The New Jersey Attorney General, Gurbir Grewal, has sent a letter to Department of Education Secretary Betsy Devos in which the NJ AG invites the ED to work with his office “to ensure that any investigations of fraudulent activities by educational institutions are completed properly, rather than ended prematurely or allowed to grow dormant.”

The NJ AG indicates that his invitation is intended to put to rest recent reports that the ED has discontinued investigations into potentially fraudulent activity at several large for-profit colleges and restricted communications between the ED’s staff and state AGs about such investigations.  He asserts that “[a]bandoning the Department’s cooperative relationships with State Attorneys General could only harm the public interest we should be working together to serve.”

The NJ AG asks the ED to let his office partner with the ED if it continues to pursue the investigations it “reportedly has (or had) in progress” or, if the ED will not pursue such investigations, to let his office “pick up where you leave off” and give it access to the ED’s files (claiming that his office can arrange to protect the confidentiality of any shared investigative files.)

 

Yesterday afternoon, President Trump signed into law S.J. Res. 57, the joint resolution under the Congressional Review Act (CRA) that disapproves the CFPB’s Bulletin 2013-2 regarding “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act.”  The General Accountability Office had determined that the Bulletin, which set forth the CFPB’s disparate impact theory of assignee liability for so-called auto dealer “markup” disparities, was a “rule” subject to override under the CRA.

The joint resolution was passed by the Senate in April 2018 by a vote of 51 to 27 and by the House earlier this month by a vote of 234 to 175.  We recently shared our thoughts on the implications of Congressional disapproval.

The CFPB issued a statement about the signing that included a statement from Acting Director Mulvaney that referred to the Bulletin as an “initiative that the previous leadership at the Bureau pursued [that] seemed like a solution in search of a problem.”  Mr. Mulvaney said that “those actions were misguided, and the Congress has corrected them.”

The CFPB stated that the resolution’s enactment “does more than just undo the Bureau’s guidance on indirect auto lending.  It also prohibits the Bureau from ever reissuing a substantially similar rule unless specifically authorized to do so by law.”  Most significantly, the CFPB indicated that it “will be reexamining the requirements of the ECOA” in light of “a recent Supreme Court decision distinguishing between antidiscrimination statutes that refer to the consequences of actions and those that refer only to the intent of the actor” and “the fact that the Bureau is required by statute to enforce federal consumer financial laws consistently.”

This is presumably a reference to the Supreme Court decision in Inclusive Communities and the fact that the ECOA discrimination proscription does not proscribe discriminatory effects but, rather, speaks solely in terms of discrimination “against any applicant on the basis of” race, national origin and other prohibited bases.  As we have observed previously, the basis for the Inclusive Communities holding with respect to the FHA, which is summarized at the end of Section II of the majority opinion, highlights material differences between the FHA and the ECOA.  The distinctions between discrimination statutes that refer to the consequences of actions and those that do not is illustrated vividly by a textual juxtaposition chart that appeared in the House Financial Services Committee Majority Staff Report titled “Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending.”  The Business Lawyer article cited in that report, “The ECOA Discrimination Proscription and Disparate Impact – Interpreting the Meaning of the Words that Actually Are There,” discusses this issue in further detail.  The CFPB’s plans to reexamine ECOA requirements could represent an overture to reviewing references to the effects test in Regulation B (which implements the ECOA) and the Regulation B Commentary.

With regard to the Bulletin’s status as the first guidance document to be disapproved pursuant to the CRA, the CFPB commented that the resolution’s enactment “clarifies that a number of Bureau guidance documents may be considered rules for purposes of the CRA, and therefore the Bureau must submit them for review by Congress.”  The CFPB indicated that it plans to “confer with Congressional staff and federal agency partners to identify appropriate documents for submission.”

 

 

 

 

 

On May 15, Maryland Governor Larry Hogan signed into law a bill that, among other things, establishes the role of Student Loan Ombudsman within the Office of the Commissioner of Financial Regulation and sets forth various duties related to that position.

Maryland SB 1068, titled the Financial Consumer Protection Act of 2018, represents a scaled down version of an attempt by state lawmakers to regulate student loan servicers. An earlier version of the bill contained language that would have created a licensing regime for servicers, similar to what the District of Columbia, California, Connecticut, Illinois, and Washington have enacted over the past couple of years. Instead, SB 1068 enacts the other key prong of such recent legislation: the creation of an ombudsman role to monitor student lending and servicing activity within the state.

Under the new law, the Student Loan Ombudsman is required to:

  • Receive and review complaints from student loan borrowers;
  • Attempt to resolve complaints by collaborating with higher education institutions, student loan servicers, and others, as specified;
  • Compile and analyze complaint data (and, as specified, disclose that data);
  • Help student loan borrowers understand their rights and responsibilities;
  • Provide information to the public and others;
  • Disseminate information about the availability of the ombudsman to address student loan concerns;
  • Analyze and monitor the development and implementation of federal, State, and local laws, regulations, and policies on student loan borrowers;
  • By October 1, 2019, establish a student loan borrower education course that includes educational presentations and material about student education loans;
  • Make recommendations regarding statutory and regulatory methods to resolve borrower problems and concerns; and
  • Make recommendations on necessary changes to Maryland law to ensure the student loan servicing industry is fair, transparent, and equitable, including whether licensing or registration of student loan servicers should be required in Maryland.

The last item on this list suggests that a licensing or registration requirement could be forthcoming. However, under the law as enacted, new obligations for student loan servicers are presently limited to requiring each student loan servicer operating in Maryland to (1) designate an individual to represent the servicer in communications with the ombudsman and (2) provide appropriate contact information for that designee to the ombudsman.

In addition to establishing the Student Loan Ombudsman role, SB 1068 contains a number of noteworthy changes to Maryland’s consumer finance statutes, including (1) expanding the definition of “unfair and deceptive trade practices” under the Maryland Consumer Protection Act (MCPA) to include “abusive” practices; (2) providing that unfair, abusive, or deceptive trade practices include violations of the federal Military Lending Act or the federal Servicemembers Civil Relief Act; (3) adding various provisions related to consumer lending, including raising the Maryland Consumer Loan Law’s licensing trigger from $6,000 to $25,000 (thus expanding the scope of the statute’s licensing requirement); (4) increasing the maximum civil penalties for violations of MCPA and several other financial licensing and regulatory laws; (5) allocating additional resources for enforcement of Maryland’s consumer protection laws; and (6) prohibiting consumer reporting agencies from charging for a placement, temporary lift, or removal of a security freeze.

A group of 35 Democratic Senators have sent a letter to Mick Mulvaney and Leandra English urging the CFPB to continue to publicly disclose consumer complaint information.

In remarks last month at an American Bankers Association conference, CFPB Acting Director Mick Mulvaney is reported to have strongly criticized the CFPB’s policy of publicly disclosing consumer complaint information and suggested that the policy is likely to be discontinued.  Mr. Mulvaney is reported to have said that while the CFPB will maintain the consumer complaint database as required by Dodd-Frank, he did not see any legal requirement for the CFPB “to run a Yelp for financial services sponsored by the federal government.”

In their letter, the Senators assert that consumers would be hurt by the elimination of public access to the database.  They ask the CFPB to provide, if a decision is made to end public access, “an explanation of any proposed changes, a detailed accounting of your justification, and a copy of any analysis you undertook in support of your decision.”

The CFPB has issued a request for information that seeks comment on potential changes to its practices for the public reporting of consumer complaint information.  Comments on the RFI are due by June 4.

 

As readers of this blog already know, Professor Jeff Sovern and I come at most issues from different sides of the street.  Over the years, through our respective blogs and at various programs, we have engaged in spirited but respectful debate about many consumer finance issues.  For that reason, I was particularly disappointed to read Jeff’s blog post about Andrew Smith’s appointment as Director of the FTC’s Bureau of Consumer Protection.

Despite his comment that he does not “mean that Mr. Smith is a thief,” Jeff’s characterization of Andrew as a “Payday Lender Lawyer” in the title of his blog post coupled with his use of the quote “set a thief to catch a thief,” seems intended to raise questions about Andrew’s integrity based solely on his past representation of payday lenders.  Although we strongly disagree with Jeff’s support for the CFPB’s payday lending rule and his criticism of the payday lending industry, those matters are certainly fair game for debate.  However, Andrew has had an unblemished ethical record as an attorney in private practice and as a government attorney in his previous tenure with the FTC.  Indeed, Andrew is considered to be among the country’s most prominent consumer financial services lawyers, as evidenced by his position as Chair of the American Bar Association Consumer Financial Services Committee, his appointment long ago as a fellow of the American College of Consumer Financial Services Lawyers, and his ranking by Chambers USA which evaluates America’s leading lawyers for business.

We also strongly reject the inference that payday lending is a form of theft and observe that, regardless of how an attorney’s clients are viewed, it is bad policy for a lawyer’s qualifications for government appointment to depend on his or her clients’ reputations.  If that were the standard, white collar criminal lawyers would never qualify for government service.

I am confident that in his new leadership role at the FTC, Andrew will continue to adhere to the highest ethical standards.

In addition to the CFPB’s Spring 2018 rulemaking agenda that we have already blogged about, the Spring 2018 rulemaking agendas of several other federal agencies contain some items of interest to consumer financial services providers.

Items of particular interest are:

  • OCC.  The OCC plans to issue an Advance Notice of Proposed Rulemaking “for modernizing the current regulations to carry out the purposes of the Community Reinvestment Act.”  The agenda gives a May 2018 estimated date for the ANPRM.  Last month, the Treasury Department issued a memorandum in which it made recommendations for modernizing the CRA.  The memorandum was directed to the primary CRA regulators, consisting of the OCC, the Federal Reserve, and the FDIC.  Of the three agencies, only the OCC’s Spring 2018 rulemaking agenda included a CRA item.
  • NCUA.  The NCUA is drafting an amendment to its general lending rule to give federal credit unions an additional option for offering Payday Alternative Loans (PALs).  The proposal would be an alternative to the current PALs rule.  It would modify the minimum and maximum loan amounts, eliminate the minimum membership requirement, and increase the maximum loan maturity while incorporating the other features of the current PALs rule.  The NCUA expects to issue a Notice of Proposed Rulemaking in May 2018.
  • Dept. of Education.  In June 2017, the ED announced that it was postponing “until further notice” the July 1, 2017 effective date of various provisions of the “borrower defense” final rule issued by the ED in November 2016, including the rule’s ban on arbitration agreements.  It also made a concurrent announcement that it planned to enter into a negotiated rulemaking to revise the “borrower defense” rule.  In October 2017, the ED published an interim final rule postponing the effective date of such provisions of the “borrower defense” final rule until July 1, 2018, and in February 2018, the ED published a final rule to further postpone the effective date until July 1, 2019.  In its Spring 2018 rulemaking agenda, the ED indicates that it expects to issue a NPRM in May 2018 regarding the “borrower defense” rule.

The 60-day period during which the Senate could pass a resolution under the Congressional Review Act disapproving the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule) with only a simple majority appears to have expired yesterday.  Although the Senate’s failure to pass a CRA resolution is disappointing because the CRA would have provided the “cleanest” vehicle for overturning the Payday Rule, we were always doubtful that there would be 51 votes in the Senate to pass a CRA resolution.

The focus of efforts to undo the Payday Rule will now be the CFPB’s reopened rulemaking and the Texas lawsuit filed by two trade groups challenging the Payday Rule.  In its Spring 2018 rulemaking agenda, the CFPB indicated that it expects to issue a Notice of Proposed Rulemaking to revisit the Payday Rule in February 2019.

In the meanwhile, all eyes will be on the Texas lawsuit to see how the CFPB responds and, in particular, whether it will agree with most, if not all, of the plaintiffs’ allegations.  The CFPB must file its answer by June 11.

 

I was pleased to see the announcement yesterday afternoon by FTC Chairman Joseph Simons that the FTC has approved the appointment of Andrew Smith to serve as Director of the agency’s Bureau of Consumer Protection, beginning next week.

As I indicated in my prior blog post, I have known Andrew for many years going back to his tenure at the FTC earlier in his career and have always felt that Andrew was a very fair-minded attorney who studiously called the shots as he saw them.  In addition to bringing his excellent lawyering skills to the FTC, I am confident that Andrew will continue to take an even-handed approach in his new leadership role.

Andrew’s appointment was approved by a 3-2 vote, with both Democratic commissioners, Rohit Chopra and Rebecca Slaughter, voting against his appointment.

 

The FCC has issued a notice announcing that it is seeking comments on several TCPA issues following the D. C. Circuit’s decision in ACA International v. FCC.  Comments are due by June 13, 2018 and reply comments are due by June 28, 2018.

The FCC’s notice follows the filing of a petition by several industry trade groups seeking clarification of the TCPA’s definition of “automatic telephone dialing system” (ATDS) in light of the D.C. Circuit decision.  The FTC seeks comment on the issues described below.

  • What constitutes an ATDS
    • The TCPA defines an ATDS as “equipment which has the capacity—(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” The D.C. Circuit reversed the FCC’s interpretation of “capacity” as overly expansive.  The FCC seeks comments “on how to more narrowly interpret the word ‘capacity’ to better comport with the congressional findings and intended reach of the statute.”
    • The FCC seeks comment on the functions a device must perform to qualify as an ATDS. The D.C. Circuit set aside the FCC’s interpretations regarding whether a device must be able to generate and dial random and sequential numbers to be an ATDS and whether a device must be able to dial numbers without human intervention to be an ATDS.  The court also noted that uncertainty was created by the FCC’s statement that another “basic function” of an ATDS is “to dial thousands of numbers in a short period of time.”  Among the questions asked by the FCC are whether, to be “automatic,” a system must dial numbers without human intervention and dial thousands of numbers in a short period of time (and, if so, what constitutes a short period of time).  It also asks whether a system can be an ATDS if it cannot dial random or sequential numbers.
    • The D.C. Circuit noted that the statutory prohibition on making calls using an ATDS raised the question of whether the prohibition only applies to calls made using a device’s ATDS functionality.  The FCC seeks comment on that question.
  • How to treat calls to reassigned numbers
    • The TCPA’s autodialed call prohibition excepts calls made “with the prior express consent of the called party.” The D.C. Circuit set aside the FCC’s one-call safe harbor as well as its interpretation that the “called party” means the current subscriber rather than the intended recipient.  The FCC seeks comment on how to interpret the term “called party” for calls to reassigned numbers.
  • How a called party can revoke prior express consent to receive calls
    • The D.C. Circuit upheld the FCC’s ruling that a called party can revoke consent to receive autodialed calls at a wireless number “at any time and through any reasonable means that clearly expresses a desire not to receive further messages.”  In response to concerns that the ruling would make it burdensome to adopt systems to implement revocations using methods chosen by consumers, the court observed that “callers will have every incentive to avoid TCPA liability by making available clearly-defined and easy-to-use opt-out methods” and that, if such methods were afforded to consumers, consumers’ use of  “idiosyncratic or imaginative revocation requests might well be seen as unreasonable.”  The FCC seeks comment on “what opt-out methods would be sufficiently clearly defined and easy to use such that ‘any effort to sidestep the available methods in favor of idiosyncratic or imaginative revocation requests might well be seen as unreasonable.'”  (In its 2017 Reyes decision, the Second Circuit held that TCPA consent cannot be revoked when it is part of the bargained-for exchange memorialized in the parties’ contract.)
  • Whether contractors acting on behalf of federal, state, and local government are “persons” under the TCPA (The issue as to federal contractors is raised by two pending petitions for reconsideration of the FCC’s 2016 Broadnet Declaratory Ruling.  The FCC states that it is seeking renewed comment on the petitions in light of the D.C. Circuit’s decision.)
  • The interplay between the Broadnet ruling and the 2015 TCPA amendment that removed a prior express consent requirement for autodialed calls ”made solely to collect a debt owed to or guaranteed by the United States.” The FCC asks whether its 2016 Federal Debt Collection Rules would apply to a federal contractor collecting a federal debt if a federal contractor is not a “person” under the TCPA.  (The FCC also seeks renewed comment on a pending petition for reconsideration of its 2016 Federal Debt Collection Rules because the issues raised in the petition include the applicability of the TCPA’s limits on calls to reassigned numbers and such limits were addressed by the D.C. Circuit.)

Ballard Spahr’s TCPA Team has deep experience in FCC comment letters and related filings.

 

 

 

The CFPB recently issued revised TILA/RESPA Integrated Disclosure (TRID) rule guides to reflect the adoption of an amendment to the rule to fix the so-called “black hole” issue.  As we reported previously, the amendment will permit the use of an initial or revised Closing Disclosure to reset tolerances without regard to the timing of when before consummation the creditor learns of a change that causes one or more fees to increase.  The amendment will apply to transactions in process as of June 1, 2018 regardless of when the loan application was received, but the amendment may not be applied retroactively.

The CFPB updated both versions of the Small Entity Compliance Guide and the Guide to Forms.  The reason there are two versions of each guide is to account for the TRID rule amendments adopted last summer that became effective on October 10, 2017, but have a mandatory compliance date of October 1, 2018.  While both versions of each guide now reflect the 2018 TRID rule amendment, one version of each guide does not reflect the 2017 amendments and one version of each guide reflects the 2017 amendments.