The Consumer Bankers Association has sent a letter to the leadership of the House of Representatives urging the House to enact legislation that replaces the CFPB’s single director leadership structure with a five-person, bipartisan commission.

The CBA advocates for such legislation as a way to avoid the adverse consequences that it believes would result if the Supreme Court were to rule in Seila Law that the CFPB’s current structure is unconstitutional and the appropriate remedy is to sever the Dodd-Frank Act’s provision that only allows the President to remove the CFPB Director “for cause.”  The CBA expresses the view that a ruling that “install[s] a removable at-will director would leave financial institutions with few assurances that the rules they are complying with today would remain in place.”

In the letter, the CBA notes that legislation to establish a commission has passed the House Financial Services Committee six times and has passed the House four times.  It asserts that replacing the sole director model with a bipartisan commission “would depoliticize the CFPB while increasing stability, accountability and transparency for all consumers and industry stakeholders.”  CBA observes that “as we saw after the departure of Director Cordray, the CFPB’s current governance structure is subject to dramatic political shifts and strains with each change in presidential administration.  Unpredictable political shifts make it difficult for the financial services industry to plan for the future, which ultimately stifles innovation, limits access to credit, and hurts consumers.”

We agree with the CBA’s views on this issue.



A bipartisan bill introduced in the House earlier this week, the Financial Product Safety Commission Act of 2018 (H.R. 5266), would create a bipartisan five-member commission to run the CFPB.  The bill was introduced by two Democratic House members and its cosponsors include a Republican House member.  H.R. 5266 would also change the CFPB’s name to the “Financial Product Safety Commission.”

The bill is likely to have the strong support of consumer finance and banking trade groups.  Industry, which has long viewed a commission as a more appropriate structure for bringing stability and predictability to the CFPB over the long run, has previously urged Congress to change the CFPB’s leadership from a single director to a commission.  Although the Financial CHOICE Act as initially proposed would have created a commission to run the CFPB, the version of the Act passed by the House last year dropped the proposal for a five-member commission in favor of a single director removable at will.


The Office of Inspector General (OIG) for the CFPB and Fed has issued a report on the results of its evaluation of the effectiveness of the CFPB’s Examiner Commissioning Program (ECP) and On-the-Job Training (OJT) Program.  In conducting the evaluation, the OIG assessed the design, implementation, and execution of the two programs. The OIG found that the effectiveness of both programs could be improved.

The CFPB implemented the ECP in October 2014 and, according to the report, has described the ECP as “critical” for its supervision program and the professional development of its examiners.  Although the OIG found that the CFPB had taken some steps to enhance the ECP, it identified several shortcomings.  The OIG found the following:

  • Due to management’s workforce needs and advancement incentives, some examiners appeared to proceed through certain components of the ECP before being fully prepared. In addition, certain controls established by the CFPB to manage examiners’ progression through the ECP might be ineffective.
  • Some examiners did not appear to receive adequate training and developmental opportunities or exposure to certain CFPB internal processes before proceeding to certain components of the ECP.
  • The CFPB did not have a formal method to evaluate and update the ECP.
  • The CFPB did not consistently communicate ECP requirements to prospective employees, including the starting point for the 5-year requirement for completing the ECP.

The CFPB’s OJT program is intended to be a standardized program that ensures examiners are trained uniformly across all regions.  In the program, an OJT trainer is expected to work with an examiner on an examination, provide mentoring, discuss the  CFPB’s Supervision and Examination Manual, and oversee the examiner’s completion of assigned modules. The OIG found that CFPB regions had not consistently implemented the OJT program and examiners may not have understood the requirements, expectations, and purpose of the OJT.

The report makes a series of recommendations for addressing the OIG’s findings and enhancing the effectiveness of the ECP and OJT program.  In the CFPB’s response to the OIG’s draft report, which is included with the report, the CFPB states that it agrees with the OIG’s recommendations and outlines its plans for implementing the recommendations.


A group of 22 trade associations sent a letter last week to the Chairmen and Ranking Members of the Senate and House Appropriations Committees expressing their “strong support” for the creation of a five-member bipartisan commission to lead the CFPB.  The trade associations include the American Bankers Association, American Financial Services Association, Consumer Bankers Association, Financial Services Roundtable, Mortgage Bankers Association, and the Real Estate Services Providers Council, Inc.

In their letter, the associations assert that “[a] Senate confirmed, bipartisan commission will provide a balanced and deliberative approach to supervision, regulation, and enforcement for consumers and the financial institutions the CFPB oversees by encouraging input from all stakeholders.”  They claim that “[t]he current single director structure leads to regulatory uncertainty and instability…leaving vital consumer protection subject to dramatic political shifts with each changing presidential administration.”

The Financial CHOICE Act passed by the House this month would amend the Dodd-Frank Act to continue the CFPB’s single director structure but allow the President to remove the director without cause.  The Treasury report issued this month recommends an amendment to Dodd-Frank that either makes the director removable at-will by the President or restructures the CFPB’s leadership as an multi-member commission or board.

Instead of an amendment to Dodd-Frank, the trade associations express support for changing the CFPB’s leadership structure through the appropriations process, in particular by including language making the change in the FY 2018 Senate and House Appropriations Bills.


In a letter sent to Majority Leader McConnell and Minority Leader-elect Schumer, the Consumer Bankers Association, the Credit Union National Association, the Independent Community Bankers of America, and the National Association of Federal Credit Unions urge Congress to pass legislation to create a five-member commission to run the CFPB.

In their letter, the trade groups note that the CFPB “has recently finalized, or is in the process of finalizing, several rules, including arbitration, small dollar, third-party debt collection, and prepaid cards.”  They comment that “[s]hould the CFPB continue to promulgate these and other rules, Congress may utilize its authority under the Congressional Review Act (CRA) to repeal these actions.”  They argue that “Congress can bring certainty to consumers by passing legislation that would establish a commission and make needed changes to the many rules and regulations the Bureau has or will consider.”  (The CRA establishes a special set of procedures through which Congress can nullify final regulations issued by a federal agency by passing a joint resolution disapproving the rule.  Most significantly, the CRA’s special procedures establish a process under which a joint resolution of disapproval cannot be filibustered in the Senate and can be passed with only a simple majority.)

The trade groups also argue that the presidential election and the D.C. Circuit’s decision in CFPB v. PHH Corporation “have clearly demonstrated a sole director leadership model is fragile, uncertain, and leads to instability at the Bureau.”  In PHH, the D.C. Circuit ruled that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional and, to remedy the constitutional defect, severed the removal-only-for-cause provision from the Dodd-Frank Act to allow the President to remove the CFPB Director at will at any time.  According to the trade groups, “[t]his result makes it even more apparent what a whipsaw effect the single director model presents, inhibiting the ability for financial institutions to plan for the future, which in turn limits economic growth and hurts consumers.”  (The CFPB has filed a petition with the D.C. Circuit in PHH seeking a rehearing en banc.)

A change to a five-member commission to run the CFPB has been proposed in a number of Republican-sponsored bills introduced over the approximately five years the CFPB has been in existence.  Such a change is included in “The Financial CHOICE Act of 2016,” the Dodd-Frank Act replacement bill that was approved this past September by the House Financial Services Committee and is expected to serve as the Republican “wish list” for changes to the CFPB under a Trump Administration.



According to Politico, the Trump transition team has created “landing teams” that will be tasked with going into federal agencies to prepare for the change in Administrations.

Politico has reported that Paul Atkins, who leads the transition team for independent regulatory agencies, will be on the landing team for the CFPB as well as the landing teams for the FDIC and OCC.

Mr. Atkins’ biography on Wikipedia indicates that he is an attorney who served as a commissioner on the SEC from 2002 to  2008.  It states that he has most recently been the CEO of a company that provides consulting services regarding financial services industry matters, including regulatory compliance, risk and crisis management, public affairs, independent reviews, litigation support, and strategy.

House Republicans are making another attempt to replace the CFPB’s director with a five-member commission.  A similar attempt passed the House early last year but did not reach a vote in the Senate.

H.R. 1266, introduced earlier this week by Republican Congressman Randy Neugebauer, is entitled the “Financial Product Safety Commission Act of 2015.”  It would rename the CFPB as the “Financial Product Safety Commission” and replace the CFPB’s director with a five-member commission.  Members would be appointed by the President and subject to Senate confirmation.  They would serve five-year terms, with the terms to be staggered so that initial members would serve terms of one to five years, and no more than 3 members could belong to the same political party.  The committee’s chair would also be appointed by the President.

Eight leading financial services trade group have sent a letter to Mr. Neugebauer expressing their support for the bill.  The trade groups consist of the American Bankers Association, American Financial Services Association, Consumer Bankers Association, Credit Union National Association, Financial Services Roundtable, Independent Community Bankers of America, National Association of Federal Credit Unions, and U.S. Chamber of Commerce.

While the fall elections giving the Republicans control of the Senate increase the likelihood of H.R. 1266 passing the Senate, a veto by President Obama can be expected.

In Integrity Advance LLC v. Consumer Financial Protection Bureau, a panel of the U.S. Court of Appeals for the Tenth Circuit affirmed a CFPB Order requiring Integrity, a lender making short-term loans, and its CEO, James Carnes, to pay $38.4 million in legal and equitable restitution and imposing civil penalties against Integrity ($7.5 million) and Carnes ($5 million), for alleged violations of the Consumer Financial Protection Act, the Truth in Lending Act, and the Electronic Fund Transfer Act. 

The initial Notice of Charges was filed against Integrity and Carnes (collectively, the “Petitioners”) in 2015, and an Administrative Law Judge (“ALJ”) from the U.S. Coast Guard, importantly not a CFPB ALJ, heard the case and recommended to the CFPB Director that Petitioners be ordered to pay $38 million in restitution, jointly and severally, plus civil penalties against Integrity ($8.1 million) and Carnes ($5.4 million).

In 2016, Petitioners appealed the initial ALJ decision to the Director, but the appeal was held in abeyance pending the Supreme Court’s decision in Lucia v. SEC, 138 S. Ct. 2044 (2018). This case would ultimately determine the constitutional status of Securities & Exchange Commission administrative law judges. When Lucia ruled ALJs were constitutional officers and, thus, required to be appointed under the Appointments Clause, the Director remanded the case in 2019 to be reviewed by the CFPB’s ALJ—by the time Lucia was decided, the CFPB had its own constitutionally appointed ALJ.

A second review was conducted by a new ALJ properly appointed under the Appointments Clause. Although Petitioners requested an entirely new hearing, the second ALJ stated she would review the record de novo, and weigh the parties’ arguments with respect to whether the record needed to be supplemented or whether portions of the record should be struck. The ALJ declined to conduct additional pre-hearing discovery or to conduct a new evidentiary hearing, and both parties moved for summary disposition on the existing record.

The ALJ subsequently recommended Petitioners be held liable on all counts, and recommended the Director hold Integrity liable for $132.5 million in equitable restitution, with Carnes jointly and severally liable for $38.4 million. The ALJ also recommended the imposition of civil penalties against Integrity ($7.5 million) and Carnes ($5 million).

On appeal in 2021, the Director (now former Director Kraninger) reduced the award against Integrity to $38.4 million but agreed the entire reduced restitution amount was joint and several as between Petitioners, and also affirmed the full award of civil penalties against Integrity and Carnes. While the ALJ characterized the restitution amount as equitable, the Director concluded restitution was warranted under “equity or law”. Because the CFPB’s Notice of Charges was filed in 2015 before the U.S. Supreme Court ruled in Seila Law that the CFPB was unconstitutionally structured, the Director also ratified the Notice of Charges to cure the constitutional defect.  

Petitioners raised several arguments before the Tenth Circuit, but two are particularly noteworthy. The first is the Petitioners’ argument that the Order should be set aside because the CFPB was unconstitutionally structured when the charges were filed. Even though the ratification occurred after the 3-year limitations period for filing the Notice of Charges had expired, the Court declined to set aside the enforcement action, essentially endorsing the ratification process used by the CFPB. The Court noted that a party could assert a claim for “compensable harm” caused by the CFPB’s unconstitutional structure. But the Court concluded Petitioners had not directed the Court to any such compensable harm. Also noteworthy was Petitioners’ argument that Lucia required a new hearing before a constitutionally appointed ALJ as the remedy for an Appointments Clause violation. Again, the Court approved the CFPB’s actions in this case, and held that the second ALJ’s de novo review satisfied the requirement of a “new hearing”.   

In a separate concurrence, Judge Phillips raised concerns about “legal restitution” under 12 U.S.C. § 5565(a). While noting the issue was not properly preserved in this case, Judge Phillips explained that “legal restitution” was questionable for three reasons: (1) restitution is generally an equitable remedy; (2) a claim to “legal restitution” could render superfluous “payment of damage or other monetary relief” separately listed under the statute; and (3) allowing the CFPB to obtain “legal restitution” in an administrative proceeding raises Seventh Amendment concerns because of guaranteed jury trial rights to parties sued for legal remedies.

We recently wrote about a Law 360 report indicating that the CFPB appears unlikely, at least in the near future, to undertake new rulemaking that would regulate the use of consumer arbitration agreements.  The report was based on comments made by CFPB Director Rohit Chopra at a virtual meeting organized by Public Justice.  However, another report about that meeting, published by BNA states that “[m]andatory arbitration clauses are likely to be a part” of the CFPB’s review of consumer contract clauses.

Are these reports inconsistent?  Not really.  Both reports acknowledge that the Congressional Review Act bars the agency from issuing a rule that is “substantially similar” to the CFPB’s arbitration rule that Congress overturned in 2017.  Moreover, both reports reference comments by Director Chopra suggesting that the CFPB is examining the possibility of arbitration enforcement activity as part of a broader review of consumer contracts with businesses.  So the reports are consistent in surmising both that a new arbitration rulemaking is unlikely to be undertaken in the near future, and that the CFPB is considering a review of consumer financial contracts that might include arbitration provisions.

Our earlier blog on the Law 360 report questioned the ability of the CFPB to regulate consumer arbitration agreements through enforcement since nothing in the Consumer Financial Protection Act authorizes the CFPB to restrict or prohibit the use of arbitration for alleged violations of law, and any such activity would be plainly inconsistent with the Federal Arbitration Act.  We also noted that the arguments asserted by Public Justice and other consumer advocacy groups in their recent letter to Director Chopra urging the CFPB to limit the use of “forced” arbitration agreements with class action waivers by banks and financial institutions would not support enforcement activity, much less new rulemaking, because (a) consumer arbitration provisions are not “forced” since most of them allow the consumer to opt-out without affecting any other terms of the contract and also allow consumers to bring actions in small claims courts, and (b) the data contained in the CFPB’s own study of consumer arbitration show that individual arbitration is faster, less expensive and more beneficial financially than class action litigation. 

There are numerous other significant flaws in the consumer advocates’ letter.  For example, the letter contends that relatively few consumers actually pursue arbitration when a dispute arises.  However, the reality is that most consumers end up resolving their disputes through companies’ informal dispute resolution procedures and also through on-line complaint portals provided by state and federal agencies (including the CFPB).  Moreover, the CFPB has not spent any resources educating consumers about the benefits of arbitration, which is surprising since the CFPB’s earlier rule did not seek to prohibit individual arbitration agreements.  Indeed, the CFPB has encouraged its own employees to use arbitration to resolve workplace disputes.

The consumer advocates’ letter also cites a 2017 Economic Policy Institute (EPI) article in arguing that “arbitrators are more likely to order consumers to pay corporations than the other way around.”  That argument is unfounded.  We analyzed the EPI article at great length back in 2017 and found it was riddled with material errors.  In fact, when properly analyzed, the EPI data show that consumers either did or may have come away with a monetary payment or some amount of debt forbearance in as many as 71% of the arbitrations studied.  In other words, consumers, not corporations, are more likely to benefit from arbitration—a conclusion supported by numerous independent research studies, including one published by Professor Chris Drahozal, who has served as a Special Advisor to the CFPB.  In sharp contrast, according to the CFPB’s arbitration study, in 87% of the 562 class actions that were studied, the putative class members received no benefits whatsoever. 

Thus, it simply is not the case, as asserted in the consumer advocates’ letter, that arbitration produces “vastly more favorable results for corporations than consumers.”  Further to this point, a November 2020 study by the U.S. Chamber Institute for Legal Reform of 101,244 consumer disputes that terminated between January 1, 2014 and June 30, 2020 concluded that:

  • Consumers are more likely to win in arbitration than in court.  Consumers initiated and prevailed in 44% of all consumer arbitrations that were terminated with awards during January 2014—June 2020.  During the same period, consumers initiated and prevailed in 30% of all consumer litigation  cases that were terminated with judgments.
  • Consumers receive higher awards in arbitration than in litigation. The median award in arbitrations that consumers initiated and won was $20,019, compared to just $6,565 in litigation they initiated. The mean award to consumers was $68,198 in arbitration compared with $57,285 in litigation.

Nor is arbitration “unpopular … with the vast majority of the American public.”  On the contrary, a 2005 Harris Interactive online poll of 609 individuals who had participated in an arbitration that reached a decision concluded that: (i) arbitration was widely seen as faster (74%), simpler (63%) and cheaper (51%) than going to court; (ii) two thirds (66%) of the participants said they would be likely to use arbitration again with nearly half (48%) saying they were extremely likely to do so.  Even among those who lost, a third said they were at least somewhat likely to use arbitration again; (iii) most participants were very satisfied with the arbitrators’ performance, the confidentiality process and its length; and (iv) although winners found the process and outcome very fair and losers found the outcome much less fair, 40% of those who lost were moderately to highly satisfied with the fairness of the process and 21% were moderately to highly satisfied with the outcome.

Further contrary to the consumer advocates’ letter, arbitration provisions do not “block[] millions of consumers from seeking justice” or foster  “systemic” wrongdoing by companies.  A class action waiver in a consumer arbitration agreement does not immunize the company from alleged wrongful conduct because (a) arbitration agreements typically provide that a prevailing plaintiff shall recover attorneys’ fees and costs if applicable law permits (as virtually all federal and state consumer protection statutes do) and thus provide an incentive for plaintiffs’ attorneys to handle small dollar consumer claims against the company on an individual basis and (b) companies remain subject to sanctions issued by federal and state governmental authorities (such as the FTC, the FDIC, the CFPB itself, as well as state attorneys general and banking commissioners).  Those authorities are potentially more draconian for companies than private class actions because they are not subject to the rigors of Rule 23 (which contains many criteria which must be satisfied before a class may be certified) and, in addition to obtaining restitution for aggrieved consumers, may cause a company to lose its charter or license.   

In sum, even beyond the CFPB’s lack of authority to regulate consumer arbitration agreements through enforcement activities, the consumer advocates’ letter to Director Chopra provides no  support for such enforcement and should not influence the CFPB in its deliberations.

Our discussion examines the FTC’s Advanced Notice of Proposed Rulemaking relating to what it describes as “commercial surveillance” and the CFPB’s circular confirming that covered persons and service providers may violate the Consumer Financial Protection Act’s prohibition against unfair acts or practices when they fail to adequately safeguard consumer information.  We consider the ANPR’s scope, its areas of focus, and potential federal and state obstacles to the FTC’s initiative.  After providing an overview of the CFPB’s circular, we look at the data security measures highlighted by the CFPB, the CFPB’s authority to address data security, precedents to which companies can look in assessing the adequacy of their data security measures and potential exposure, and steps to mitigate risk.

Alan Kaplinsky, Ballard Spahr Senior Counsel, hosts the conversation, joined by Greg Szewczyk, Co-Leader of the firm’s Privacy and Data Security Group, and Tim Dickens, an associate in the firm’s Litigation Department focusing on privacy and data security.

To listen to the episode, click here.