fines and loud protests from industry.

The U.S. House of Representatives has been poised to vote down the 2013 Bulletin for some time, and is very likely to follow the Senate’s lead and make the invalidation effective.  If as expected the House does act, this would mark the second time in the past year that Congress has voted to strike down a rule issued by the CFPB.  (Last December, the Government Accountability Office’s General Counsel issued a formal legal opinion concluding that the 2013 Bulletin was, in fact, a “rule” subject to the Congressional Review Act, paving the way for yesterday’s Senate vote.)  The first instance, of course, was Congress’ decision to invalidate the CFPB’s rule regarding arbitration.

Despite the Senate’s action Wednesday, efforts to weaken the CFPB by statute along the lines proposed by its Acting Director Mick Mulvaney and Republican congressmen continue to face challenges in Congress.  While such proposals have passed and would likely easily pass again in the House of Representatives, no such measure was included in the recent package of reforms that passed the Senate with bipartisan support.  Several of the Senate Democrats who voted for that package have indicated that they are not inclined to support measures that would weaken the CFPB structurally.

Case Developments

In this week’s edition of the Mortgage Litigation Update, we summarize (i) a decision from the Northern District of California finding that a loan servicer’s solicitation and review of a borrower’s loan modification does not give rise to a duty of care, and (ii) a decision from the Middle District of Pennsylvania finding that a loan servicer’s status as holder of a mortgage note does not itself, absent other factors, exclude it from the definition of “debt collector” under the FDCPA when it acquired the debt after default.

Forster v. Wells Fargo Bank, N.A., No. 17-cv-05120-BLF, 2018 WL 509967 (N.D. Cal. Jan. 23, 2018)

  • Plaintiff borrowers sued their loan servicer for negligence and under several California consumer statutes after they fell behind on mortgage payments and the lender denied their application for a loan modification.  Plaintiffs alleged the servicer’s wrongful denial of their loan modification resulted in increased indebtedness, lost equity in their property, damage to their credit, and other unspecified consequential damages.
  • The servicer moved to dismiss.  With respect to the negligence claim, the servicer argued no duty of care exists between a financial institution and a borrower absent special circumstances.  Plaintiff argued that the servicer owes a duty of care in the processing and review of a loan modification application, as it solicited the modification, which goes beyond a typical conventional arms-length lending relationship.
  • Noting a circuit split on the issue and the sometimes fact intensive nature of the inquiry, the District Court agreed with the lender that a duty of care does not arise in the typical loan modification because “[w]here modification is necessary because the borrower cannot repay the loan, the borrower’s harm is not closely connected with the lender’s conduct, and the lender is not morally culpable.”

Beard v. Ocwen Loan Servicing, LLC, Civil No. 1:14-cv-1162, 2018 WL 638455 (M.D. Pa. Jan. 31, 2018)

  • Plaintiff borrower filed a complaint alleging that its loan servicer assessed unearned fees and costs in a reinstatement quote in violation of the Fair Debt Collection Practices Act (“FDCPA”).
  • The Defendant had previously moved for summary judgment, asserting that it was not a “debt collector” under the FDCPA.  The District Court rejected this argument and denied the motion for summary judgment, finding that a mortgage servicer is a debt collector if it acquired the obligation by assignment after the debt was already in default.
  • The loan servicer moved for reconsideration, citing the United States Supreme Court’s recent decision in Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718 (2017), holding that an entity collecting a debt on its own behalf is not a “debt collector” merely because it acquired the loan after default.  According to the loan servicer, its role as the holder of the note placed it within the purview of Henson.
  • The District Court disagreed, reasoning that a holder is legally distinct from an owner.  Although a note’s holder is in possession of the note and qualified to enforce it through foreclosure on the underlying deed of trust, it is not necessarily entitled to the economic benefits from payments received.  Because the servicer did not establish it was the owner of the note, it failed to show that it was collecting the debt on its own behalf within the meaning of Henson.

Case Developments

In this edition of our Mortgage Litigation Update, we summarize (i) an Eleventh Circuit decision interpreting Regulation X under RESPA where there are duplicative applications; and (ii) a case from the District Court for the District of Massachusetts evaluating borrowers’ claim of entitlement to a free house.

Navia v. Nationstar Mortgage LLC, Case No. 17-11320,  —Fed. App’x—-, 2018 WL 327233 (11th Cir. January 9, 2018)

  • The Court affirmed the dismissal of the Appellant’s complaint for failure to state a claim under the Real Estate Settlement Procedures Act (“RESPA”).
  • The Court determined that RESPA’s Regulation X places certain obligations on mortgage servicers when a borrower submits an initial loss mitigation application; however, those obligations do not apply to duplicative applications.
  • The Court stated, “a servicer need not comply with § 1024.41 requirements [regarding evaluation of all loss mitigation alternatives] on subsequent applications if that servicer previously complied with §1024.41’s requirements with regard to a borrower’s loss mitigation application.”

Paulding v. New Penn Financial, LLC, Case No. 17-11340-FDS, 2018 WL 379019 (D. Mass. January 11, 2018)

  • The District Court for the District of Massachusetts granted in part and denied in part the defendants’ motion to dismiss the plaintiff’s complaint seeking to prevent a mortgage foreclosure.
  • In particular, the Court evaluated the plaintiffs’ contention that the mortgage was void on the grounds that the original lender was (1) never incorporated; (2) never registered with the Commonwealth; and (3) never authorized to conduct business in the Commonwealth.
  • The Court rejected the plaintiffs’ argument that they were essentially entitled to a free house noting that, “[t]he money borrowed by plaintiffs was surely not fictitious; they used it to buy the property.  And it is entirely unclear how any failure on [the original lender] to obtain a license, if true, caused plaintiffs any injury at all, much less damages in the amount of the entire value of their mortgage.”

Case Developments

In this edition of our Mortgage Litigation Update, we summarize (i) a decision from the Northern District of California striking class allegations as fail-safe in a case implicating discrimination in mortgage lending, (ii) an Eastern District of Virginia order rejecting a borrower’s attempt to tie an interpretive rule regarding modification review to a clause in his Deed of Trust requiring compliance with “applicable law,” and (iii) a Second Circuit decision illuminating certain difficulties in establishing standing to foreclose when the original lender has declared bankruptcy.

Perez, et al. v. Wells Fargo Bank, N.A., Case No. 17-cv-00454-MMC, (N.D. Cal. Jan. 30, 2017)

  • Plaintiffs brought a discrimination in lending class action alleging that they were denied credit from Defendant  across multiple lines of business, including student lending, small business loans, credit cards, mortgages, and auto financing, based on their immigration status as non-U.S. citizens, including as participants in the Deferred Action for Childhood Arrivals, or DACA, Program.
  • Defendant moved to strike the class allegations, as Plaintiffs’ proposed class definition was fail-safe in that it was defined in a way that required an individual determination of liability in order to decide who would be a member of the class.
  • The court struck the class allegations, finding that the proposed class definition was impermissibly fail-safe.  The court permitted Plaintiffs an opportunity to amend.
  • Defendant is represented by McGuireWoods.

Menacho v. U.S. Bank N.A. et al., Case No. 3:17-CV-00428-JAG, 2017 WL 6462356 (E.D. Va. Dec. 19, 2017)

  • Plaintiff alleged that the foreclosing trustee violated the Deed of Trust provision stating that the right to foreclosure was “subject to any requirements and limitations of Applicable Law” because the trustee had failed to respond to his loan modification application.
  • Plaintiff argued this violated the Secretary of the Treasury’s Supplemental Directive No. 09-01, which prohibits loan servicers from proceeding with foreclosure for loans eligible for HAMP modifications until the applicant has been deemed ineligible, and thus the foreclosure did not comply with “Applicable Law.”
  • The Court held that Supplemental Directive No. 09-01 did not trigger the “Applicable Law” provision of the deed of trust.  The Court reasoned that because Supplemental Directive No. 09-01 was not subject to the notice and comment procedures of the Administrative Procedures Act, it was only an “interpretive rule” that did not have the effect of law.

Gustavia Home, LLC, v. Rutty,  Case No. 17-345(L), 2017 WL 6539178 (2nd Cir. Dec. 21, 2017)

  • The Second Circuit upheld a borrower’s appeal of the lower court’s foreclosure judgment that found the foreclosing plaintiff had not sufficiently demonstrated its standing to foreclose following the original lender’s bankruptcy, which would have made the original lender’s interest in the note property of the bankruptcy estate.
  • Although the foreclosing plaintiff had submitted a series of undated allonges that satisfied the lower court that it had standing to foreclose, the Second Circuit agreed with the borrower that the plaintiff had failed to present evidence of when it came in possession of the note or whether the original lender transferred the note either before the bankruptcy or with the permission of the bankruptcy court to do so.
  • The court vacated the judgment and remanded for further proceedings regarding the foreclosing entity’s standing.

Case Developments January 23, 2018 – February 20, 2018

In this edition of our Vehicle Finance Litigation report, we summarize (i) a decision from the Northern District of California striking a class definition as a “fail-safe” in a lending discrimination case, (ii) a decision out of the Eastern District of California denying class certification on adequacy and typicality grounds because of a defense unique to the class representative’s claims, and (iii) a decision out of the Seventh Circuit Court of Appeals discussing the interplay of financing conditions subsequent and the accuracy of TILA disclosures.

Perez, et al. v. Wells Fargo Bank, N.A., Case No. 17-cv-00454-MMC, (N.D. Cal. Jan. 30, 2017).

  • Plaintiffs brought a discrimination in lending class action alleging that they were denied credit from Defendant across multiple lines of business, including student lending, small business loans, credit cards, mortgages, and auto financing, based on their immigration status as non-U.S. citizens, including as participants in the Deferred Action for Childhood Arrivals, or DACA, Program.
  • Defendant moved to strike the class allegations, as Plaintiffs’ proposed class definition was fail-safe in that it was defined in a way that required an individual determination of liability in order to decide who would be a member of the class.
  • The court struck the class allegations, finding that the proposed class definition was impermissibly fail-safe.  The court permitted Plaintiffs an opportunity to amend.
  • Defendant is represented by McGuireWoods.

Lindblom v. Santander Consumer USA, Inc., No. 15-cv-0990-BAM, 2018 WL 573356 (E.D. Cal. Jan. 26, 2018)

  • Plaintiff April Lindblom sued Santander Consumer USA Inc. under the FDCPA and a parallel state consumer protection statute, challenging the legality of Western Union Speedpay fees retained by Santander.
  • Lindblom proposed a single statewide California putative class comprising individuals who paid Speedpay convenience fees in connection with any consumer loan held or serviced by Santander since October 2013.
  • Lindblom herself last used the Speedpay service in 2012, but claimed that the delayed discovery rule tolled the statute of limitations as to her.
  • Santander made two arguments in opposing class certification: (1) that Lindblom is not an adequate representative because she is not a member of the class she seeks to represent; and (2) even if Lindblom met the class membership requirement, her claims are not typical of the class because she is subject to a unique defense.
  • The court denied Lindblom’s class certification motion, finding that statute of limitations issues precluded Lindblom from serving as an adequate class representative and rendered her claims atypical of the putative class.
  • Defendant is represented by McGuireWoods.

Case Developments December 15, 2017 – January 22, 2018

In this edition of our Vehicle Finance Litigation report, we summarize a decision from the Butler County Court of Appeals of Ohio denying arbitration due to waiver.

Patrick v. Dixie Imports, Inc., NO. CA2017-05-063, 2107 WL 6450683 (Ohio Ct. App. Dec. 18, 2017).

  • The Court affirmed the denial of defendant’s motion to compel arbitration, finding that defendant’s delay of pursuing arbitration by four months and initiation of discovery by noticing Plaintiff’s deposition twice, was inconsistent with its right to arbitrate constituting a waiver of the arbitration provision.
  • The Court specifically noted that a four-month delay was not exceedingly long, but when combined with defendant’s actions of participating in litigation, was a waiver of its right to arbitrate.
  • In the same opinion, the Court overruled the trial court’s holding that the arbitration provision was ambiguous because the retail sales agreement included an area where a separate arbitration agreement could be included in addition to the arbitration language within the five-page contract.

Case Developments April 12, 2018 – May 1, 2018 

In this edition of our Credit Card Litigation update, we summarize a decision out of the Seventh Circuit where the court granted a credit card issuer’s motion to compel arbitration and a decision out of the Sixth Circuit where the Court granted a judgment creditor’s motion to dismiss plaintiff’s claims for violation of the Fair Debt Collection Practices Act.

Fuller v. Frontline Asset Strategies, LLC et al., Case No. 1:17-CV-007901, 2018 WL 1744674 (N.D. Ill. Apr. 11, 2018)

  • Plaintiff alleged, on behalf of herself and others similarly situated, that Defendants’ collection letter threatened legal action that could not be taken, in violation of several sections of the FDCPA.
  • Defendants filed a motion to stay Plaintiff’s individual claims, dismiss the class claims, and compel arbitration.
  • The District Court granted Defendants’ Motion, finding that the arbitration agreement was enforceable and that the provisions within the arbitration agreement survived assignment from Plaintiff’s original creditor to the Defendants.
  • The Court also found that Plaintiff’s FDCPA claims fell within the scope of the arbitration agreement, because “disputes relating to collection matters” were specifically enumerated within the arbitration agreement.

Ham v. Midland Funding, LLC, Case No. 5:17-cv-00145-TBR, 2018 WL 1626685 (W.D. Ky. Apr. 4, 2018)

  • Plaintiff alleged that a judgment creditor violated the FDCPA by including $20.00 for “probable court costs” in its “Affidavit for Order of Wage Garnishment.”
  • Plaintiff claimed that her judgment creditor did not request those costs in its Complaint and, therefore, had no right to collect the $20.00 amount, which included a $10.00 payment to the Clerk of Court and a $10.00 payment to Plaintiff’s employer.
  • The Court granted Defendant’s motion to dismiss, holding that Plaintiff’s attempt to attack the broad language of the Kentucky court’s judgment was barred by the Rooker-Feldman doctrine and that the Kentucky judgment’s award of “Costs for the Filing of Any Executions” included the post-judgment costs that Defendant incurred.

Case Developments February 9 – April 3, 2018

In this edition of our Credit Card Litigation update, we summarize a decision out of the Second Circuit and a decision out of the Tenth Circuit.

Anderson v. Credit One Bank, N.A., (In re Anderson), 884 F.3d 382 (2d Cir. 2018)

  • Chapter 7 debtor filed putative class action to recover for Credit One’s alleged violation of discharge injunction by continuing to report, as “charged off,” credit card debt that was discharged in bankruptcy.
  • Credit One moved to compel arbitration based on an arbitration clause in the credit card member agreement.
  • The Bankruptcy Court for the Southern District of New York denied Credit One’s motion and the District Court affirmed.
  • The Second Circuit held that debtor’s claim could not be arbitrated because the dispute concerned a core bankruptcy proceeding.
  • The Second Circuit reasoned that the discharge injunction at issue here is integral to the bankruptcy court’s ability to provide debtors with a fresh start.

Cavlovic v. J.C. Penney Corp., Inc., 884 F.3d 1051 (10th Cir. 2018)

  • Customer alleged that defendant’s advertisements were fraudulent and deceptive, and defendant, J.C. Penney Corp., Inc., moved to compel arbitration.
  • The District of Kansas denied, and the Tenth Circuit affirmed, denial of the motion to compel arbitration because although Customer’s credit card had a J.C. Penney logo, J.C. Penney was not a party to the credit card agreement that included the arbitration provision.
  • The Court also denied J.C. Penney’s attempt to arbitrate under the 2014 Rewards Program the Court held that Customer’s claims did not fall under the arbitration clause connected to that Program.

Case Developments February 10, 2018 – March 7, 2018

In this edition of our Credit Card Litigation update, we summarize decisions out of the District of Kansas involving the granting of summary judgment in a FCRA case, the District of Nevada involving the denial of class certification in a putative TCPA class action, and a case out of the Eastern District of California involving potential preemption of state law claims related to unauthorized credit pulls.

Lucretia Stewart v. Equifax Info. Servs., LLC., et al., United States District Court, District of Kansas, Case No. 16-2781-DDC-KGG, 2018 WL 1138286 (D. Kan. Mar. 2, 2018)

  • Plaintiff alleged that Credit One violated the Fair Credit Reporting Act by reporting her as an authorized user on her ex-husband’s account after she disputed the account.
  • Plaintiff, however, had not consented to being an authorized user and disputed the account with the credit reporting agency, noting that it was fraudulent or in error.  She further alleged that she directly disputed the notation with Credit One within the 30-day response period under FCRA, and Credit One still failed to correct the report.
  • The Court granted Credit One’s motion for summary judgment, first finding that a furnisher’s duty ends once it submits a report back to a CRA regarding a received dispute.
  • The Court also found that Credit One had sufficient procedures in place for FCRA investigations, where it used 350 of its own and vendor employees to review disputes and the time spent reviewing those disputes correlated with the intricacies of the disputes.
  • Finally, the Court found that Credit One’s investigation was reasonable because Plaintiff did not provide sufficient detail in the dispute to direct Credit One to the authorized user issue.

William Bridge v. Credit One Financial, United States District Court, District of Nevada, Case No. 2:14-cv-1512-LDG (NJK), 2018 WL 1074488 (D. Nev. Feb. 26, 2018)

  • Plaintiff alleged that Credit One violated the Telephone Consumer Protection Act when it called Plaintiff’s mobile phone via an automated dialer without prior consent.  However, Plaintiff admitted he used his cell phone to access his mother’s Credit One account without her permission and that is how Credit One obtained his number.
  • The Court denied Plaintiff’s motion for class certification under Fed. R. Civ. P. 23(a) and 23(b)(3), finding that Plaintiff’s claims were not typical of the potential class because his conduct, including his admitted unauthorized contact, raised a significant danger that the litigation would focus on issues and defenses unique to Plaintiff.
  • The Court also held that an individual inquiry concerning consent was required as to each account in order to identify class members, and agreed with Credit One that the difficulties in identifying class members under these circumstances made the class unmanageable.
  • Separately, the Court granted Credit One’s motion to dismiss Plaintiff’s Nevada Deceptive Trade Practices Act claim, finding the alleged TCPA violation—related to calls made to collect a debt—did not constitute doing business for purposes of the NDTPA.

Jayson Gottman v. Comcast Corp., United States District Court, Eastern District of California, Case No. 2:17-cv-2648, 2018 U.S. Dist. LEXIS 29756 (E.D. Cal. Feb. 23, 2018)

  • Plaintiff filed this action alleging that Comcast failed to take reasonable steps to verify consumer identities when setting up accounts for cable television and other services, in violation of the California Credit Reporting Agencies Act and the California Business and Professions Code.
  • Plaintiff alleged that Comcast pulled his credit report prior to a fraudulent account being set up in his name and should have noted inconsistencies in the report and made further inquiries before setting up the account.
  • Comcast moved to dismiss and argued that Plaintiff’s California state law claims were preempted by the Fair Credit Reporting Act.
  • The Court denied Comcast’s motion to dismiss, holding that Plaintiff’s state law claims were not preempted by the FCRA because the allegations against Comcast did not relate to the duties of furnishers, but rather, established additional duties under state law for entities that use consumer credit reports.
  • The Court noted that its ruling was consistent with the majority of courts to consider the issue.

Case Developments January 9- February 8, 2018

In this edition of our Credit Card Litigation update, we summarize decisions out of the Eastern District of California and the District of Nevada, the first involving denial of class certification and the second involving a motion for summary judgment on FCRA claims.

Lindblom v. Santander Consumer USA, Inc., No. 15-cv-0990-BAM, 2018 WL 573356 (E.D. Cal. Jan. 26, 2018)

  • Although this case involves auto finance litigation, we selected it given the application of class certification defenses that can be generally applied in response to FDCPA and state consumer protection statute claims.
  • Plaintiff April Lindblom brought suit against Santander Consumer USA under the FDCPA and a parallel state consumer protection statute, challenging the legality of Western Union Speedpay fees retained by Santander.
  • Lindblom proposed a single statewide California putative class based on individuals who paid Speedpay convenience fees in connection with any consumer loan held and/or serviced by Santander.
  • Santander made two arguments in response pursuant to Federal Rule of Civil Procedure 23: 1) that Lindblom is not a member of the defined class and consequently cannot represent the class in this action; and 2) even if Lindblom met the class membership requirement, she is an improper representative because she is subject to a unique defense that deprives her of typicality.
  • The court denied Lindblom’s class certification motion, opining that due to the applicability of the statute of limitations, Lindblom is neither an adequate class representative nor is her claim typical of the putative class.

Hannon v. Ne. Credit & Collections, 2:16-cv-01814-APG-VCF, 2018 WL 577216 (D. Nev. Jan. 26, 2018)

  • Plaintiff Michael Hannon alleged FCRA violations based on alleged inaccurate reporting, and failure by credit reporting agencies to reinvestigate that reporting, after his discharge in bankruptcy.
  • Defendant Experian moved for summary judgment, making several arguments, including: 1) that Hannon could not prove the information reported was inaccurate; and 2) that its reinvestigation was reasonable because it received verification from the creditor.
  • The court granted Experian’s motion, explaining that Hannon could not make a prima facie showing of inaccurate reporting because evidence was inadmissible via the hearsay rule.  The court found that Hannon’s attempt to link certain bank accounts listed in his bankruptcy filing via news articles was insufficient.
  • The court also determined that a reasonable investigation conducted by Experian could not have discovered the alleged inaccuracies.

Case Developments December 7, 2017 – January 8, 2018

In this edition of our Credit Card Litigation update, we summarize decisions out of the Eastern District of Pennsylvania and the Northern District of Alabama, the first involving FDCPA claims predicated on a prior dismissed debt collection action and the second involving a motion to dismiss FCRA claims.

Chenault v. Credit Corp Solutions, Inc., No. 16-5864, 2017 WL 5971727 (E.D. Pa. Dec. 1, 2017)

  • Plaintiff brought an action under the FDCPA alleging that Defendant harassed Plaintiff and attempted to collect a debt by unconscionable means predicated on a state court debt collection action Defendant filed against him.  The state court action was dismissed as Defendant had failed to produce substantiating documentation when it filed its complaint. Plaintiff contended that filing suit without sufficient proof of the debt violates the FDCPA.
  • The court granted Defendant’s motion for summary judgment on the FDCPA claims.
  • First, the court held that employing the court system is not an abusive or harassing means of collecting a debt.
  • Second, the court held that Defendant provided sufficient proof of the debt through two account statements along with a Bill of Sale and a sworn affidavit, the authenticity of which was not disputed.  The court concluded that Defendant’s failure to provide a signed credit card agreement or evidence of the items purchased on the account in the action did not constitute a violation of the FDCPA.
  • The court further noted that a debt collector has no duty to independently investigate a debt prior to initiating collection activities and may rely on information provided to the debt collector from the entity from whom the debt was purchased.

Williams v. Capital One Bank (USA), N.A. & Equifax Info. Servs., No. 5:17-CV-01216-CLS, 2018 WL 317712 (N.D. Ala. Jan. 8, 2018)

  • Plaintiff filed an action against Capital One alleging FCRA violations predicated on a Capital One state court default judgment against him from 2011.
  • Capital One moved to dismiss, arguing the claims were barred by the Rooker-Feldman doctrine and that Capital One was not a “furnisher of information” within the meaning of the FCRA.
  • As to the Rooker-Feldman issue, the Court observed that although Plaintiff stated his belief that the state court judgment against him was meritless, the current action against Capital One was not challenging the validity of the debt itself, but rather the reporting of the debt by Capital One.  As a result, the Court concluded that the FCRA claim was not inextricably intertwined with the state court judgment and the Rooker-Feldman doctrine did not bar the claim.
  • However, the court next determined that Capital One was not a “furnisher of information” within the meaning of the FCRA because it was not the party that had provided Equifax with the information about Capital One’s default judgment against Plaintiff.  Consequently, the court held Capital One could not be held responsible for failure to follow any of the investigatory and reporting procedures set forth in the FCRA.
  • Accordingly, the court granted Capital One’s motion to dismiss.

In a long-awaited constitutional decision regarding the Consumer Financial Protection Bureau (“CFPB”), the full D.C. Circuit Court of Appeals today in PHH v. CFPB reversed a prior ruling by a three-judge panel that the CFPB is unconstitutionally structured.  As we previously reported, that prior panel’s prior decision — stayed since its issuance in October 2016 — had held that Congress had unconstitutionally impeded the President’s Article II authority to “faithfully execute[]” the laws by creating an independent agency headed by only a single Director (as opposed to a multi-member commission structure).  The prior panel’s remedy had been to strike language from the Dodd-Frank Act that makes the Director removable only “for cause,” a change that would have made the Director removable at the pleasure of the President and turned the CFPB from an independent agency into an executive agency, with other regulatory ramifications.

Today’s ruling holds that the removable-only-for-cause provision, even as applied to a single Director, is compatible with the Constitution.  Thus, there will be — for now — no changes to the CFPB’s structure.  While a different outcome would have had many impacts across time, the status quo should remain intact unless the U.S. Supreme Court disturbs the ruling.  Currently, the CFPB is led only by a temporary, “Acting Director,” OMB Director Mick Mulvaney, and the President has not yet submitted to the Senate a nominee to fill that position for a full, five-year term.  But once there is a new, Senate-confirmed Director, that person would be removable only “for cause” (technically, for “inefficiency, neglect of duty, or malfeasance in office”), with a term that will last for at least two years into the next four-year presidential term.  Separately, today’s ruling also reinstated the prior panel court’s decisions — all adverse to the CFPB — on important issues relating to the Real Estate Settlement Procedures Act (“RESPA”).

On the constitutional question, today’s court saw no legally important distinction between the Supreme Court-approved multi-member independent commission structures — such as those that lead the FTC and the SEC — and the independent single-Director structure of the CFPB.  The prior panel and PHH had relied heavily on that distinction, with PHH arguing that “multi-member commissions contain their own internal checks to avoid arbitrary decisionmaking.”  The prior panel also noted that whereas staggered, multi-member commissions allow a President in a four-year term to exert some influence by nominating at least some commissioners, a President during a four-year period would on some occasions have such no influence over the CFPB’s Director, who serves a five-year term.

Today’s court found the distinction between a single Director and a multi-member commission “untenable,” with “no footing in precedent, historical practice, constitutional principle, or the logic of presidential removal power.”  The “removal-power doctrine,” it said, does not rely on “the competing virtues of various internal agency design choices.”  Today’s court also noted that the Supreme Court approved for-cause protection for a single individual in its decision upholding the independent counsel statute.

PHH retains a separate challenge:  that the appointment of the ALJ who initially considered its case violated the Constitution’s Appointments Clause.  Today’s court did not reach that issue because it recently upheld a closely analogous ALJ-appointment structure at the SEC in Lucas v. SEC.  Even more recently, however, the Supreme Court agreed to review that decision regarding SEC ALJs, so PHH possibly could still get a day in court on that issue.

A.                RESPA

Today’s court also reinstated the earlier panel’s important decisions regarding RESPA’s prohibition on paying fees / kickbacks for referrals of real estate settlement business.  Those RESPA decisions had been stayed, until today, as part of the broader stay on the prior panel’s October 2016 opinion.  The reinstated RESPA decisions are that:

  1. Courts and the CFPB must give effect to an important RESPA exception, which allows settlement service providers who receive referrals to pay the referrer, nonetheless, for other “goods or facilities actually furnished or for services actually performed” (but not, of course, for the referral). The novel interpretation advocated by the CFPB in this case would virtually have read this exception out of the books, exposing settlement service providers to increased RESPA risk.  The panel court, in the now-reinstated portion of its opinion, held that the exception must apply so long as the payment is for no more than the reasonable market value of the goods or services actually provided.
  2. Even if the Director’s novel interpretation of that RESPA exception in this case had been permissible, the Director violated the Due Process Clause by imposing it on PHH retroactively.
  3. A three-year statute of limitations applies to both administrative proceedings and civil actions (lawsuits in court) enforcing RESPA. Before the panel, the CFPB had taken the position that no statute of limitations applied to its administrative proceedings enforcing RESPA — or, by extension, to administrative proceedings enforcing any of the 18 other consumer protection laws it has authority to enforce.  The reinstated portion of the panel’s decision, moreover, held that the CFPB — in administrative proceedings and in court — must abide by applicable statutes of limitations found in those 19 consumer protection laws.

B.                 Next Steps

PHH may well seek review of this ruling by the U.S. Supreme Court.  Although the likelihood of that Court accepting the case cannot be predicted, the Court has previously showed an interest in cases like this one that present issues at the intersection of constitutional and administrative law; the Court’s very recent decision to review the related Lucas v. SEC decision on the appointment of ALJ’s is an example of that interest.  Regarding the reinstated RESPA rulings, it is extremely unlikely that the CFPB, now under Republican control, will appeal.

At the CFPB now, as noted, only an Acting Director is in charge.  But any new, Senate-confirmed Director would be entitled to serve a five-year term with for-cause removal protection, unless the Supreme Court disturbs today’s ruling.  Thus, that new Director, if he or she chooses, could serve at least two years into the next four-year Presidential term.

On December 21, 2017, the Consumer Financial Protection Bureau (CFPB) issued a public statement regarding implementation of the Home Mortgage Disclosure Act (HMDA), noting that it plans to reconsider aspects of the mortgage data rule.

The HMDA, enacted in 1975, requires many lenders to report information concerning applications they receive for particular mortgage loans and other loans they purchase. The Dodd-Frank Act directed the CFPB to expand the collection of this data, prompting the Bureau to issue a rule in 2015 that required financial institutions to collect and report additional mortgage information beginning in 2018. The CFPB then issued a final rule in August of 2017 regarding this collection of information.

Despite this relatively recent final rulemaking, the CFPB has announced that it “intends to engage in a rulemaking to reconsider various aspects of the 2015 HMDA Rule such as the institutional and transactional coverage tests and the rule’s discretionary data points.” According to the CFPB, this rulemaking will likely re-examine, among other things, lending-activity criteria that determines whether data and transactions must be reported.

At this point, it is unclear how the regulations will change, but it appears likely that the modifications will reduce the amount of information about borrowers that banks and other lenders are required to submit to regulators. Further, the number and types of institutions required to report certain information could be reduced. For now, lenders will have to comply with the rule coming into effect, though the CFPB has said that it “does not intend to require data resubmission unless data errors are material.” Moreover, the Bureau doesn’t intend to assess penalties with respect to data collected in 2018 and reported in 2019, and will only use examinations of 2018 data as diagnostic, to aid in identifying compliance weaknesses.

This announcement may signal a new approach by the CFPB, which traditionally has taken an expansive view toward regulation of financial institutions, particularly as this news comes less than a month after Mick Mulvaney, the Director of the Office of Management and Budget, took the reins at the CFPB. This new rulemaking should be closely tracked so financial institutions may appropriately adjust their compliance programs to this shifting landscape.

This post originally appeared in our sister publication, Password Protected.

On October 18, 2017, the Consumer Financial Protection Bureau (CFPB) issued a set of Consumer Protection Principles regarding the sharing and aggregation of consumers’ financial data. The timing of the announcement in light of last month’s disclosure of the Equifax breach of approximately 140 million consumers’ financial data seems noteworthy, as all companies whose businesses rely on the consumer-authorized financial data market are scrambling to regain consumer trust.

Noting the “growing market” for consumer-authorized financial data aggregation services, the CFPB has promulgated nine principles which, in the words of CFPB Director Richard Cordray “express [the Bureau’s] vision for realizing an innovative market that gives consumers protection and value.” (See CFPB press release).

Many of the principles themselves will be familiar to anyone who has paid attention to consumer privacy discourse over the last 30+ years. They are in many ways a restatement of the OECD Guidelines, published in 1980 by the Organisation for Economic Co-operation and Development, but with a few useful additions. The “new” CFPB principles include time-tested privacy principles of:

  1. informed consent & control over data sharing
  2. notice and transparency regarding the third parties’ access to and use of consumer data
  3. data quality & accuracy and the right of consumers to dispute inaccuracies
  4. an expectation of security and safeguards to protect consumer data
  5. a right of access by consumers to their own data; and
  6. accountability to the consumer for complying with the foregoing principles.

In addition, however, the CFPB principles contain some fairly specific guidance that is particularly useful in the context of financial data and may have a significant impact on the way financial data is gathered, marketed and retained. For example, the CFPB Principles contain a specific principle (#4) regarding payment authorization:

  • Authorizing Payments. Authorized data access, in and of itself, is not payment authorization. Product or service providers that access information and initiate payments obtain separate and distinct consumer authorizations for these separate activities. Providers that access information and initiate payments may reasonably require consumers to supply both forms of authorization to obtain services.

The above principle is one of several that illustrate the CFPB’s disapproval of broad, open-ended consents from consumers, favoring instead tailored, purpose-specific access. Principle #2 (Data Scope and Usability) is another example of this theme. It reads in part, “Third parties with authorized access only access the data necessary to provide the product(s) or service(s) selected by the consumer and only maintain such data as long as necessary.”

It remains to be seen how these principles might be applied to data collectors like credit bureaus, who typically hold consumer data for as long as a consumer’s lifetime in many cases. The CFPB’s press release emphasized that the principles are not intended to supercede or interpret any existing consumer protection statutes or regulations and that they are not binding. Still, they do provide a window into the CFPB’s mindset and the likely trend for future regulation.

On Monday, July 10, 2017, the Consumer Financial Protection Bureau (CFPB) issued a game-changing final rule regarding the use of arbitration clauses in consumer contracts.  The Rule is effective 60 days following its publication in the Federal Register and applies only to contracts entered into more than 180 days after that date.  The final rule comes as no surprise—as we reported here, here, and here, the Bureau has forecast for more than a year its intentions to engage in this rulemaking.

Most significantly, the Rule accomplishes the following:

  • Bans the use of arbitration clauses to bar class actions. The Rule bans covered providers of certain consumer financial products and services from using arbitration clauses to bar consumers from filing or participating in class action lawsuits.
  • Requires covered providers to provide the CFPB with records related to their arbitration proceedings. Covered providers that engage in arbitration must provide the CFPB with records relating to initial claims and counterclaims, answers thereto, and awards issued. The CFPB will also collect correspondence covered providers receive from arbitrators regarding (1) determination that an arbitration agreement does not comply with the arbitrator’s “due process or fairness standards”; and (2) dismissal of an action due to a covered provider’s failure to pay required fees.

The CFPB intends to begin publishing this information starting in July 2019 and stated that it will publish additional details of how covered providers should comply. The Bureau stated that gathering and publishing these records will make “the individual arbitration process more transparent” and “enable the CFPB to better understand and monitor arbitration, including whether the process itself is fair.”

Notably, the Rule does not ban the use of clauses to require arbitration of individual actions, but covered providers must include in their agreements specific language to inform consumers that the agreement may not be used to block class action litigation.

The CFPB’s latest regulatory move takes aim at banks and credit card and other covered companies and sets the stage for legal challenges and political battles with Congress and the Trump Administration.

The primary legal question surrounding the Rule’s validity is whether it comports with the Federal Arbitration Act (FAA) and recent Supreme Court rulings that arguably implicitly approve of pre-dispute class-action waivers. For example, in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 347-48 (2011), the Supreme Court held that the FAA preempted California state law, which deemed such class-action waivers unconscionable in consumer cases.  Then, in American Express Company v. Italian Colors Restaurant, 133 S. Ct. 2304, 2309 (2013), the Court rejected the argument that class action litigation is necessary to preserve the opportunity to assert low-value, statutory claims.

In a possible preview of argument in support of the Rule, the CFPB, in its Executive Summary of the Rule, cited its authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to issue regulations that are in the public interest, for the protection of consumers, and based on findings consistent with the Bureau’s study of arbitration.  The CFPB also mentioned Congress’s prohibition of arbitration agreements in the residential mortgage market and the Military Lending Act’s prohibition of such agreements in certain forms of credit extended to servicemembers and their families.  Yet these examples are acts of Congress.

Critics of the Rule point out that the Rule may contradict the CFPB’s research into arbitration.  Dodd-Frank required the CFPB to study the use of mandatory arbitration clauses in consumer financial markets.  The CFPB’s study, released in March 2015 and reported on here, arguably indicates that arbitration is often faster, less expensive, and a more effective way for consumers to resolve disputes with companies compared to class action litigation.  Of the 562 class actions the CFPB studied, the average cash settlement per consumer was $32.35, and the litigation generally took two or more years.  By comparison, the average amount received by a consumer in arbitration was $5,389, and the timeframe for the proceedings averaged two to seven months.

In addition to legal challenges, the Rule may face opposition in Congress. In a July 7 letter, Congressman Jeb Hensarling (R-Tex.), chair of the House Financial Services Committee and longtime CFPB critic, threatened CFPB Director Richard Cordray with possible contempt if the CFPB issued the Rule before supplying the Committee with certain information about the agency’s deliberations and conversations with consumer groups.  Moreover, Congress has the power to overturn the Rule within 60 days of finalization under the Congressional Review Act.

President Trump has already taken some action to begin to dismantle parts of Dodd-Frank through Executive Order and Presidential Memoranda signed on April 21.  And questions remain about whether President Trump may remove Cordray as the constitutionality of the CFPB’s leadership structure awaits decision in the U.S. Court of Appeals for the District of Columbia.  As we reported, the D.C. Circuit granted the CFPB’s petition for rehearing en banc in PHH Corporation v. Consumer Financial Protection Bureau.  The court held oral argument on May 24 and has yet to issue an opinion.

Even if President Trump is able to replace Cordray, questions remain about whether his successor could unilaterally stay the compliance date of the Rule. In another recent D.C. Circuit case, Clean Air Council v. Pruitt, the court held that the Environmental Protection Agency (EPA) lacked authority to stay the compliance date of an EPA rule concerning greenhouse gas emissions and vacated the stay.  Thus, any new CFPB head may be able to issue a notice of proposed rulemaking to reconsider the Rule, but may not be able to unilaterally stay the Rule’s compliance date.

We will continue to monitor developments surrounding the Rule as it progresses towards implementation.

The Department of the Treasury recently cited the CFPB’s “unaccountable structure and unduly broad regulatory powers,” in suggesting reforms to address the CFPB’s “regulatory abuses and excesses.” The Department’s recommendations were made as a part of its report, A Financial System that Creates Economic Opportunities: Bank and Credit Unions, issued in response to President Trump’s Executive Order 13772 on Core Principles for Regulating the United States Financial System. The report covers a number of topics, but includes a significant section addressing the perceived concerns with and proposed changes to the CFPB’s structure and practices.

In the report, the Department pointed to a number of core issues with the CFPB it believes necessitate sweeping reforms, including a lack of accountability, the CFPB’s failure to provide adequate notice to regulated parties, the CFPB’s heavy reliance on enforcement actions, the limited availability of no-action letters providing guidance; the use of administrative actions to circumvent federal court procedures and applicable statute of limitations; the CFPB’s failure to adequately review outdated and unnecessary regulation requirements; and the CFPB’s failure to verify consumer complaints before including the information in its public database.

In light of this strong criticism, the Department has suggested a number of changes, intended to curb the abuses it noted in its review:

  • Improved Accountability: The Department proposes making the CFPB Director removable at will by the President or restructuring the CFPB, so it is led by an independent multi-member commission or board to increase accountability. Similarly, the Department recommends substantially altering funding such that the CFPB is funded through the annual appropriations process and is not permitted to retain funds from the Consumer Financial Penalty Fund.
  • Improved Transparency on Agency Positions: Many of the Department’s concerns center around a failure of the CFPB to clearly delineate its positions on banking practices before proceeding with enforcement actions. To rectify this failure, the Department recommends issuing clear rules subject to public comment before bringing enforcement actions, clarifying the CFPB’s position on what actions it considers unfair and deceptive, and increasing the availability of no-action letters.
  • Ending Abuses in Enforcement Actions: The Department notes significant misuses of administrative actions in its review and proposes limiting or altogether cutting out the use of administrative proceedings in favor of more formal federal court proceedings to address this concern.
  • Reviewing Regulations: The Department suggests a regular (at least every ten year), review of CFPB regulations for any that are outdated, unduly burdensome, or unnecessary.
  • Locking Down the Consumer Database: Given the concerns with reputational risk associated with the CFPB’s failure to verify consumer complaints before adding them to the public database, the Department recommends limiting database access to federal and state agencies only, much like the FTC’s analogous database.

This Report is the first in a series of four in response to the Executive Order, so more recommendations are likely forthcoming.


On Thursday, June 22, 2017, the Consumer Financial Protection Bureau (CFPB) provided updated guidance for supervisory examinations of student loan servicers.  Richard Cordray, the Director of the CFPB, gave prepared remarks in Washington D.C.  He explained his concerns related to the Public Service Loan Forgiveness program and how certain practices may be delaying or denying borrowers’ access to this debt relief.

The Public Service Loan Forgiveness program allows those who accept certain public service jobs to have their debt forgiven after ten years.  Director Cordray discussed a new CFPB report that highlights complaints concerning practices of student loan servicers that may hamper the program’s intentions.  The report focused on analyzing a year of complaints from borrowers, which reflected a delay or denial of promised debt relief.  Primarily, the complaints included incorrect, untimely, or inadequate information from servicers about borrowers’ eligibility for loan forgiveness.  Other complaints from borrowers included slow payment processing and receiving inaccurate denial letters that can lead to qualified payments being miscounted or not properly credited.

The CFPB’s updated exam procedures attempt to guide “how examiners assess risks to consumers and review servicers’ compliance with the law when they administer this program,” seeking to guarantee stronger oversight of servicers’ administration of the program.  Further, the examiners will “scrutinize whether servicers are telling consumers what they need to do to qualify for loan forgiveness” and check “whether servicers accurately calculate the number of qualifying payments to make sure that borrowers get their full benefits.”  Cordray emphasized that “borrowers working in public service should not miss out on key consumer benefits because their student loan servicer failed to comply with the law.”  The updated guidelines counsel agency examiners to ensure that loan servicers are informing borrowers about their requirements and obligations for loan forgiveness.  Additionally, examiners ought to confirm that loan servicers accurately track the progress of borrowers and warn those that may be mistaken as to their pathway to loan forgiveness.

Alongside these updated exam procedures, the CFPB is conducting a campaign to make sure borrowers seeking to take advantage of the Public Service Loan Forgiveness program are fully aware of the tools available to ensure they can navigate the process and reap the benefits.  This campaign has a specific emphasis on awareness for first responders and teachers.

It will be important to continue watching the CFPB’s action and administration concerning this program, to gauge the effectiveness of these new guidelines and how it may impact the inner working of loan servicers.  Finally, how well the Public Service Loan Forgiveness program is perceived to be functioning could affect the survival of the program itself, given that the 2018 White House budget has suggested the elimination of the program altogether.