According to media reports, Director Kraninger has submitted her resignation to President Biden.  President Biden has nominated Rohit Chopra to serve as the CFPB’s next Director and is expected to appoint an individual to serve as Acting Director pending Mr. Chopra’s confirmation by the Senate. 

Several media reports have indicated that Mr. Chopra could serve as Acting CFPB Director while his nomination is pending Senate confirmation.  In our view, however, the Federal Vacancies Reform Act (FVRA), the law that addresses who can serve as an acting officer when there is a vacancy in a position requiring Senate confirmation, does not allow Mr. Chopra to serve as Acting Director while he is President Biden’s nominee for Director.  

The FVRA (5 U.S.C. 3345(a)) allows the President to fill a vacancy in a position requiring Senate confirmation with someone currently serving as the first officer to the vacated position (e.g. the Deputy CFPB Director), someone already serving in a position that requires Senate confirmation, or a senior agency employee who meets certain qualifications.  Because Mr. Chopra’s current position as an FTC Commissioner required Senate confirmation, he would be eligible to serve as Acting Director under the FVRA.   

However, the ability of individuals eligible to serve as an acting officer under Section 3345(a) is subject to a limitation also contained in the FVRA (5 U.S.C. 3345(b)(1)).  Section 3345(b)(1) provides that an individual eligible to serve as an acting officer may not do so if such individual: (a) during the 365-day period preceding the creation of the vacancy did not serve in the position of first assistant to the vacated position or served in the position of first assistant for less than 90 days, and (b) the President submits such individual’s nomination to the Senate to fill the vacant position.  (Section 3345(b)(2) contains an exception for certain persons serving as first officer to a vacated position.)

Accordingly, since Mr. Chopra has never served as the Deputy CFPB Director and has been nominated by President Biden to serve as Director, Section 3345(b)(1) disqualifies him from serving as Acting Director.  (In its 2017 decision in NLRB v. SW General, Inc., the U.S. Supreme Court interpreted Section 3345(b)(1) to mean that “[s]ubject to one narrow exception, it prohibits anyone nominated to fill a vacant position [requiring Senate confirmation] from performing the duties of the office in an acting capacity, regardless of [which subsection of 3345(a) the individual otherwise qualified under].”)

Because Deputy CFPB Director Tom Pahl left the Bureau earlier this week, the CFPB currently does not have a Deputy Director.  As a result, under the FVRA, the only individuals eligible to serve as Acting CFPB Director would be someone other than Mr. Chopra currently serving in a Senate-confirmed position or a senior employee who satisfies the FVRA’s qualifications.  (To qualify, such senior employee, during the 365-day period preceding Director Kraninger’s resignation, would have to have been employed by the CFPB for at least 90 days and paid at least at a GS-15 rate.)

 

On January 13, 2021, the Illinois legislature overwhelmingly passed SB 1792 (the “Act”), intended to, among other things, overhaul the state’s consumer finance laws. Described prior to enactment as a bill related to “Energy Storage Systems,” SB 1792 passed, together with other major bills, with remarkably little debate.

The drafters’ inclusion of the “Predatory Loan Prevention Act” in SB 1792 would extend the 36% “all-in” Military Annual Percentage Rate (MAPR) finance charge cap of the federal Military Lending Act (MLA) to “any person or entity that offers or makes a loan to a consumer in Illinois” unless made by a statutorily exempt entity (i.e., a bank, savings bank, savings and loan association, credit union or insurance company). (SB 1792 separately amends the Illinois Consumer Installment Loan Act and the Payday Loan Reform Act to apply this same 36% MAPR cap.) The cap is effective immediately upon the Governor’s signature, which is expected at any time.

Under federal law, the MLA finance charge cap only applies to active-duty servicemembers and their dependents. However, SB 1792 effectively extends this limit to all consumer loans. The MAPR is an “all in” APR, and includes, with limited exceptions: (i) finance charges; (ii) application fees or, for open-end credit, participation fees; (iii) any credit insurance premium or fee, any charge for single premium credit insurance, any fee for a debt cancellation contract, or any fee for a debt suspension agreement; and (iv) any fee for a credit-related ancillary product sold in connection with the credit transaction for closed-end credit or an account of open-end credit.

Under SB 1792, any loan made in excess of a 36% MAPR would be considered null and void, and no entity would have the “right to collect, attempt to collect, receive, or retain any principal, fee, interest, or charges related to the loan.” The legislation provides for a fine of up to $10,000 for each violation.

The definition of “loan” under SB 1792 is sweeping and includes money or credit provided to a consumer in exchange for the consumer’s agreement to a “certain set of terms,” including, but not limited to, any finance charges, interest, or other conditions, including but not limited to closed-end and open-end credit, retail installment sales contracts, and motor vehicle retail installment sales contracts. Commercial loans are excluded, but “commercial loan” is not defined.

SB 1792 also contains a broad definition of the term “lender” and will apply to loans made via a bank partnership model. While SB 1792 does not apply to state or national banks, savings and loan associations, credit unions, or insurance companies, anti-evasion provisions of the Act provide that a purported agent or service provider is a lender if: (a) it holds, acquires, or maintains, directly or indirectly, the predominant economic interest in the loan; (b) it markets, brokers, arranges, or facilitates the loan and holds the right, requirement, or first right of refusal to purchase loans, receivables, or interests in the loans; or (c) the totality of the circumstances indicate that the person or entity is the lender and the transaction is structured to evade the requirements the law. Factors to be considered under this “totality of the circumstances” provision include whether the entity indemnifies, insures, or protects an exempt lender for any costs or risks related to the loan; predominantly designs, controls, or operates the loan program; or purports to act as an agent or service provider for an exempt entity while acting directly as a lender in other states.

The Illinois Small Loan Association has already expressed concerns about the ability of lenders to continue to operate in Illinois as a result of the new rate cap. Undoubtedly, SB 1792 will also result in a substantial contraction of available credit for Illinois consumers with marginal credit. Other consequences of the Act remain to be determined.

On December 30, 2020, the Federal Communications Commission (FCC) released its Report and Order, implementing provisions of the Pallone-Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (the “TRACED Act”).

By way of background, the Telephone Consumer Protection Act of 1991 (TCPA) includes a provision that bans “any telephone call to any residential telephone line using an artificial or prerecorded voice to deliver a message without the prior express consent of the called party,” unless a statutory or regulatory exception applies.

Beginning in 1992, the FCC began carving out regulatory exemptions to the TCPA’s ban against such calls. Relevant here, the FCC created exemptions for calls made to a residential telephone line that are: (i) not made for a commercial purpose; (ii)  made for a commercial purpose but that do not contain an unsolicited advertisement; (iii) made by tax-exempt nonprofit organizations; or (iv) subject to the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

Section 8 of the TRACED Act directed the FCC to ensure any exemption granted under sections 227(b)(2)(B) or (C) of the TCPA specify “(i) the classes of parties that may make such calls; (ii) the classes of parties that may be called; and (iii) the number of such calls that a calling party may make to a particular called party.” As a result, on October 1, 2020, the FCC issued a Notice of Proposed Rulemaking to implement Section 8.

After receiving public comments, the FCC released a Report and Order on December 30, 2020. Among other things, the Report and Order codifies all existing exemptions under section 227(b)(2)(C) of the TCPA, establishes an opt-out requirement, and imposes frequency limitations as set forth below. In most cases, the FCC has limited the number of artificial or prerecorded voice calls to residential telephone lines to three such calls within a consecutive 30-day period unless the caller has obtained prior express consent:

RELEVANT EXEMPTION

 CALLERS CALLED PARTIES NUMBER OF CALLS OPT-OUT REQUIRED?
Non-commercial calls to a residence “ . . . callers that are not calling for a commercial purpose” “ . . . calls made to residential telephone lines.” “ . . . three artificial or prerecorded voice calls within any consecutive 30-day period.” Yes
Calls made for a commercial purpose but that do not include or introduce an advertisement or constitute telemarketing “ . . . those making calls for a commercial purpose where the call does not introduce an advertisement or constitute telemarketing” “ . . . calls made to residential telephone lines.” “ . . . three artificial or prerecorded voice calls within any consecutive 30-day period.” Yes
Tax-exempt nonprofit organization calls to a residence Tax-exempt nonprofit organizations “ . . . calls made to residential telephone lines.” “ . . . three artificial or prerecorded voice calls within any consecutive 30-day period.” Yes
HIPAA calls to a residence Calls “made by, on behalf of, a ‘covered entity’ or its ‘business associate’ as those terms are defined in the HIPAA Privacy Rule, 45 CFR 160.103” “ . . . calls made to residential telephone lines.” “ . . . one artificial or prerecorded voice call per day up to a maximum of three artificial or prerecorded voice calls per week.”

Yes

The opt-out mechanism allows consumers to stop unwanted calls made pursuant to the above exceptions. 47 C.F.R. § 64.1200(b)(3) governs the opt-out requirement and requires the caller to provide “an automated, interactive voice- and/or key press-activated opt-out mechanism for the called person to make a do-not-call request” along with instructions explaining how to use the mechanism. The opt-out mechanism must be provided within two seconds of providing the identification information required under § 64.1200(b)(1). Further, the opt-out mechanism “must automatically record the called person’s number to the seller’s do-not-call list and immediately terminate the call” once the called party uses the opt-out mechanism. Additional requirements apply if the artificial or prerecorded voice telephone message is left on an answering machine or voice mail service.

Although the Report and Order establishes a six-month implementation period, the FCC noted it “fully expect[s] that the implementation period will be longer than six months because of the additional time required for the [Office of Management and Budget] to approve the information collections associated with the new rules.”

The Biden Transition has announced that President-elect Biden has nominated Rohit Chopra to serve as CFPB Director.

Mr. Chopra currently serves as an FTC Commissioner, having been appointed by President Trump in 2018 to fill one of the Democratic seats on the FTC.

The nomination of Mr. Chopra as Director will return him to the CFPB, where he served as an Assistant Director from the time the CFPB was stood up in 2010 until his departure in 2015.  In 2011, he was appointed by the Treasury Secretary to serve as the CFPB’s Private Education Loan Ombudsman.  After leaving the CFPB and before becoming an FTC Commissioner, Mr. Chopra served as a senior fellow at the Consumer Federation of America.

As Ombudsman, Mr. Chopra was highly critical of private student loan servicing practices.  Given the pandemic’s impact on many student loan borrowers and Mr. Chopra’s focus on the treatment of distressed borrowers while serving as Ombudsman, Mr. Chopra can be expected to renew his focus on student loan servicing when he returns to the CFPB as Director.

In addition, statements issued by Mr. Chopra through his tenure as FTC Commissioner signal that he will take a more aggressive approach than Director Kraninger in using the CFPB’s authorities to obtain monetary relief in enforcement actions and will pursue greater cooperation with the FTC in enforcement actions.  Most recently, in connection with the FTC’s November 2020 settlement with Zoom Video Communications, Inc. to resolve allegations that Zoom had engaged in unfair and deceptive acts with regard to its video conferencing services, Mr. Chopra issued a dissenting statement in which he criticized the consent order for failing to provide any remediation for Zoom users or payment of any civil penalties by Zoom.

Also in November 2020, in connection with the FTC’s settlement of its first enforcement action targeting the practice of “debt parking,” Mr. Chopra criticized the FTC’s “go-it-alone debt collection enforcement strategy,” asserting that it “frequently leads to outcomes where victims receive only a miniscule percentage of their losses—or even nothing at all.”  He urged the FTC to cooperate more closely with the CFPB in debt collection enforcement actions, noting that the CFPB’s authority to obtain civil monetary penalties would allow victims to qualify for monetary redress from the CFPB’s Civil Penalty Fund, even if the penalty in a case were only $1.  (There will be a strong incentive for greater cooperation between the CFPB and FTC in enforcement actions should the U.S. Supreme Court rule that the FTC’s authority to seek injunctive relief under Section 13(b) of the FTC Act does not include the authority to seek monetary relief such as restitution.  That issue is currently before the Supreme Court in AMG Capital Management, LLC v. FTC.  Last week, the Supreme Court heard oral argument in the case and even Justices Breyer and Kagan expressed skepticism regarding the FTC’s position that Section 13(b) provides authority for monetary relief.)

President-elect Biden is expected to name someone to serve as Acting CFPB Director pending Mr. Chopra’s confirmation by the Senate.  Under the Federal Vacancies Reform Act (5 U.S.C. 3345(a)), Mr. Biden can appoint a current CFPB employee to serve as Acting Director if “during the 365-day period preceding [Director Kraninger’s expected resignation]” the individual was employed by the CFPB “for not less than 90 days” and was paid at a rate “equal to or greater than the minimum rate of pay payable for a position at GS–15 of the General Schedule.”

I am truly excited to announce a new program that our Consumer Financial Services Group is launching this year, which is aimed at increasing the number of diverse lawyers – lawyers who have overcome one or more substantial obstacles in pursuing a legal career, come from a disadvantaged background, and/or are under-represented in the legal community – within the consumer financial services industry.

We believe that there are too few diverse lawyers in the industry, and that we need to take action to move the industry in the right direction. Rather than waiting for diverse lawyers to come to us, or to become interested in the industry on their own, we want to generate interest in consumer finance among law students, and lay the foundation for diverse students to have a successful career in CFS.  The idea is to identify diverse law students who may be interested in consumer finance and bring them into our CFS group, either during the school year or during the summer.  We plan to introduce them to consumer finance law; to mentor them and give them an overview of the consumer finance industry; and to provide them with introductions to clients, regulators, and trade associations.  The concept is to “show them the world” of consumer finance, including the law, the business and the relationships.  These programs are designed to feed into permanent associate positions within our CFS group.

We are launching the program with a summer fellowship for this coming summer.  You can see the details and submit an application by clicking here.  If you know someone who might be interested in our program, please encourage them to apply.

We look forward to working in partnership with law professors, law schools, our clients, regulators, and trade associations to welcome diverse students into our industry.

 

As we recently reported, the CFPB released new guidance on January 13, 2021, in an effort to give industry participants more concrete guidance about how to tackle the sometimes-daunting issue of serving customers in non-English languages.  Director Kraninger announced the guidance in a blog post of her own, and reached out with telephone calls to announce the release of the guidance.  I was lucky enough to receive one of those calls, and enjoyed hearing from the Director about the goals of this new guidance– to increase the inclusion of non-English-speaking consumers in the consumer financial services market.

The Bureau’s new “Statement Regarding the Provision of Financial Products and Services to Consumers with Limited English Proficiency” (Statement) provides principles and guidelines to assist financial institutions in decision making concerning how best to serve Limited English Proficiency (LEP) consumers and to facilitate compliance with ECOA and UDAAP laws by providing “clear rules of the road.”

In the Statement, the CFPB notes its work on LEP issues over the past several years, which initially culminated in the Bureau’s November 2017 publication, Spotlight on serving limited English proficient consumers.  The Bureau then held an LEP Consumer and Industry Roundtable in July 2020, in which I was fortunate to participate as one of two private sector attorneys.  After the Roundtable, the CFPB issued a Request for Information on ECOA and Regulation B in August 2020, in which, among other things, the Bureau asked whether it should provide additional clarity concerning serving LEP consumers, and, if so, in what form.  The Bureau notes that it received a “wide variety of responses” to that question from stakeholders – most saying “yes” and some suggesting the format of an APA rulemaking, guidance, translated notices and documents, or a required Language Access Plan.  The CFPB ultimately decided to issue the Statement as regulatory guidance, however.

Having now had a chance to read the guidance carefully, the main takeaway from my standpoint is that the CFPB is giving the industry flexibility about how to handle LEP consumers.  Consistent with the Bureau’s previous guidance on this topic, the Bureau is not mandating that any particular products or services be offered in non-English languages.  Rather, the new guidance goes through a number of considerations associated with products and services being offered, and shows industry participants the options for dealing with those considerations.  Notably, the guidance generally does not mandate a particular way of handling these issues, and acknowledges that different industry participants may reach different conclusions about what to do, and how to do it: “differences in financial institutions and the ways they choose to serve LEP consumers will likely require different compliance solutions.”

Here are some examples of the flexibility contained in the CFPB’s guidance:

  • It repeats the point, previously made by the Bureau in a 2016 issue of Supervisory Highlights, that UDAAP issues can be avoided by “providing LEP consumers with clear and timely disclosures in non-English languages describing the extent and limits of any language services provided throughout the product lifecycle.”  This gives industry participants the option to advertise products in non-English languages without having to offer every aspect of the product experience in the non-English languages, so long as this is disclosed at the outset of the customer relationship.  We blogged about the 2016 Supervisory Highlights discussion of LEP issues here.
  • With regard to selecting a non-English language, the Bureau states that an entity can rely on either information on the language preferences of its customers, or U.S. Census Bureau information.
  • With regard to product selection, the Bureau left institutions free to “consider a variety of factors, including the extent to which LEP consumers use particular products and the availability of non-English language services.”  The Bureau did caution, however, against potential steering of LEP consumers into less-advantageous products.
  • In terms of selecting communications to be offered in non-English languages, the Bureau reinforced its previous guidance that priority should be given to “communications – whether verbal or written – that most significantly impact consumers,” such as “essential information about credit terms and conditions … or about borrower obligations and rights, including those related to delinquency and default servicing, loss mitigation and debt collection.”  The Bureau also noted that institutions can consider “existing customer data on what services LEP consumers use most frequently.”
  • The Bureau clearly and explicitly noted that it would be permissible for financial institutions to collect and track consumers’ language preferences, so long as the information was not used for a discriminatory purpose.
  • With regard to translating documents, the Bureau made it clear that it was imposing no requirements in this area, leaving industry participants free to “assess whether and to what extent to provide translated documents to consumers.”  The Bureau noted that any translations must be accurate, and encouraged the use of its LEP glossaries, and also noted that it plans to provide model translated documents in the future.  Indeed, as part of its recently-finalized Debt Collection Rules, the Bureau stated that it planned to provide a Spanish-language model validation notice before the effective date of the rules in November 2021.
  • The Bureau specifically noted that an institution’s decisions about non-English language services could take into account factors such as “infrastructure, systems, or other operational limitations; [or] cost estimates.”  This is, to us, a signal that the Bureau is taking a very real-world approach to industry decisions and constraints relating to non-English language support.
  • The Bureau also provided a blueprint for various compliance measures related to non-English language support, including items such as monitoring the quality of customer assistance provided; ensuring that non-English language support is equivalent in quality to that available in English; monitoring advertising to ensure that messaging is accurate and that protected groups are not excluded; and statistical analysis of underwriting and pricing to detect any disparities on the basis of a protected characteristic.

I see this Statement as a further extension of the guidance given by the Bureau on LEP consumers starting in 2016.  The Bureau knows that the financial services industry wants to serve customers in non-English languages, and is trying to ease the uncertainties in doing so by providing a “road map” for industry to follow.  The Bureau has avoided highly specific, prescriptive requirements for non-English support, and this leaves institutions with choices and judgments to make about how to offer products and services to LEP consumers.  More importantly, however, it provides flexibility for each institution to make reasonable choices about this subject, taking all of the real-world factors into account.  It is my belief that institutions should welcome this signal of encouragement.

The OCC has issued a final rule establishing standards that a bank must follow in fulfilling its obligation to provide fair access to financial services.  The final rule is effective on April 1, 2021.

The final rule was issued on the same day that Acting Comptroller of the Currency Brian Brooks stepped down at the OCC.  Critics of the OCC’s proposal included banking trade groups as well as consumer advocates.  Given that the proposal was characterized by Democratic lawmakers as an effort to force banks to lend to gun manufacturers and fossil energy companies, and given opposition within the banking industry, the final rule may face an uphill battle under the Congressional Review Act or reconsideration by a new Comptroller of the Currency appointed by President-elect Biden.

The final rule adopts the OCC’s proposal with two changes:

  • Language is added in the final rule to clarify that a bank can decline to provide a person with access to a financial service if doing so is necessary for the bank to comply with another provision of law, such as laws on credit, capital, liquidity, and interest rate risk.
  • One of the criteria for fair access in the proposal was that a bank could not deny any person a financial service offered by the bank when the denial’s effect would be to prevent, limit, or otherwise disadvantage the person (1) from entering or competing in a market or business segment; or (2) in a way that benefitted another person or business activity in which the bank had a financial interest.  The OCC eliminated this criterion from the final rule “[t]o focus the rule on the fairness of the covered banks’ decision-making processes and utilization of prudent risk management principles, as well as to facilitate the OCC’s administration of this rule.”

The OCC indicated that it received approximately 35,700 comments on the proposal (which includes approximately 28,000 form letters collected by a single organization).  Its discussion of the comments in the Supplementary Information includes the following noteworthy items:

  • The OCC rejected comments stating that the proposal represented a change in OCC policy that, among other things, requires banks to evaluate reputation risk.  According to the OCC, the final rule is not a change in policy and instead codifies existing guidance dating to at least 2014 and provides additional information on how to operationalize such guidance.  The OCC stated that the rule “clarifies that the OCC expects banks to apply quantitative, impartial risk-based standards in evaluating individual customers, including when considering reputation risk, qualitative factors, and a borrower’s industry.  It is not sufficient to evaluate these characteristics solely on a subjective basis.”  Or, as put simply by the OCC, under the final rule, “banks are free to provide or deny financial services to any individual customer–but first, they must do their homework and be able to show the work.”
  • In response to comments that the proposal could have adverse effects on the environment or enrich the gun industry, the OCC stated that nothing in the rule prevents a bank from considering financial risks caused by environmental issues.  By way of example, the OCC indicated that a lender with collateral in areas experiencing increased frequencies of wildfires, or a lender with real estate exposure in hurricane-prone areas, will be expected to account for such risks in making risk management decisions.  However, in deciding whether to provide financial services to a person, including a person whose activities affect the environment or a participant in the firearms industry, a bank must base its decision “on an analysis of whether providing a particular financial service to that person presents quantifiable risks to the bank, as opposed to indirect or generalized risks that could be balanced by the political branches of government or by price signals or other free market forces.  Conclusory, inconsistent, or categorical assertions in any substantive area not tied to the bank’s specific risk profile reflect poor management and unsafe and unsound behavior.”
  • In response to comments that the proposal represented unwarranted government involvement in bank decision-making, the OCC stated that final rule does not (1) require a bank “to provide any specific type of financial service, to do business with a particular person or industry, or to operate in a particular market,” (2) prevent a bank from declining to provide financial services “to a risky or unprofitable person or to a person with a risk-profile that the bank does not have the expertise to evaluate or manage,” (3) prevent a bank from “pricing or setting other terms of a financial service in a way that reflects the bank’s analysis of the risks posed by a particular customer,” or (4) prevent a bank from declining or ceasing to offer a particular type of financial service.  As an example of how the fourth item applies, the OCC stated that the rule does not require a bank to provide custody services but if a bank does offer such services, the rule requires the bank to provide fair access to those services to all persons “absent demonstrated individual risk factors that cannot reasonably be managed.”  As another example, the OCC indicated that if a bank has historical expertise serving the retail sector but not the energy sector, the rule allows the bank to provide financial services that require this expertise to the former and not the latter.  A bank could not, for example, provide payroll administration services to a company in the wind power business but not to a company in the natural gas business “absent a showing that facts particular to the specific natural gas company reflect risks to the bank not presented by the wind power company.”
  • The OCC received comments arguing that banks should be allowed to take all risks, not just quantifiable risks, into account when making decisions, and that the proposal conflicted with safety and soundness principles by inhibiting responsible management of reputation risk.  While citing language from the Comptroller’s Handbook on the Bank Supervision Process stating that “risk cannot always be quantified in dollars,” the OCC indicated that the final rule requires examiners and bank to “ensure that their evaluation of risk is supported by objective fact rather than mere preference or opinion.” It stated further that the OCC uses the term “quantify” to mean “measurable, auditable, and falsifiable” and that when making a decision about whether to provide a financial service to a customer, a bank may not rely on factors that cannot be quantified.  According to the OCC, “all legitimate risks can be quantified, albeit with different degrees of precision.”  In its view, “even reputation risk can be (and generally is) quantified in terms of the anticipated reach and frequency of negative news stories, the perception of those stories by various segments of the bank’s customer population, the forecasted effect on the bank’s ability to raise capital, and other factors affecting the severity of a given event.  These factors will determine whether a borrower can repay its debts and more broadly whether a given customer relationship will be profitable or unprofitable to the bank on a risk-adjusted basis.”

As reflected in our prior blogs concerning “Operation Choke-Point,” we think it was wholly inappropriate for unelected government bureaucrats to pressure banks to withhold essential banking services from lawful businesses they personally disfavored.  We have similar concerns that a handful of executives of the largest banks in the country can likewise deprive lawful businesses of banking services.  Thus, we are sympathetic to the objectives of the OCC’s fair access rule.  Nevertheless, we are also mindful of the interests of persons with conscientious objections to specified activities or concerns about the reputational consequences of servicing companies engaged in such activities.  Whether the rule represents an appropriate balancing of these competing interests—and whether the rule will survive the attacks that are sure to occur—remain to be seen.

 

After reviewing what EWA is and the different models used for EWA programs, we discuss federal and state regulatory issues raised by such programs, the CFPB’s advisory opinion on such programs and the questions it raises, how a change in CFPB leadership under the Biden Administration could impact such programs, and the future of such programs.

Ballard Spahr attorney Alan Kaplinsky hosts the conversation with Mr. Silverman and James Kim, a partner in Ballard Spahr’s Consumer Financial Practices Group and co-leader of the firm’s Fintech and Payments Team, who advises clients on EWA programs.

Click here to listen to the podcast.

In a development welcomed by industry members, the CFPB published today a “Statement Regarding the Provision of Financial Products and Services to Consumers with Limited English Proficiency.”  The Statement is intended to provide “compliance principles and guidelines to inform and assist financial institutions in their decision making related to serving LEP consumers.”

The Statement is divided into two sections.  One section contains “guiding principles for serving LEP consumers.”  These principles consist of the following:

  • The Bureau encourages financial institutions to better serve LEP consumers while ensuring compliance with relevant federal, state, and other legal requirements.
  • Financial institutions that wish to implement pilot programs or other phased approaches for offering LEP-consumer-focused products can consider doing so consistent with the Statement’s guidelines.
  • Financial institutions can consider developing a variety of compliance approaches related to providing products and services to LEP consumers consistent with the Statement’s guidelines.
  • Financial institutions can mitigate certain compliance risks by providing LEP consumers with “clear and timely” disclosures in non-English languages describing the “extent and limits” of any language services provided throughout the product lifecycle.
  • Financial institutions may wish to consider extending credit pursuant to a legally compliant special purpose credit program to increase credit access for certain underserved LEP consumers.

The second section of the Statement contains “guidelines for developing compliance solutions when serving LEP consumers.”  The guidelines contain “key considerations and [compliance management system (CMS)] guidelines” that financial institutions can use “to mitigate ECOA, UDAAP, and other legal risks when making threshold determinations and other decisions related to serving LEP consumers in languages other than English.”

Key considerations relate to:

  • Language selection
  • Product and service selection
  • Language preference collection and tracking
  • Translated documents

Generally applicable CMS guidelines regarding components that can be included (or refined if existing) in a financial institution’s CMS to mitigate fair lending and other risks associated with providing products and services in non-English languages relate to:

  • Documentation of decisions
  • Monitoring
  • Fair lending testing
  • Third party vendor oversight

We are closely reviewing the Statement and will discuss it in greater detail and share our reactions in a subsequent blog post.

The California Consumer Financial Protection Law (CCFPL) became effective on January 1, 2021.  The CCFPL gives the California Department of Financial Protection and Innovation (DFPI) (the new name given to the state’s Department of Business Oversight) broad jurisdiction and sweeping new authorities that closely resemble those of the CFPB.  As a result, the DFPI has been labeled a “mini-CFPB.”

In its January 2021 monthly bulletin, the DFPI stated that, with the CCFPL now in effect, the DFPI will begin exercising its “expanded powers to better protect consumers from unlawful, unfair, deceptive, and abusive practices.”  The CCFPL gives the DFPI new rulemaking and enforcement authority over “covered persons” relating to unlawful, unfair, deceptive, or abusive acts and practices and defines the term “covered persons” expansively to include entities that previously were not subject to DBO oversight or oversight by a primary regulator, such as debt collectors, credit reporting agencies, certain fintech companies – including some who offer point-of-sale financing – and some merchants who extend credit directly to consumers.  The DFPI also, as a matter of state law, can now enforce the Dodd-Frank Act’s UDAAP provisions against any person offering or providing consumer financial products or services in the state, notwithstanding the CCFPL’s applicability to such persons.   (California’s newly-enacted Debt Collection Licensing Act will require by 2022 the licensure of persons who engage in the business of collecting, on behalf of themselves or others, debts arising from consumer credit transactions with consumers who reside in California.  Such persons could include debt buyers, first-party and third-party collectors.)

In the bulletin, the DFPI outlines its plans to implement the CCFPL and exercise its expanded powers.  Its plans include:

  •  “Beginning immediately, the DFPI will review and investigate consumer complaints against previously unregulated financial products and services, including debt collectors, credit repair and consumer credit reporting agencies, debt relief companies, rent to own contractors, private school financing, and more.”
  • The DFPI is “preparing to open a new Office of Financial Technology Innovation that will engage with new industries and consumer advocates to encourage consumer friendly innovation and job creation in California.  This expansion will allow department representatives to work proactively with entrepreneurs and create a regulatory framework for responsible, emerging financial products.”  (The CCFPL requires the DFPI to establish such an office.)
  • The DFPI is “in the process of standing up a new Division of Consumer Financial Protection that will feature a market monitoring and research arm to keep up with emerging financial products.  Consumer outreach to target vulnerable populations, such as students, new Californians, military servicemembers and senior citizens will be expanded.”

To enable the DFPI to carry out its plans, the DFPI is expected to significantly expand its staffing this year.  In our September 2020 webinar, “California Ramps Up Its Consumer Financial Protection Laws: What You Need to Know,” special guest Bret Ladine, DFPI General Counsel, indicated that the DFPI is planning to add approximately 90 new staff members, including approximately 10 enforcement attorneys, to implement its new authorities and statutory obligations under the CCFPL.