In this podcast, Paul Watkins, Director of the CFPB’s Office of Innovation, joins us to discuss the CFPB’s final trial disclosures, no-action letter, and FinTech sandbox policies.  Topics covered include the elements of each policy and the protection from liability available, the role of pre-application discussions between the CFPB and applicants, and the CFPB’s plans to engage in outreach to other federal and state regulators to maximize the value of approvals.

Click here to listen to the podcast.

CFPB Director Kraninger was the sole witness at a House Financial Services Committee hearing yesterday on the Bureau’s Spring 2019 semi-annual report and at a Senate Banking Committee hearing today on the report.

At the House hearing, Director Kraninger came under harsh criticism from Democratic members, with one member reportedly calling Ms. Kraninger “absolutely worthless.”  A primary focus of Democratic members was the CFPB’s settlements earlier this year such as those with Sterling Jewelers and NDG Financial in which the companies were not required to pay any redress to consumers.  The Democrats’ perspective is perhaps best summarized by the title of a 333-page report issued by the Committee’s majority staff to coincide with the hearing —“Settling for Nothing: How Kraninger’s CFPB Leaves Consumers High and Dry.”  The report discusses what it describes as appointments made by the Trump administration “to accomplish its goal of reining in the Consumer Bureau” and the handling of the settlements by such appointees.

At the Senate hearing, Democratic members also leveled harsh (but more civil) criticism at Director Kraninger, focusing on the Bureau’s supervision of student loan servicers and its proposed revisions to its final payday/auto title/high-rate installment loan rule (Payday Rule).  With regard to student loan servicers, several Democratic members voiced concern about the number of borrowers seeking loan forgiveness under the federal public service forgiveness program that have been rejected by the Department of Education.  These members called on the CFPB to respond more aggressively to the refusal of federal student loan servicers to provide information to CFPB examiners based on ED direction (including taking legal action against ED).

With regard to the Payday Rule, Democratic members raised questions about the Bureau’s evidentiary support for its proposed rescission of the Payday Rule’s ability-to-repay (ATR) provisions.  One Democratic member pressed Director Kraninger as to why the CFPB has not, despite indicating in its court filings that the Bureau did not believe there was a reason to delay the effective date of the Payday Rule’s payment provisions, sought to lift the stay of the August 19, 2019 compliance date for the payment provisions entered by the Texas federal district court hearing the lawsuit filed by two trade groups challenging the Payday Rule.  (The court also stayed the lawsuit and the compliance date for the ATR provisions.)  Director Kraninger indicated the CFPB had not done so because the trade groups were also challenging the Bureau’s constitutionality in their lawsuit.  She noted that the Bureau has yet to rule on a petition it has received to revisit the payment provisions and has one year to do so.  (Presumably Director Kraninger was referring to the rulemaking petition mentioned in the Supplementary Information to its proposal that seeks an exemption from the payment provisions for debit payments.)

With regard to the Bureau’s announcement that it would no longer defend its constitutionality in the appellate courts or the Supreme Court, Director Kraninger provided no insights into the rationale for the Bureau’s change in position other than to say that she believed there was a need for the Supreme Court to resolve the long-standing constitutional question.

Finally, in response to a question from a Republican member about the Bureau’s plans for providing clarity as to what is an abusive practice for purposes of the Dodd-Frank UDAAP prohibition, Director Kraninger stated that there would be news “in the not too distant future.”

Republican members of both committees were generally complimentary of Director Kraninger’s leadership, pointing to the Bureau’s innovation policies and Taskforce on Federal Consumer Financial Law as examples of praiseworthy initiatives.

Tomorrow, October 18, the House Financial Services Committee’s Task Force on Artificial Intelligence is scheduled to hold a hearing entitled “AI and the Evolution of Cloud Computing: Evaluating How Financial Data is Stored, Protected, and Maintained by Cloud Providers.” There will be a live webcast of the hearing.

The Committee Memorandum and related legislation can be found here.


On October 10, 2019, the Board of Governors of the Federal Reserve System (Board), together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, adopted a final rule to revise the criteria for determining the applicability of regulatory capital and liquidity requirements for large U.S. banking organizations and the U.S. intermediate holding companies of certain foreign banking organizations.  The Board also adopted a final rule that establishes risk-based categories for determining prudential standards for large U.S. banking organizations and foreign banking organizations, consistent with section 165 of the Dodd-Frank Act, as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act, and with the Home Owners’ Loan Act.

The final rules establish four risk-based categories for determining the applicability of requirements under the agencies’ regulatory capital rule and liquidity coverage ratio rule.  Under the final rules, regulatory capital requirements increase in stringency based on measures of size, cross-jurisdictional activity, weighted short-term wholesale funding, nonbank assets, and off-balance sheet exposure.

The final rules apply tailored regulatory capital and liquidity requirements to depository institution holding companies and U.S. intermediate holding companies with $100 billion or more in total consolidated assets as well as to certain depository institutions.

In connection with the issuance of the final rules, the Board released a chart of the four categories and the requirements for organizations in each category.  The U.S. Domestic Banking Organizations in each of the four categories are as follows:

Category 1: U.S. Global Systemically Important Banks as determined by the Financial Stability Board;

Category 2: Total assets ≥ $700B or ≥ $75B in cross-jurisdictional activity;

Category 3: Total Assets ≥ $250B or ≥ $75B in non-bank assets, weighted short-term wholesale funding, or off-balance sheet exposure;

Category 4: Other firms with total assets of $100B to $250B

As the chart indicates, firms in the lowest risk category will have reduced compliance requirements, owing to their smaller risk profile. As the risk of a firm increases and it moves into a new risk category, its requirements will increase.

The Board estimated the changes will, in the aggregate, result in a 0.6 percent decrease in required capital and a reduction of 2 percent of required liquid assets for all banks with assets of $100 billion or more. The Board emphasized that the rules do not reduce capital or liquidity requirements for firms in the highest risk categories, including U.S. global systemically important banks.

An appeal now pending before the Montana Supreme Court could have significance for businesses that use prepaid cards to make refunds to customers.

In Bratton v. Sisters of Charity of Leavenworth Health System, Inc., the plaintiff filed a lawsuit against SCL Health (SCL), her healthcare provider, in Montana district court alleging that SCL violated Montana law by directing its bank to issue two prepaid cards to the plaintiff to refund credit balances on her account with SCL.  One of the cards refunded an overpayment that SCL received from the plaintiff’s insurer.

The plaintiff claimed that SLC violated Montana law by transferring to the bank its obligation to refund the credit balances on her account to the bank without her consent.  The court rejected this argument, finding that SCL did not need the plaintiff’s consent.  According to the court, SCL did not transfer its duty to the bank to make the refunds but instead had the bank withdraw money from SCL’s general account and send the cards to the plaintiff.  In the court’s view, this situation was similar to SLC giving authorization to its bank to issue a wire transfer or cashier’s check.  It found that the plaintiff’s consent was not necessary “just because SLC Health refunded Bratton’s money in a manner Bratton found inconvenient.”

The court also rejected the plaintiff’s claims of conversion, unjust enrichment and constructive trust, as well as her claim under the Montana Consumer Protection Act (MCPA), making the following findings:

  • Although the plaintiff was owed the funds, there was no conversion when the bank issued the cards. The refund obligation created a debtor-creditor relationship between SCL and the plaintiff.  There can be no action against the debtor for conversion of the funds representing the indebtedness where there is no obligation to return identical money but only a debtor-creditor relationship.
  • SCL was not unjustly enriched and no constructive trust arose because although SCL received a benefit when the plaintiff paid her account balance before it was paid by her insurer, SCL did not retain the benefit.
  • There was no MCPA violation because the plaintiff could not show an ascertainable loss since the cards remained available for her use and SCL’s practice of authorizing its bank to issue prepaid cards to make refunds to patients who have overpaid is not a deceptive business tactic.

Briefing is currently underway in the Montana Supreme Court, with the plaintiff having filed her opening brief.  The Montana Bankers Association, the American Bankers Association, and the Consumer Bankers Association have been granted leave to file an amicus brief in support of SLC.  In their motion seeking leave to file the amicus brief, the trade groups asserted that the plaintiff’s position “that cash and checks are the only acceptable mediums of exchange aims to limit [consumers’] options and thus limit Montanans’ access to technological innovations that facilitate modern commerce.  It also aims to limit the ability of banks and other consumer financial institutions to adapt to a modern economy that is becoming less dependent on cash and checks.”

The amicus brief must be filed by November 4, which is also the deadline for SCL to file its reply brief.


Although the Seila Law docket indicated that the briefs on Seila Law’s petition for certiorari were distributed for the U.S. Supreme Court’s October 11 conference, no order on the petition was among the orders issued by the Court yesterday.

Seila Law’s petition seeks review of the Ninth Circuit’s decision that held the CFPB’s structure is constitutional.  Soon before the October 11 conference, All American Check Cashing filed a Petition for a Writ of Certiorari Before Judgment with the Supreme Court asking the Supreme Court to rule on its interlocutory appeal from the district court’s ruling upholding the CFPB’s constitutionality rather than wait for a decision from the Fifth Circuit panel.  Also soon before the conference, the plaintiffs in Collins v. Mnuchin filed a petition for a writ of certiorari seeking review of the en banc Fifth Circuit’s decision that held the FHFA’s structure is unconstitutional.

In each of these petitions, the petitioners argue that their case is a better vehicle than Seila Law to decide the constitutional question presented in Seila Law.  Accordingly, it is possible that the Supreme Court did not vote on the Seila Law petition at its October 11 conference in order to allow briefing to be completed on the two other petitions.  It is currently uncertain when SCOTUS will act on any of the petitions.



Last week, California Governor Newsom signed into law AB 539, which makes significant amendments to the California Financing Law (CFL), and SB 616, which creates a new exemption from levy for deposit account funds.

The Governor signed AB 539 on October 10.  Most importantly, the CFL amendments limit the rate of interest that may be imposed on loans of $2,500 – $10,000 to 36% plus the federal funds rate (which is currently hovering around 2%) per annum. These loans previously had no express interest rate limitation (although, some high interest loans have been attacked for price unconscionability.)  The amendments are effective January 1, 2020.

The Governor signed SB 616 on October 7.  The law adds a new section to California’s Code of Civil Procedure that exempts from levy without a claim by the debtor funds in a deposit account in an amount that has been determined by the state’s Department of Social Services to be the “minimum basic standard of adequate care for a family of four for Region 1” as adjusted annually.  That amount for 2019 is $1729.  The exemption does not apply to money levied on to satisfy certain obligations such as wages owed or child or spousal support.  The new exemption is effective September 1, 2020.



The California Attorney General’s Office released its long-awaited proposed CCPA regulations last week.  The proposed regulations are 24 pages long, and address a number of important technical compliance issues including how businesses should:

  • provide just in time notice to consumers of personal information collected;
  • provide notice to consumers of the right to opt out of the sale of personal information;
  • provide notice to consumers of financial incentives;
  • provide a CCPA compliant privacy policy;
  • provide methods for consumers to submit requests to know and requests to delete their personal information;
  • respond to consumer requests to know and requests to delete their personal information
  • respond to consumer requests to access or delete household information;
  • respond to requests to opt-out;
  • respond to requests to opt-in after consumers exercise their right to opt out of the sale of personal information; and
  • verify consumer requests.

The AG’s office also released a 47-page Initial Statement of Reasons.

Ballard’s Privacy & Data Security lawyers are carefully reviewing the proposed regulations and will be providing thoughts in the coming days on the effect of the proposed regulations, what they mean from a compliance standpoint, what issues the proposed regulations fail to address, and what’s next for the CCPA.

All American Check Cashing and the CFPB have submitted letter briefs to the Fifth Circuit regarding what action the court should take in light of the en banc Fifth Circuit’s decision in Collins v. Mnuchin that held the FHFA’s structure is unconstitutional.

In March 2019, a Fifth Circuit panel heard oral argument in All American’s interlocutory appeal from the district court’s ruling upholding the CFPB’s constitutionality.  Last month, the panel directed the parties to file the letter briefs.  (Rather than wait for a decision from the Fifth Circuit panel, All American has also filed a Petition for a Writ of Certiorari Before Judgment with the U.S. Supreme Court.)

Having announced that it will not defend the CFPB’s constitutionality in the appellate courts or the Supreme Court, the CFPB concedes in its letter brief that its structure is unconstitutional but argues that, following the en banc Fifth Circuit’s approach in Collins, the proper remedy is to sever the CFPA for-cause removal provision but not grant All American’s motion for judgment on the pleadings.  It also argues that the panel should allow the enforcement action to proceed because it was ratified by Acting Director Mulvaney and Director Kraninger does not support dismissal of the enforcement action.

In its letter brief (as it did in its cert petition), All American argues that the en banc Fifth Circuit’s conclusion that the FHFA is unconstitutionally structured supports the same conclusion as to the Bureau’s constitutionality but that because the CFPA for-cause removal provision cannot be severed, the proper remedy is to reverse the district court’s denial of All American’s motion for judgment on the pleadings and not allow the CFPB’s enforcement action to proceed.  It also argues that any purported ratification of the enforcement action was ineffective.

The Supreme Court could issue a decision tomorrow on the petition for a writ of certiorari filed by Seila Law seeking review of the Ninth Circuit’s ruling that the CFPB’s structure is constitutional.  The briefs on Seila Law’s petition were distributed for the Supreme Court’s October 11 conference




Ballard Spahr is proud to partner with Venminder, Inc. in sponsoring a podcast on vendor management risk issues.  The podcast features Glen Trudel, a partner in Ballard Spahr’s Consumer Financial Services Group, and Branan Cooper, Venminder’s Chief Risk Officer.

The podcast showcases Glen’s perspectives on the likelihood of CFPB, FTC, FDIC and OCC regulatory developments occurring in the near term with respect to vendor management, and includes a discussion of the OCC fintech charter.  Glen also addresses practical business issues and concerns that organizations are confronting with third party risk management, and discusses best practices to overcome those challenges.

Click here to listen to the podcast.