June 2012

I have previously blogged about the constitutional issues raised by the recess appointment of Richard Cordray as CFPB Director, both on their own, here and here, and, in connection with lawsuits that have challenged President Obama’s contemporaneous NLRB recess appointments, here, here, and here.  One of the issues flagged in those earlier blogs was that, in contrast to the NLRB actions, there did not yet appear to be a plaintiff that would have standing to challenge the Cordray appointment.

Recently, amidst an inordinate amount of deliberately sought publicity, a lawsuit was filed challenging the constitutionality of the CFPB itself, of the Financial Stability Oversight Council (FSOC), as well as that of the recess appointment of Richard Cordray as Director.  State National Bank of Big Spring, Texas, et al. v. Geithner, et al., No. 1:12-cv-01032-esh.  The case is an audacious court challenge to some of the more controversial aspects of the Dodd-Frank Wall Street Reform & Consumer Protection Act, namely Titles I and X.  The case, however, is hampered — perhaps fatally — by the plaintiffs’ questionable standing to bring these claims; in particular, the asserted injury in fact mandated by the “case or controversy” clause of the Constitution seems rather attenuated.

The plaintiffs are a small ($275 million) national bank in Texas, and two non-profit organizations in the metropolitan Washington, D.C. area: the 60 Plus Association, a 7-million member seniors advocacy organization, and the Competitive Enterprise Institute, a conservative public-interest organization.  Injury in fact to the latter two plaintiffs, or their members, seems rather remote, and only the plaintiff bank has a chance, albeit slim, of establishing standing.

A more detailed description of the lawsuit and some commentary on standing and other issues relevant to a motion to dismiss is attached here.

TransparencyRecall that when the CFPB launched the Consumer Complaint Database, its expressed hope that “the marketplace of ideas” – i.e., the public – would study and analyze the information disclosed in the database in order to “determine what the data show[s].” 77 FR 37559. The CFPB also stated that the purpose of the database is to “provide consumers with timely and understandable information to make responsible decisions about financial transactions and to enhance the credit card market’s ability to operate transparently and efficiently.”  Id.

Well, achievement of Goal #1 – public analysis of the data – already appears to be in full swing. As Jeff Sovern remarked yesterday, the Charlotte Observer recently created a chart showing which company received the most complaints out of the total number of complaints currently available in the database (which includes any received by the CFPB since June 1, 2012).

However, achievement of Goal #1 risks undermining achievement of Goal #2 – providing information to assist consumers in making informed purchasing decisions. As noted by Mr. Sovern, the Observer’s chart does not contain any contextual information regarding the resolution of the complaints or how the number of complaints received by the CFPB compares to the total number of credit card customers each issuer has. As a result, the limited information available in the database seems to result in a limited analysis that risks steering consumers away from companies who, in reality, receive very few complaints as compared to their total number of customers or who may actually resolve customer complaints more favorably than their competitors.

In addition to the fact that the database does not contain any information pertaining to the validity of those complaints (thereby making it impossible for consumers to assess whether the complaints relate to legitimate issues that consumers should be concerned about), by reporting only the raw number of complaints, consumers are unable to evaluate how many complaints each company receives in comparison to its total number of customers. Such an analysis could show that as a percentage, fewer customers file complaints against a particular company as compared to that company’s competitors. If the database made such calculations possible, the Observer’s chart could show very different results.

This type of confusion is not surprising – indeed, as noted in our prior post, the industry predicted this is exactly what would occur in light of the current information available in the database. Nevertheless, the CFPB does not appear to be inclined to make any changes and continues to plan an expansion of the database to include other financial products. Given that the concerns expressed by the industry during the comment period already are coming to fruition, we sincerely hope that the CFPB will take a hard look at ways to improve the database in order to permit more robust analyses and ensure that Goal #2 actually is achieved.


Earlier this week, we shared the comment letter that was filed jointly by the American Bankers Association, the Consumer Bankers Association and The Financial Services Roundtable in response to the CFPB’s Request for Information Regarding Scope, Methods, and Data Sources for Conducting Study of Pre-Dispute Arbitration Agreements.  Ballard Spahr was engaged by the trade groups to assist them in preparing the comment letter. 

The CFPB has now released all of the comment letters it received on its request, which are available on regulations.gov.


Mercedes Kelley-TunstallThe American Bankers Association has invited me to speak at their series of telephone briefings on Unfair, Deceptive or Abusive Acts or Practices, or UDAAP. I will be a panelist for two of the briefings—”UDAAP Issues in Operations and Product Design” on July 10, 2012, and “Social Media and the UDAAP Impact” on July 24, 2012.

All of the briefings are two hours and are scheduled for 2:00 – 4:00 p.m. ET. The series of three briefings began on June 26, 2012, with “UDAAP Issues in Marketing and Advertising.” Each of the programs is also approved for varying levels of CFMP, CRCM, and CPEs for CPAs.

The American Bankers Association, the Consumer Bankers Association and The Financial Services Roundtable have filed a joint comment letter responding to the CFPB’s Request for Information Regarding Scope, Methods, and Data Sources for Conducting Study of Pre-Dispute Arbitration Agreements.  Ballard Spahr served as counsel to the trade groups in preparing the comment letter. 

The Dodd-Frank Act requires the CFPB to conduct a study of the use of arbitration in consumer financial services agreements and authorizes the CFPB to limit or prohibit the use of arbitration based on the CFPB’s findings.  The CFPB ‘s request for information posed a series of questions on four main topics dealing with the scope, methodology, and data sources of the study.  We prepared a legal alert that provides more details on the CFPB’s request.


The Township of Mount Holly, New Jersey has filed a petition for certiorari in the U.S. Supreme Court raising the issue of whether disparate impact claims are available under the Fair Housing Act.  You can see a copy of the petition here.  The petition has been docketed and given case number 11-1507 in the Supreme Court.  Here’s a link to the docket page so you can follow the case.  Ballard Spahr represents one of the non-township defendants in the case.

The issues raised in the Mount Holly petition are virtually a carbon-copy of those in Magner v. Gallagher, the case which would have decided the disparate impact issue but for the City of Saint Paul’s last-minute decision to dismiss its appeal. 

The CFPB, joined by HUD and the Department of Justice, has insisted recently that disparate impact claims are viable under the Fair Housing Act and ECOA. If the Court agrees to hear the Mount Holly case, these agencies will have the opportunity to test their interpretations of these statutes against the plain text of the statutes themselves.  As I predicted before Magner was dismissed, I strongly suspect that the Supreme Court will find an absence of any plain-language support for disparate impact claims, and the Court’s recent decision in Freeman v. Quicken Loans makes me even more doubtful that the Court will defer to the government’s views on this issue.

Speaking of which, this case will present yet another opportunity for HUD’s proposed disparate impact rule under the Fair Housing Act to interact with the Court’s decision on granting certiorari.  Recall that the proposed rule was released just over a week after certiorari was granted in Magner.  Will the final rule come out as the Court considers the Mount Holly case?  I think it’s very possible.

Stay tuned and watch the Mount Holly case to see if the opportunity lost in Magner will be regained in this case.

With the first anniversary of when it officially opened its doors for business only a month away, the CFPB has made several changes in its leadership.  The changes announced this week include new positions for four existing senior staff members and the addition of two new senior staff members from outside the CFPB.  Among the changes in existing staff is the move of  Len Kennedy from General Counsel to Senior Advisor and Counselor to Director Cordray.  Mr. Kennedy’s replacement as General Counsel will be Meredith Fuchs who had been serving as Director Cordray’s Chief of Staff.


Although it dealt with the Department of Labor’s (DOL) interpretation of a Fair Labor Standards Act (FLSA) regulation, the U.S. Supreme Court’s decision issued earlier this week in Christopher v. Smithkline Beecham Corp. has significant implications for the CFPB’s approach to amicus brief filings. 

In announcing in March that it had filed an amicus brief in a 10th Circuit TILA rescission case, the CFPB stated that it was committed to filing amicus briefs in cases involving the federal consumer financial protection laws it oversees.  At the time, we commented that the CFPB’s proactive approach stands in stark contrast to the approach taken by the Federal Reserve Board when it was charged with implementing federal consumer financial protection statutes such as TILA. When the Fed felt the courts were incorrectly interpreting the statute in question, the Fed would generally address the issue by proposing revisions to the implementing regulation or official staff commentary rather than by submitting an amicus brief. 

The CFPB has since filed amicus briefs in other TILA cases involving the same rescission issue, several FDCPA cases, and a RESPA case.  (The CFPB’s TILA interpretation has produced a circuit split and its RESPA interpretation was rejected by the U.S. Supreme Court.) 

In Christopher, the Supreme Court ruled that the Ninth Circuit had properly refused to give deference to the DOL’s interpretation of the FLSA regulation at issue which the DOL advanced in an amicus brief.  The DOL had first announced that interpretation  in an uninvited amicus brief filed in a Second Circuit case involving the same regulatory issue.   The Supreme Court observed that it would create the potential for “unfair surprise” to parties regulated by the DOL if a court were to defer to the DOL’s interpretation.  According to the Supreme Court,  “it is one thing to expect regulated parties to conform their conduct to an agency’s interpretations once the agency announces them; it is quite another to require regulated parties to divine the agency’s interpretations in advance or else be held liable when the agency announces its interpretations for the first time in an enforcement proceeding and demands deference.”  The Supreme Court also observed that the DOL’s interpretation “lacks the hallmarks of thorough consideration,” noting the DOL’s use of amicus briefs to announce its interpretation precluded an opportunity for public comment. 

We hope the Supreme Court’s decision will deter the CFPB from attempts to use amicus filings as a substitute for notice-and-comment procedures that ensure all views are adequately considered.

Today, the Consumer Financial Protection Bureau launched its Consumer Complaint Database, which allows the public to view consumer complaints filed against credit card issuers. The Bureau also announced that it is submitting a request to the Federal Register seeking comments on extending the database to include other financial products in addition to credit cards – any such comments are due by July 19, 2012. We, along with others in the industry, are disappointed by the Bureau’s decision to publicly release unverified and unrepresentative complaint data, along with the identities of the companies subject to those complaints.

Currently, the database houses the complaints filed since June 1, 2012 but the Bureau plans to add the complaints filed before June 1 later this year – to date, the Bureau has received over 17,000 credit card complaints. The publicly-available information in the database includes the type of complaint made by the consumer, the date of the submission, the consumer’s zip code, and the company the complaint concerns. It also shows any actions taken by the company on a complaint, including whether the company’s response was timely, how the company responded, and whether the consumer disputed the company’s response.

Responding to comments from both consumer and industry representatives, the CFPB broadened the response categories of “closed with relief” and “closed without relief” to the following four categories: “closed with monetary relief,” “closed with non-monetary relief,” “closed with an explanation” and simply “closed.”  Previously, the “closed with relief” category could be used only if the company provided objective and verifiable monetary relief to the consumer that is measurable in dollars.   The narrow scope of such category lead to criticism that the “closed without relief” category did not appropriately reflect when other forms of relief were provided, or when no relief was appropriate.  The “closed with non-monetary relief” category may be used when objective and verifiable relief is provided that does not meet the standard for “closed with monetary relief.”

Closing a complaint with non-monetary relief could include things like changing account terms, correcting submissions to a credit bureau, or coming up with an alternative that doesn’t have direct monetary value to the consumer – however, there does not appear to be any way to account for the actual non-monetary relief in the database. Closing a complaint with explanation means the company provides an explanation to the consumer that substantively meets the consumer’s desired resolution or explains why no further action will be taken. The database prioritizes for review and investigation complaints in which a consumer disputes the company’s response or a company fails to provide a timely response. The database will be updated daily with any new complaints.

In connection with this release, Richard Cordray stated that “[e]ach and every time we hear from American consumers about their troublesome transactions with financial products, it gives us important insight.” According to Mr. Cordray, “[t]he information helps us and it should be available to help others too. By making our data publicly available, initially in the area of credit cards, we hope to improve the transparency and efficiency of this essential consumer market.” However, just because the Bureau may claim to receive such insight from this data, that does not necessarily mean any such benefits are readily transferred to the public. And as we previously blogged, releasing this kind of unverified and unrepresentative data presents a host of problems and hardly achieves Mr. Cordray’s stated objectives. Already, the ABA and others have expressed disappointment about the Bureau’s decision to release the identities of the companies subject to the complaints and other information contained in the database, particularly in light of the reputational risks inherent in such disclosures.

Moreover, given the Bureau’s prior statement that it hopes consumer groups and academics will use the database information to look for trends and patterns, it is hardly appropriate to draw any conclusions (or enact any related regulations) based upon a data set that is demonstrably unreliable and unrepresentative, and which reflects the views of only the consumers who chose to complain – instead of those who may be perfectly happy with their financial products. Instead, as previously urged by the ABA, the appropriate type of data upon which to base any such research, at least according to generally-accepted methods of statistical analysis, is aggregate market-level complaint data that is more representative and reliable than the data included in the database. With its decision today, the Bureau seems to be signaling that it will weigh the views of people who choose to complain more than those who may be satisfied in making policy decisions, and it seems to be urging the public to take the same incomplete view.

One of the CFPB’s most worthwhile Dodd-Frank mandates is to help older Americans avoid financial exploitation.

 In addition to developing programs to provide financial literacy and counseling to seniors, the CFPB is taking steps to protect seniors from unethical financial advisors. Those steps
include (1) monitoring certifications that designate financial advisors as specially qualified to serve seniors and alerting the SEC or state regulators of certifications that are identified as unfair, deceptive or abusive, and (2) making legislative and regulatory recommendations to Congress on best practices for educating seniors on the legitimacy of advisor certifications and methods a senior can use to identify an appropriate financial advisor.

 To assist the CFPB in those efforts,  the CFPB has issued a request for information that seeks comments on a series of questions dealing with (1) financial advisor certifications and designations, (2) financial literacy programs tailored to seniors, and (3) fraudulent, unfair, abusive or deceptive practices targeting older Americans generally and older veterans and/or military retirees in particular. 

We’re glad to see that the CFPB intends to take an aggressive approach to addressing the serious problem of elder financial abuse.