Since our last blog post about the Office of Inspector General’s work plan for the CFPB, the work plan has been updated as of July 1, 2017 to add one new planned project.

The newly-added project is an “Evaluation of the Office of Consumer Response’s Efforts to Share Complaint Data Within the CFPB.”  The plan states that the Office of Consumer Response is responsible for sharing complaint data with internal stakeholders to help the CFPB’s supervisory, enforcement and rulemaking activities.  It adds that “the successful use of complaint data can help the CFPB understand the problems consumers are experiencing in the financial marketplace and identify and stop unfair practices before they become major issues.”

The OIG evaluation will examine the extent to which Consumer Response is achieving its objective to share useful complaint data and analysis with internal stakeholders, and Consumer Responses controls over access and distribution of shared complaint data.



A report prepared by the Democratic staff of the House Financial Services Committee takes aim at Republicans for “attempt[ing] to ensure that the country reverts back to a big bank-oriented regulatory environment and to ‘functionally terminate’ the [CFPB].”

After recounting the 2008 financial crisis that led to the CFPB’s creation and lauding various regulatory, supervisory, and enforcement actions taken by “the highly successful Consumer Bureau,” the report describes Republican efforts to “undermine” the CFPB, including through the Financial CHOICE Act (which the report refers to as the “Wrong Choice Act”) and appropriations bills.

The report uses the CFPB’s issuance of the final arbitration rule and “the significant pushback received from Republicans in Congress and Acting OCC Comptroller Keith A. Noreika” as a “case study” that illustrates “the importance of having an independent Federal agency, dedicated to ensuring that consumer financial markets are fair, transparent, and competitive.”  The report describes Republican plans to use the Congressional Review Act to override the rule (which are moving forward with the House’s passage yesterday of H.J. Res. 111) and the letters exchanged between CFPB Director Cordray and Acting Comptroller Noreika about OCC concerns regarding the rule’s impact on the safety and soundness of the U.S. banking system.

The report labels those concerns “disingenuous” and characterizes the Acting Comptroller’s July 10 letter to Director Cordray as “a misguided ‘Hail Mary” tactic to [attempt to use the Financial Stability Oversight Council] to overturn the final rule.”  The report (perhaps signaling what will be a Democratic “talking point” to build public support for the rule) also claims that because Acting Comptroller Noreika defended the use of arbitration agreements when he was in private practice, his “persistence…in attempting to block the Consumer Bureau is not shocking.”  According to the report, he “is now trying to nationalize his prior tactics and prevent all consumers from having their day in court.”

The report urges Congress to “support and encourage the swift implementation” of the CFPB’s arbitration rule and “strive to ensure that, a decade from now, consumers will still have an equally strong and successful watchdog in the Consumer Bureau to stop abusive and predatory practices as they do today.”



A group of 11 trade associations have sent a letter to members of Congress expressing their “strong disapproval” of the CFPB’s final arbitration rule and urging Congress to pass the resolutions introduced in the House and Senate that provide for Congressional disapproval of the rule under the Congressional Review Act.  (The House resolution, H.J. Res. 111, was passed yesterday by the full House.)  The trade associations include the American Bankers Association, American Financial Services Association, Consumer Bankers Association, Financial Services Roundtable, and U.S. Chamber of Commerce.

In the letter, the associations discuss the following reasons for their disapproval of the arbitration rule:

  • The CFPB’s arbitration study is incomplete and the data that was accumulated, and conclusions based on that data, does not support the rule
  • The rule is contrary to the public interest and fails to enhance consumer protection
  • The rule enriches trial attorneys at the expense of consumers


Yesterday afternoon, the House of Representatives, by a 231-190 partisan vote, passed H.J. Res. 111 which provides for Congressional disapproval under the Congressional Review Act (CRA) of the CFPB’s final arbitration rule.  The rule was published on July 19, 2017 in the Federal Register.

Under the CRA, to override the arbitration rule, both the House and Senate must pass a resolution of disapproval within 60 legislative days by a simple majority vote.  While a disapproval resolution has already been introduced in the Senate, a vote is not expected to take place until September.  Several Republican Senators are reported to be undecided on how they will vote.  Assuming all Democratic Senators oppose the resolution as expected, Republicans can only lose two votes and still pass the resolution.

The White House also issued a “Statement of Administration Policy” setting forth its support for H.J. Res. 111.   The Statement describes the resolution as consistent with Executive Order 13772, Core Principles for Regulating the United States Financial System, because it “would protect consumer choices by eliminating a costly and burdensome regulation and reining in the bureaucracy and inadvisable regulatory actions of the CFPB.”  The Statement indicates that “[i]f H.J. Res. 111 were presented to the President in its current form, his advisors would recommend that he sign it into law.”


Yesterday at 5:00 p.m., the House Rules Committee, by a 9-4 partisan vote, reported a rule on H.J. Res. 111 with a recommendation that the resolution be adopted.  H.J. Res. 111 provides for Congressional disapproval under the Congressional Review Act (“CRA”) of the CFPB’s Arbitration Rule which was published on July 19, 2017 in the Federal Register.  The full House is scheduled to vote on H.J. Res. 111 today.  It is widely expected that the House will easily pass the resolution.

Under the CRA, in order to override the CFPB’s Arbitration Rule, within 60 legislative days both the House and the Senate must pass a resolution by a simple majority vote overriding the Arbitration Rule and President Trump must sign the resolution.  Since the Republicans have a slim 52-48 margin in the Senate with Vice President Pence getting a tie-breaker vote, they can only lose 2 votes and still pass the resolution, assuming as expected, that all Democratic Senators will oppose the resolution.  Reportedly, there are a few Republican Senators who are undecided on how they will vote.  While a resolution has already been introduced in the Senate, it is not expected that a vote will take place until September.

On July 21, 2017, an investment adviser sought review by the Supreme Court of the D.C. Circuit’s recent ruling in Lucia that allowed to stand a district court decision holding that SEC administrative law judges (“ALJs”) are not officers subject to the appointments clause of the U.S. Constitution. We’ve blogged about Lucia extensively because the issue in that case has the potential to impact the outcome of the PHH case.

The initial PHH decision was decided by an SEC ALJ who was on loan to the CFPB. If the Supreme Court decides to hear Lucia and decides that SEC ALJs are subject to the appointments clause, then the initial ALJ decision in PHH may be invalidated. If that happens, the D.C. Circuit could remand PHH back to the CFPB for decision by a properly-appointed ALJ. That would provide the D.C. Circuit with another basis to decide the PHH case without addressing the constitutionality of the CFPB’s structure. Given how the PHH oral arguments went, that seems unlikely, but we will continue to follow Lucia just in case.

Effective July 18, 2017, the FDIC has adopted amendments to its Guidelines for Appeals of Material Supervisory Determinations.  The FDIC proposed the amendments last August and received only two comment letters, one from a trade association and the other from a financial holding company.

The amendments are intended to provide institutions with broader avenues of redress with respect to material supervisory determinations and enhance consistency with the appeals process of other federal banking agencies.  The term “material supervisory determinations” is defined by the Reigle Act to include determinations relating to (1) examination ratings; (2) the adequacy of loan loss reserve provisions; and (3) classifications of loans that are significant to an institution.  The Guidelines list the types of determinations that constitute “material supervisory determinations.”   Under the Guidelines, an institution may not file an appeal to the Supervision Appeals Review Committee (SARC) unless it has first filed a timely request for review of a material supervisory determination with the Division Director.

The amendments expand the definition of “material supervisory determination” by allowing determinations regarding an institution’s level of compliance with a formal enforcement action to be appealed as a material supervisory determination.  However, if the FDIC determines that lack of compliance with an existing enforcement action requires further enforcement action, the proposed new enforcement action would not be appealable.  Matters requiring board attention are also added to the list of appealable material supervisory determinations.

The amendments remove decisions to initiate informal enforcement action (such as a Memorandum of Understanding) from the list of determinations that are not appealable and add such decisions to the list of appealable material supervisory determinations.

Other amendments include the following:

  • A clarification that a formal enforcement-related action would commence and become unappealable when the FDIC initiates a formal investigation under 12 U.S.C section 1820(c) or provides written notice to the institution of a recommended or proposed formal enforcement action under applicable statutes or published enforcement-related FDIC policies, including written notice of a referral to the Attorney General pursuant to the ECOA or a notice to HUD for ECOA or FHA violations.
  • An amendment providing that when an institution has filed an appeal of a material supervisory determination through the SARC process, the appeal will not be affected if the FDIC subsequently initiates a formal enforcement-related action or decision based on the same facts and circumstances as the appeal.
  • An amendment providing for the publication of annual reports on Division Directors’ decisions with respect to requests by institutions for review of material supervisory determinations.
  • An amendment providing that the current standard for review for SARC appeals also applies to Division-level reviews.



Based on a Law360 article reporting on an interview with Thomas Pahl, the Acting Director of the FTC Bureau of Consumer Protection, it appears that under its new leadership, the FTC will take a less aggressive approach to enforcement than the agency had taken under the Obama Administration.  Mr. Pahl was appointed Acting Director by Maureen Ohlhausen, who President Trump named Acting Chairman of the FTC.

While Mr. Pahl stated that privacy enforcement will continue to be an FTC priority, he indicated that the FTC will not follow the Obama Administration’s approach of labeling certain privacy and data security practices unfair or deceptive in the absence of clear consumer harm.  According to Mr. Pahl, the FTC’s enforcement activity will target practices where there is concrete, tangible evidence of consumer injury.

With regard to national advertising, Mr. Pahl indicated that the FTC’s enforcement activity will focus on fraud and quasi-fraud and will prioritize matters involving advertising and marketing directed at certain populations such as the military, the elderly, and consumers living in rural areas.  He also indicated that in deciding whether to recommend an enforcement action, FTC staff will look at consumer injury and the costs and benefits of a practice.

With regard to financial practices, Mr. Pahl indicated that the FTC’s enforcement activity will target matters involving fraud or quasi-fraud in areas such as debt collection and payday lending, with priority given to matters that are outside of the CFPB’s jurisdiction.  Such matters include claims against auto dealers, claims under the Credit Repair Organizations Act, and claims against companies belonging to industries for which the CFPB has created a “larger participant” rule, such as debt collectors, but that do not qualify as a “larger participant.”  Under the Dodd-Frank Act, the CFPB has authority to supervise, regardless of size, providers of residential mortgage loans and certain related services, payday loans, and private education loans.  Dodd-Frank also gave the CFPB supervisory authority over providers considered to be “a larger participant of a market for other consumer financial products or services.”

Once CFPB Director Cordray departs and is replaced by a successor appointed by President Trump, we would hope and expect that he or she will narrow the CFPB’s enforcement priorities in a manner similar to what Mr. Pahl has described for the FTC.


Pennsylvania’s Attorney General, Josh Shapiro, announced last Friday that his office is creating a Consumer Financial Protection Unit “to better protect Pennsylvania consumers from financial scams.”

The announcement indicated that the new Unit “will focus on lenders that prey on seniors, families with students, and military service members, including for-profit colleges and mortgage and student loan servicers.”  The new Unit will be led by Nicholas Smyth, a former CFPB enforcement attorney, who was named Assistant Director of the Office of Attorney General’s Bureau of Consumer Protection.



Today is the sixth anniversary of the CFPB. I would be remiss if I didn’t recognize the sixth anniversary of our blog which was launched on the same day that the CFPB became operational.  I also want to acknowledge the members in our Consumer Financial Services Group who have contributed to our blog, particularly Barbara Mishkin who manages our blog.