The CFPB is facing criticism for not yet having issued the 2018 annual report of its Student Loan Ombudsman.  The 2017 annual report was issued in October 2017 and, like previous reports, included student loan complaint data and a discussion of such data.

The Dodd-Frank Act requires the Ombudsman to prepare an annual report “that describes the activities, and evaluates the effectiveness of the Ombudsman during the preceding year.”  Those criticizing the CFPB for not yet issuing a 2018 report emphasize the non-release of complaint data.  It should be noted however that while Dodd-Frank requires the Ombudsman to “compile and analyze data on borrower complaints regarding private education loans,” it does not impose a similar requirement for federal student loans nor does it require the Ombudsman to include complaint data in the annual report.

It is possible that the CFPB has not yet released the 2018 report because the position of Student Loan Ombudsman has remained unfilled since the August 2018 resignation of Seth Frotman, the former Ombudsman.  Mr. Frotman is now the Executive Director of the Student Borrower Protection Center.  Earlier this week, the Center issued a report containing an analysis of student loan complaints submitted to the CFPB on or after September 1, 2017.



The OCC’s decision to issue special purpose national bank (or fintech) charters has sparked renewed litigation.  In this episode, we review the charter’s potential benefits and drawbacks, provide a litigation update and examine its possible impact on charter applicants, and flag issues for potential applicants.  We also look at fintech charter alternatives, including full-service and Utah industrial banks.

To listen and subscribe to the podcast, click here.



Despite agreeing on the merits with State National Bank of Big Spring (SNB) and the other petitioners for certiorari that the CFPB’s structure is unconstitutional, the Department of Justice has filed a brief in which it argues that the U.S. Supreme Court should deny the petition.  (The other petitioners are two D.C. area non-profit organizations that in 2012, together with SNB, brought one of the first lawsuits challenging the CFPB’s constitutionality.)

The D.C. District Court initially dismissed the petitioners’ complaint for lack of standing but on appeal, in an opinion authored by Judge (now Justice) Kavanaugh, the D.C. Circuit held that the plaintiffs did have standing and remanded the case to the district court.  Further proceedings in the case were held in abeyance by the district court pending the outcome of the PHH case in the D.C. Circuit.

Following the D.C. Circuit’s en banc PHH decision that held the CFPB’s structure is constitutional, the district court lifted its abeyance order and, with the parties having agreed that PHH foreclosed the district court from ruling in favor of the plaintiffs on their constitutional challenge, entered judgment against the plaintiffs.  On June 8, 2018, the D.C Circuit entered an order summarily affirming the district court’s judgment.  Citing its en banc PHH decision, the D.C. Circuit order stated that “the merits of the parties’ positions are so clear as to warrant summary action.”

In its brief, the DOJ calls the principal question presented by the case—whether the Bureau’s single-director-removable-only-for-cause structure violates the separation of powers—is an “important one that warrants [the Supreme] Court’s review in an appropriate case” and that “absent legislative action eliminating the restrictions on removal…will ultimately need to be settled by [the Supreme] Court.”  Nevertheless, the DOJ asserts that the SNB case “would be a poor vehicle to consider the question for multiple reasons.”

Such reasons consist of the following:

  • If the Supreme Court were to grant the petition, it is unlikely the case would be considered by the full Court because of Justice Kavanaugh’s previous participation in the case while a D.C. Circuit judge, and his authoring of the D.C. Circuit’s standing decision.  The DOJ asserts that “[p]articularly for a question of this magnitude, the Court may wish to wait for a vehicle in which all nine Justices are likely to participate.”  (It is not surprising that the DOJ would want Justice Kavanaugh to participate given that he authored the D.C. Circuit panel decision in PHH that held the CFPB’s structure is unconstitutional and a dissent in the D.C. Circuit’s en banc PHH decision that reversed the panel’s decision and held the structure is constitutional.)
  • Before it could reach the merits of the constitutionality issue, the Supreme Court would have to resolve in the petitioners’ favor the jurisdictional issue of whether the petitioners have standing.  According to the DOJ, “petitioners’ standing is sufficiently questionable to present a significant vehicle problem.”
  • There are other cases pending in the courts of appeal that raise a similar constitutional challenge and “one or more of those cases may not present the same obstacles that could impede the full Court from considering the merits of this important issue.”  The pending cases cited by the DOJ are the All American Check Cashing case pending in the Fifth Circuit, the RD Legal Funding case pending in the Second Circuit, and the Seila Law case pending in the Ninth Circuit.  (Seila Law involves an appeal from the district court’s refusal to set aside a Bureau civil investigative demand.  Oral argument in the Ninth Circuit is scheduled for January 8, 2019.)

On the merits, the DOJ argues that the Bureau’s structure is unconstitutional and the proper remedy is to sever the Dodd-Frank Act’s for-cause removal provision.  The DOJ notes, however, that its position “is that of that of United States, not the position of the Bureau to date.”  Citing the Dodd-Frank provision that gives the Bureau independent litigation authority in the lower courts, the DOJ observes that while the Bureau continued to defend the constitutionality of its structure in the lower courts under Acting Director Mulvaney, a new Director, Kathy Kraninger, will assume (and now has assumed) leadership of the Bureau.

The DOJ then notes that if the Supreme Court were to grant the petition for certiorari, it would be the Court’s “usual practice to appoint an amicus curiae to defend the judgment of the court of appeals” when no party is doing so.  The DOJ then cites the Dodd-Frank provision that requires the Bureau to seek the Attorney General’s consent before it can represent itself in the Supreme Court and asks the Court, before appointing an amicus curiae, to give the Bureau’s new Director “a reasonable opportunity…to determine whether the Bureau will seek to defend the court of appeals’ judgment in this Court and for the Acting Solicitor General to determine whether he will authorize the Bureau to do so.”  (The DOJ indicates in a footnote that the Solicitor General (Noel Francisco) is recused in the case.  Presumably, the reason for the recusal is that Mr. Francisco’s former law firm is representing one of the amici that has filed a brief with the Supreme Court in support of SNB.)

We note that although the Bureau did continue to defend its constitutionality under Acting Director Mulvaney, it did so as a fallback to its primary argument that because Acting Director Mulvaney is removable at will by the President and had ratified the CFPB’s decision to bring the lawsuit in question, any constitutional defect that may have existed with the CFPB’s initiation of the lawsuit was cured.  The continued viability of that argument is questionable given that Ms. Kraninger, who is now Director, can only be removed by the President for cause.  In its Fifth Circuit appeal, All American Check Cashing recently filed a letter in which it noted the Senate’s confirmation of Ms. Kraninger and stated that “[t]his refutes once and for all the CFPB’s contention that a purported ratification by the former Acting Director somehow cured the defects in the CFPB’s structure.”  It bears observing that a ruling by the Supreme Court that the CFPB’s structure is unconstitutional and the proper remedy is to sever the for-cause removal provision would mean that Ms. Kraninger’s five-year term could be cut short should a Democratic President be elected in 2020.


The CFPB has issued a new annual report covering its fair lending activities during 2017.  Since Mick Mulvaney did not become Acting Director until the end of November 2017, the fair lending activities described in the report largely took place under former Director Cordray’s leadership.

The Bureau’s last annual fair lending report under former Director Cordray (which covered its fair lending activities in 2016) identified the Bureau’s 2017 fair lending priorities.  Consistent with those priorities, the new report indicates that, in 2017, the Bureau focused on redlining, mortgage and student loan servicing, and small business lending.  The new report, however, provides no insights into the Bureau’s 2019 fair lending priorities.

Indeed, even if the report had identified 2019 priorities, it is unclear how meaningful that would have been given that the CFPB will be led by Kathy Kraninger, its new Director, in 2019.  Ms. Kraninger is likely to play a significant role in setting the Bureau’s fair lending agenda going forward.  During her initial press conference as Director earlier this week, Ms. Kraninger deflected questions she was asked about fair lending matters, including the Bureau’s use of the disparate impact theory to prove violations of ECOA, by saying that she has not reached any conclusions about the Bureau’s future fair lending policy and awaits staff briefings.

In the report’s section on supervisory activities, the Bureau reviews information previously provided in its Spring 2017 and Summer 2017 editions of Supervisory Highlights.  In the section on enforcement, the Bureau reviews its two public 2017 fair lending enforcement actions and its implementation of several consent orders.  It also reports that it referred two matters with ECOA violations to the Justice Department in 2017 and the DOJ declined to open its own investigation, deferring to the Bureau’s handling of both matters.  The Bureau states that at the end of 2017, it had a number of pending redlining investigations as well as a number of pending investigations in other areas.

In the section on rulemaking, the Bureau discusses various HMDA/Regulation C developments and its final rule amending Regulation B to facilitate Regulation C compliance.  In discussing its progress in developing rules on the collection of small business lending data to implement Section 1071 of Dodd-Frank, the Bureau references its May 2017 RFI seeking information on the small business lending market.  (Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data includes the race, sex, and ethnicity of the principal owners of the business.)  In the Bureau’s Spring 2018 rulemaking agenda, the Section 1071 rulemaking was included in the list of current rulemakings, with an estimated March 2019 date for prerule activities.  Its Fall 2018 agenda, however, reclassifies the Section 1071 rulemaking as a long-term action item.

The report also contains sections that discuss the Bureau’s coordination with other federal agencies on fair lending issues and outreach to industry and consumers (such as through speaking engagements and roundtables, blog posts, and supervisory highlights).  Another section is intended to satisfy certain ECOA and HMDA reporting requirements, including providing a summary of other agencies’ ECOA enforcement efforts and reporting on the utility of certain HMDA reporting requirements.



At the end of last week, the CFPB announced that it had entered into a consent order with State Farm Bank, FSB to settle allegations that the Bank violated the Fair Credit Reporting Act, Regulation V, and the Consumer Financial Protection Act in connection with furnishing information to consumer reporting agencies (CRAs ) and obtaining and using consumer reports.  The consent order does not require the Bank to pay any consumer redress or a civil penalty.  The Bank must implement and maintain reasonable written policies, procedures, and processes to address the practices at issue and prevent future violations and must submit a compliance plan to the Bureau designed to ensure that its consumer credit reporting practices comply with applicable federal laws and the terms of the consent order.

The Bureau’s findings set forth in the consent order include the following:

  • The Bank violated the FCRA requirement that consumer reports only be used or obtained for a permissible purpose.  It obtained credit reports of consumers who were not seeking an extension of credit or otherwise involved in a credit transaction or without some other permissible purpose.  In some instances such violations resulted from the Bank’s agents and employees initiating credit applications for the wrong consumer or initiating credit applications for consumers for the purpose of soliciting those consumers.
  • The Bank violated the FCRA prohibition on furnishing inaccurate information to a CRA if the furnisher knows or has reasonable cause to believe the information is inaccurate by furnishing account information on the wrong consumer, reporting current accounts as delinquent, and reporting inaccurate past due amounts and payment histories.  The Bank knew or had reasonable cause to believe the furnished information was inaccurate because it was in direct conflict with information in the Bank’s credit applications, loan files, or payment system of record.
  • The Bank violated the FCRA requirement for a furnisher to promptly notify the CRA and provide corrections to make furnished information complete and accurate that the furnisher has determined to be incomplete or inaccurate.  The Bank took several months to correct or complete furnished information after the Bank had determined such information was incomplete or inaccurate or when consumers had made repeated requests for corrections.
  • The Bank violated the FCRA requirement not to furnish information to a CRA that has been disputed by the consumer without notice of the dispute by failing to provide such notice to CRAs.
  • The Bank violated the Regulation V requirement for a furnisher to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of furnished information because the Bank’s policies and procedures were inadequate given the high volume and complexity of its furnishing activities and were not reasonable or appropriate given the nature, size, complexity, and scope of its activities.
  • The Bank’s FCRA and Regulation V violations also constituted CFPA violations.




Today was Kathy Kraninger’s first day at the BCFP.  According to her remarks at a press conference this afternoon,  she spent most of her day meeting staff.

In answer to questions from the press, she made the following points:

  1. She has not yet decided which policies of Acting Director Mick Mulvaney she will change. She noted the important difference in leadership posture between her and Mulvaney in that her status as Director will be full-time. She emphasized that she will be making her own decisions for which she will be fully accountable.
  2. She will take a fresh look at Mulvaney’s decision to change the Bureau’s name from the Consumer Financial Protection Bureau (CFPB) to the Bureau of Consumer Financial Protection (BCFP). She acknowledged the internal BCFP report finding that the name change would cost the industry $300 million. She stated that she cares “more about what the agency does than what it is called.” She said that this will be a “near-term” decision.
  3. She indicated that the Bureau’s budget is near and dear to her heart and that she will be prioritizing the budget because she soon needs to advise the Fed of how much funding the Bureau will need for the next quarter.
  4. She underscored that the Bureau will remain very focused on enforcement and that she will take seriously the Bureau’s mission to take enforcement actions against “bad actors” to the full extent of the law.
  5. She mentioned that she does not presently have an opinion regarding the use of the “disparate impact” theory in enforcing the Equal Credit Opportunity Act. She alluded to a conversation she had today with a member of the Bureau’s staff who is studying the issue.
  6. She indicated that her regulatory priorities are reflected in the Bureau’s most recent semi-annual regulatory agenda.
  7. Finally, she expects that she will be speaking at some time with former Director Richard Cordray since it has always been her policy to speak to her predecessors in office at other government jobs she has held.

The BCFP has issued proposed revisions to its 2016 final policy on issuing “no-action” letters (NAL), together with a proposal to create a new “BCFP Product Sandbox.”  Comments must be received on or before February 11, 2019.

Proposed NAL policy revisions. The revisions are intended to address the 2016 policy’s many shortcomings. The Bureau observes that the fact that the Bureau has provided only one NAL under the 2016 policy “strongly suggests that both the process required to obtain [NALs] and the relief available under the 2016 Policy have not provided firms with sufficient incentives to seek [NALs] from Bureau staff.”  Through the proposal, the Bureau seeks to “bring certain aspects of the Bureau’s [NAL] policy more into alignment with [NAL] programs offered by other Federal regulators.”

Key proposed changes to the 2016 policy include the following:

  •  The 2016 policy states that “it was intended to facilitate consumer access to innovative financial products” and that NALs would not be routinely available and were anticipated to be “provided rarely and on the basis of exceptional circumstances.”  The proposal would remove such statements.
  • The 2016 policy stated that NALs were not binding on the Bureau and indicated that UDAAP-focused NALs were expected to be uncommon.  The proposal would revise the policy to state that the Bureau “intends that [an NAL] will include a statement that, subject to good faith, substantial compliance with the terms and conditions of the letter, and in the exercise of its discretion, the Bureau will not make supervisory findings or bring a supervisory or enforcement action against the recipient’s offering or providing the described aspects of the product or service under (a) its authority to prevent unfair, deceptive, or abusive acts or practices; or (b) any other identified statutory or regulatory authority within the Bureau’s jurisdiction.”
  • The 2016 policy requires an NAL applicant to provide up to 15 items of information.  In contrast, the proposal would reduce such items to up to 7.
  • The 2016 policy was accompanied by the Bureau’s statement that it did not intend to issue NALs to trade groups on behalf of their members or to a company that was not identified in an application.  The revised policy would “invite applications from trade associations, service providers, and other third-parties.”
  • The 2016 policy contains no discussion of the Bureau’s coordination with other regulators in connection with an NAL.  The proposal would add a section on “Regulatory Coordination” that discusses the Bureau’s interest in coordinating with state regulators that issue similar NALs “that would provide for an alternative means of receiving an [NAL] from the Bureau” and in coordinating more generally with other regulators  by “enter[ing] into agreements whenever possible to coordinate relief [under Bureau NALs] with similar forms of relief offered by State, Federal, or international regulators.”
  • The 2016 policy anticipates that an NAL will have a limited duration.  The revised policy would assume no temporal limitation.
  • The 2016 policy requires the recipient of an NAL to commit to share data with the Bureau if requested to do so.  The proposal would remove that requirement.
  • The 2016 policy states that in addition to granting or denying a request for an NAL, the Bureau can decline to grant or deny the request, with or without an explanation.  It also lists 10 items for the Bureau to consider when deciding whether to issue an NAL.  The proposal would eliminate the 10 items and revise the policy to provide that in deciding whether to issue an NAL, the Bureau “intends to consider the quality and persuasiveness of the application, with particular emphasis on [certain designated information included in the application].”  The revised policy would state only that the Bureau “intends to grant or deny” an application within 60 days of when it is complete (which is the same timetable as the 2016 policy).

The proposal would continue the practice of publishing NALs on the Bureau’s website and would also allow the Bureau to publish denials after an applicant is given an opportunity to request reconsideration of the denial.  (The proposal would add that the Bureau might publish a version or summary of the application “in appropriate cases” and its reasons for denying an NAL application “particularly if it determines that doing so would be in the public interest.”)  However, the proposal would revise the 2016 policy to add a detailed discussion of the legal limits on the Bureau’s ability to disclose confidential commercial or financial information, including supervisory information, and to state that the Bureau “intends to draft [an NAL] in a manner such that confidential information is not disclosed.”

The proposal would also require the Bureau to specify in an NAL “the extent to which [it] intends to publicly disclose information about the [NAL].”  It would further provide that if an applicant objects to the Bureau’s disclosure of certain information and the Bureau insists such information must be publicly disclosed if an NAL is issued, the applicant can withdraw the application.

BCPF Product Sandbox proposal. Neither the Bureau’s background discussion nor its proposal clearly explain when an applicant would seek to participate in the sandbox program rather than seek a “standard” NAL.  Presumably, the sandbox program is intended to allow participants to test innovative financial products or services without the need to comply with otherwise applicable or potentially applicable statutory or regulatory requirements.  However, there is no indication that the sandbox program is limited to innovative products or services, such as those typically labeled “fintech.”

Key features of the sandbox proposal that differ from the NAL policy include the following:

  •  An applicant admitted to the sandbox program, in addition to receiving no-action relief that is substantially the same as that provided in an NAL letter (i.e. a statement that the Bureau will not make adverse supervisory findings or bring a supervisory or enforcement action under its UDAAP authority or otherwise), will receive two other forms of relief:
    • Approvals, as applicable, under the provisions of theTILA, ECOA, and EFTA that provide a safe harbor from liability in federal or state enforcement actions and private lawsuits for actions taken or omitted in good faith in conformity with Bureau approvals
    • Exemptions granted by Bureau order (i) from statutory or regulatory provisions as to which the Bureau has statutory authority to issue exemptions by order (such as provisions of the ECOA, HOEPA, and FDIA), or (ii) from regulatory provisions as to which the Bureau has general authority to issue exemptions.  Such an exemption would provide immunity from federal or state enforcement actions and private lawsuits.
  • Sandbox program admission will generally be for a two-year term and participants can apply for extensions.
  • The information that applicants must provide includes a description of the data the applicant possesses and/or intends to develop regarding the impact of the product or service on consumers to be shared with the Bureau if the application is granted and a proposed schedule for such sharing.
  • A participant must report information about how the offering or providing of the product or service affects “complaint patterns, default rates, or similar metrics that will enable the Bureau to determine if doing so is causing material, tangible harm to consumers.”
  • A participant must commit to compensate consumers “for material, quantifiable, economic harm” caused by the participant’s offering or providing the product or service within the sandbox program and must commit to sharing data with the Bureau regarding such product or service.
  • In addition to publishing specified information about participants on its website, the Bureau intends to publish information about denials of applications, including its reasons for denying an application, after the applicant is given an opportunity to request reconsideration of the denial.

In September 2018, the Bureau proposed significant revisions to its “Policy to Encourage Trial Disclosure Programs” (TDP Policy), which sets forth the Bureau’s standards and procedures for exempting individual companies, on a case-by-case basis, from applicable federal disclosure requirements to allow those companies to test trial disclosures.  That proposal is not referenced in the NAL policy and sandbox proposals.

The CFPB has made available a beta version of its 2018 HMDA data platform. The platform is for the reporting of data collected in 2018 that must be reported in 2019.

During the beta period, reporting institutions can test and retest 2018 HMDA data files as often as desired to assess if their Loan Application Register (LAR) data complies with the reporting requirements outlined in the Filing Instructions Guide for HMDA data collected in 2018.

No 2018 data can actually be submitted through the platform until January 2019. Based on the substantial changes to HMDA data for 2018, testing whether LAR data complies with the reporting requirements will likely be beneficial for many reporting institutions.

The CFPB recently filed a complaint and a proposed stipulated final judgment and order to address claims that Village Capital & Investments LLC (Village) engaged in deceptive acts and practices in the solicitation of veterans for mortgage refinance loans to be guaranteed by the Department of Veterans Affairs (VA).

The CFPB asserts that between March 2017 and August 2018 Village employed loan officers in its San Antonio, Texas office who were responsible for making in-home sales presentations to veterans for VA Interest Rate Reduction Refinancing Loans to be made by Village. This type of loan is the VA version of a streamlined refinance loan that is primarily intended to provide a veteran borrower with a lower interest rate and monthly payment. The CFPB states that Village provided the loan officers with marketing materials for the in-home presentations, including a worksheet that would be used to compare the veteran’s current loan with a proposed refinance loan.

The CFPB asserts that that the worksheets were deceptive because they misrepresented the cost savings to the consumer of the refinanced loan by:

  • Inflating the future amount of principal owed under the veteran’s existing mortgage loan by underestimating the proportion of the consumer’s existing monthly payment that is applied to principal.
  • Underestimating the future amount of the monthly payments on the proposed refinance loan by overestimating the term of the loan.
  • Overestimating the total monthly benefit of the proposed refinance loan after the first month.

Without the adjudication of any issue of fact or law, to settle the matter Village agreed to pay $268,869 for the purpose of providing redress to affected consumers, and also agreed to pay a civil penalty of $260,000. Village further agreed not to misrepresent to consumers in connection with the offering of refinance loans (1) the future principal or future monthly payments owed on the consumer’s existing mortgage loan, or (2) the future principal or future monthly payments a consumer would owe on a refinance mortgage loan. Additionally, Village must develop a compliance plan that includes training for loan officers.

As previously reported, the National Flood Insurance Program was scheduled to expire on November 30, 2018 and Congress extended the Program to December 7, 2018. The US House of Representatives and US Senate have once again voted to temporarily extend the Program, this time until December 21, 2018. Perhaps Congress is hoping that someone will come down the chimney and deliver a long-term, sensible reform of the Program.