The CFPB has published its Spring 2021 rulemaking agenda as part of the Spring 2021 Unified Agenda of Federal Regulatory and Deregulatory Actions.  It represents the “new CFPB’s” first rulemaking agenda during the Biden Administration.  The agenda’s preamble indicates that the information in the agenda is current as of April 26, 2021 and identifies the regulatory matters that the Bureau “reasonably anticipates having under consideration during the period from May 1, 2021 to April 30, 2021.”

Three significant items that were listed as “long-term actions” in the Bureau’s Fall 2020 rulemaking agenda, the last agenda issued under former Director Kraninger, no longer appear in the Spring 2021 agenda.  First, there is no longer any reference to possible rulemaking to define the meaning of “abusive” under Dodd-Frank.  Second, there is no longer any reference to possible rulemaking on payday loan disclosures.  Third, the new agenda contains no reference to a possible rulemaking to address concerns that the Bureau’s current rule on loan originator compensation may be unduly restrictive.

The new agenda lists the following two items as in the “final rule stage”:

  • Debt collection.  In April 2021, the CFPB issued a proposal that would extend by 60 days the effective date of Part I and Part II of its final debt collection rule issued in, respectively, October 2020 and December 2020.  The comment period closed on May 19, 2021.  The debt collection rule (Parts I and II) is scheduled to take effect on November 30, 2021.  The CFPB’s proposal would extend the effective date to January 29, 2022. The Bureau indicates in the agenda that its next action will be a final rule as to the effective date.
  • LIBOR.  In June 2020, the CFPB proposed amendments to Regulation Z to address the discontinuation of the London Inter-Bank Offered Rate (LIBOR) that is currently used by many creditors as the index for calculating the interest rate on credit cards and other variable-rate consumer credit products.  In 2017, the United Kingdom’s Financial Conduct Authority, the regulator that oversees the panel of banks on whose submissions LIBOR is based, announced that it would discontinue LIBOR sometime after 2021.  The comment period closed on August 4, 2020. In the agenda, the Bureau indicates that it expects to issue a final rule in January 2022.

The items identified in the agenda as in the “proposed rule stage” are:

  • Business Lending Data (Regulation B).  Section 1071 of Dodd-Frank amended the ECOA, subject to rules adopted by the Bureau, to require financial institutions to collect and report certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  The Bureau issued a SBREFA outline in September 2020 and convened a SBREFA panel in October 2020.  In December 2020, the Bureau released the final report of the SBREFA panel.  The Bureau’s next step will be the issuance of a Notice of Proposed Rulemaking (NPRM) for which the agenda gives a September 2021 estimated date.
  • Amendments to FIRREA Concerning Appraisals (Automated Valuation Models).  The Bureau is participating in interagency rulemaking with the Federal Reserve, OCC, FDIC, NCUA and FHFA to develop regulations to implement the amendments made by the Dodd-Frank Act to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) concerning appraisals.  The FIRREA amendments require implementing regulations for quality control standards for automated valuation models.  The Bureau estimates in the agenda that the agencies will issue an NPRM in December 2021.
  • Mortgage Servicing COVID-19 Relief.  In April 2021, the Bureau issued an NRPM to amend Regulation X in various ways to address the COVID-19 national emergency.  The proposal would amend aspects of the early intervention requirements, loss mitigation procedures, and foreclosure protections.  The comment period on the NPRM closed on May 10, 2021 and the Bureau estimates in the agenda that it will issue a final rule in July 2021.

The items identified in the agenda as in the “pre-rule stage are:

  • Consumer Access to Financial Information.  Section 1033 of Dodd-Frank addresses consumers’ rights to access information about their own financial accounts, and permits the CFPB to prescribe rules concerning how a provider of consumer financial products or services must make a consumer’s account information available to him or her, “including information related to any transaction, or series of transactions, to the account including costs, charges, and usage data.”  In November 2016, the Bureau issued a request for information (RFI) about market practices related to consumer access to financial information and, after holding a symposium in February 2020, the Bureau issued an Advance Notice of Proposed Rulemaking in connection with its Section 1033 rulemaking in November 2020.  In the agenda, the Bureau gives an estimated April 2022 date for its next pre-rule steps.
  • Property Assessed Clean Energy Financing.  In March 2019, the CFPB issued an Advance Notice of Proposed Rulemaking to extend Truth in Lending Act ability-to-repay requirements to PACE transactions.  The Bureau gives an October 2021 estimate in the agenda for pre-rule activity.

The items identified in the agenda as “long-term actions” for which no estimated dates for further action are given are:

  • Mortgage Servicing Rules.  The Bureau is considering whether to propose additional amendments to the servicing rules, including, for example, loss mitigation-related provisions.
  • Artificial Intelligence.  In February 2017, the CFPB issued an RFI concerning the use of alternative data and modeling techniques in the credit process.  The Bureau states that it recognizes the importance of continuing to monitor the use of AI and machine learning and is evaluating “whether rulemaking, a policy statement, or other Bureau action may become appropriate.”

Pursuant to Dodd-Frank Section 1022(d), the Bureau is required to conduct an assessment of each significant rule or order it adopts under a Federal consumer financial law and publish a report of each assessment not later than 5 years after the rule’s or order’s effective date.   In connection with the release of the Spring 2021 agenda,  the CFPB announced that it will assess the October 2015 significant amendments to Regulation C under the Home Mortgage Disclosure Act.

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.)

 

Less than six weeks after hearing oral argument, a unanimous panel of the U.S. Court of Appeals for the Ninth Circuit ruled that the CID issued to Seila Law was validly ratified by Director Kraninger and affirmed the district court’s decision granting the CFPB’s petition to enforce the CID.

After ruling that the CFPB’s structure was unconstitutional because its Director could only be removed by the President “for cause,” the Supreme Court remanded the case to the Ninth Circuit to consider the CFPB’s argument that former Acting Director Mulvaney’s ratification of the CID issued to Seila Law cured any constitutional deficiency.  Because it had ruled that the CFPB’s leadership structure was constitutional, the Ninth Circuit had not previously considered the CFPB’s ratification argument.  Following the Supreme Court’s decision, the CFPB filed a declaration with the Ninth Circuit in which Director Kraninger stated that she had ratified the Bureau’s decisions to: issue the CID to Seila Law, deny Seila Law’s request to modify or set aside the CID, and file a petition in federal district court to enforce the CID.

On remand, the Ninth Circuit determined that Director Kraninger’s ratification made it unnecessary for the panel to decide whether the CID was validly ratified by former Acting Director Mulvaney.  The Ninth Circuit concluded that Director Kraninger’s ratification remedied any constitutional injury that Seila Law may have suffered due to the defect in the Bureau’s structure.  According to the Ninth Circuit, “Seila Law’s only cognizable injury arose from the fact that the agency issued the CID and pursued its enforcement while headed by a Director who was improperly insulated from the President’s removal authority.”  In the court’s view, the CID’s ratification by “[a] Director well aware that she may be removed by the President at will” removed “[a]ny concerns that Seila Law might have had about being subjected to investigation without adequate presidential oversight and control.”

In ruling that the ratification was valid, the Ninth Circuit rejected Seila Law’s argument that until the Supreme Court invalidated the for-cause removal provision, the CFPB was exercising its powers unlawfully, which in turn rendered all of the agency’s prior actions void at the time they were taken and therefore incapable of being ratified.  The Ninth Circuit determined that Seila Law’s argument was “largely foreclosed” by the Ninth Circuit’s decision in CFPB v. Gordon, which involved former Director Cordray’s ratification of the CFPB’s enforcement action against Gordon.  Director Cordray ratified the action after his recess appointment was called into question by the U.S. Supreme Court’s Canning decision and he was reappointed and confirmed by the Senate.  In that case, the Ninth Circuit ruled that the enforcement action was validly ratified by Director Cordray.

In the Ninth Circuit’s view, as in Gordon, the constitutional infirmity at issue in Seila Law related to the Director alone, not to the legality of the CFPB itself.  Therefore, since the CFPB as an agency had the authority to issue the CID in 2017, the CID was not void and could be validly ratified by Director Kraninger.  The Ninth Circuit concluded that “taken together, [the D.C. Circuit’s 1996 decision in] Legi-Tech and Gordon confirm that ratification is available to cure both Appointments Clause defects and structural separation-of-powers defects.”  (In Legi-Tech, the Federal Election Commission brought an enforcement action while two individuals were impermissibly serving as Commission members.  After the presence of those members was held to violate the separation of powers, the Commission reconstituted itself and ratified the enforcement action.  The D.C. Circuit held that the ratification was valid.)

The Ninth Circuit also rejected Seila Law’s argument that Director Kraninger’s ratification was invalid because it took place outside the three-year SOL for bringing an enforcement action against Seila Law.  According to the Ninth Circuit, this argument failed because the SOL “pertains solely to the bringing of an enforcement action, which the CFPB has not yet commenced against Seila Law.”  It observed that the purpose of a CID is to assist the Bureau in determining whether Seila Law has engaged in violations that could justify bringing an enforcement action  and that the question of whether Seila Law could successfully assert an SOL defense in a future enforcement action “had no bearing on the validity of Director Kraninger’s ratification.”

Last month, in RD Legal Funding, the Second Circuit issued a summary order affirming the district court’s holding that the Dodd-Frank Act’s for-cause removal provision is unconstitutional, reversing its holding that the provision is not severable, and remanding the case to the district court to consider the validity of Director Kraninger’s ratification of the enforcement action against RD Legal.  All American Check Cashing, another case involving the ratification question, has been put on hold by the Fifth Circuit until the U.S. Supreme Court issues its decision in Collins v. Mnuchin.

On August 18, Judge Kenneth M. Karas of the Southern District of New York, granted the CFPB’s petition to enforce a civil investigative demand that it issued to the Law Offices of Crystal Moroney prior to the U.S. Supreme Court’s Seila Law decision and that was subsequently ratified by Director Kraninger.

Judge Karas made his ruling orally from the bench.  However, according to reports of the oral argument before Judge Karas, the Moroney law firm had argued that despite the Supreme Court’s severance in Seila Law of the Dodd-Frank Act provision making the CFPB Director removable only “for cause,” the Bureau continued to be unconstitutional because of its funding mechanism.  The Moroney law firm contended that the CFPB’s funding through distributions it requests from the Fed rather than through the regular appropriations process violates the U.S. Constitution’s Appropriations Clause in Article I because it divests Congress of its power of the purse by allowing the Bureau to decide how much funding it receives each year.

Judge Karas is reported to have ruled that the CFPB’s funding mechanism did not violate the Appropriations Clause because Congress had established a formula setting a ceiling on how much the Bureau can obtain from the Fed in annual funding.  (A similar constitutional argument has been made by All American Check Cashing in its supplemental en banc brief filed with the Fifth Circuit.  The Fifth Circuit, on its own motion, vacated the panel’s ruling that the CFPB’s structure was constitutional and granted rehearing en banc.)

On July 2, 2020, following the Seila Law decision, the CFPB filed a Notice of Ratification stating the Director Kraninger had ratified the issuance of the CID to the Moroney law firm.  The CID was originally issued in 2017 and reissued in 2019 under Director Kraninger’s leadership.  The district court ruled that Director Kraninger could ratify her own prior invalid action.  The ruling would appear to imply that Director Kraninger’s ratification was necessary for the CID to now be valid.

In a press release about the ruling, New Civil Liberties Alliance (NCLA), which represents the Moroney law firm, stated that because Director Kraninger had conceded that the CFPB’s structure was unconstitutional before the CID was reissued in 2019, she “knew she was acting unconstitutionally” when the CID was reissued.  According to NCLA, by enforcing the CID, the district court “became the first ever to grant ratification where the ratifier knew what she was doing was unconstitutional in the first instance” and that an appeal was under consideration.

In addition to All American Check Cashing in which the en banc Fifth Circuit will be considering the validity of the CFPB’s enforcement action, the Ninth Circuit, on remand from the Supreme Court in Seila Law, will be considering the validity of the CID issued by the CFPB to Seila Law, and the Second Circuit, in RD Legal Funding, will be considering the validity of the CFPB’s enforcement action.

 

 

 

A group of attorneys general (AGs) from twenty-one states, the District of Columbia, and Puerto Rico has sent a letter to CFPB Director Kraninger requesting that the CFPB immediately withdraw its guidance regarding credit reporting during the COVID-19 pandemic and “resum[e] vigorous oversight of consumer reporting agencies and enforcement of the FCRA.”

The AGs have two objections to the guidance.  First, they claim that the CFPB suggests in the guidance that it will not enforce the CARES Act provision that requires lenders to continue reporting loans as current if they are subject to a forbearance or other accommodation, as long as the loans were current before the accommodation was made.  Second, they claim that the CFPB also suggests that it will no longer take enforcement or supervisory actions against consumer reporting agencies (CRAs) for failing to investigate consumer disputes in a timely fashion.  The AGs assert that they “will not hesitate to enforce the FCRA’s deadlines against companies that fail to comply with the law.” 

The AGs’ claims regarding what the CFPB’s suggests in the guidance mischaracterizes what the CFPB actually stated.  With regard to the CARES Act provision on credit reporting, the CFPB stated that it “expects furnishers to comply with the CARES Act and will work with furnishers as needed to help them do so.”  With regard to investigating disputes, the Bureau stated that, in evaluating FCRA compliance as a result of the pandemic, it “will consider a consumer reporting agency’s or furnisher’s individual circumstances and does not intend to cite in an examination or bring an enforcement action against a consumer reporting agency or furnisher making good faith efforts to investigate disputes as quickly as possible, even if dispute investigations take longer than the statutory framework.”

Contrary to the AGs’ mischaracterizations, there is no suggestion by the CFPB in the guidance that it does not intend to enforce the CARES Act’s credit reporting provision.  There is also no suggestion by the CFPB that it will no longer take enforcement or supervisory actions against furnishers or CRAs for not meeting dispute investigation deadlines.  Rather, the CFPB has made clear that it does intend to take action against furnishers and CRAs that take longer than the statutory timeframes to investigate a dispute and will not do so only where, in light of a furnisher’s or a CRA’s individual circumstances, the furnisher or CRA made good faith efforts to investigate the dispute as quickly as possible.

 

 

 

 

CFPB Director Kathy Kraninger is scheduled to appear before the Senate Banking Committee tomorrow, March 10, at hearing entitled “The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress.”  The Bureau’s Fall 2019 Semi-Annual Report was issued last month.

We would expect the topics about which Senators question Director Kraninger to include the Bureau’s plans for finalizing its proposal to rescind the ability-to-repay provisions of its final payday lending rule and its proposed debt collection rule.

 

 

 

Last Monday, the CFPB announced that it had entered into a new Memorandum of Understanding with the Department of Education to replace the MOU that was terminated by the ED effective October 1, 2017.  The new MOU, which is effective as of January 31, 2020, is limited to the handling of student loan complaints.  The announcement was followed by Director Kraninger’s appearance before the House Financial Services Committee last Thursday.  At the hearing, Director Kraninger told lawmakers that the agencies were negotiating a second MOU to address supervision.

The new MOU allocates the handling of student loan borrower complaints between the CFPB and ED as follows:

  • A borrower attempting to submit a complaint to the Bureau via its website about the origination of a federal student loan will be directed by the Bureau to contact the ED and the Bureau will provide the ED with complaints of this type submitted through the Bureau’s website or another channel.
  • A borrower attempting to submit a complaint to the ED via its website that is related to a private student loan will be directed by the ED to contact the Bureau and the ED will provide the Bureau with complaints of this type submitted through the ED’s website or another channel.
  • The Bureau will accept and process complaints related to private student loans and the servicing of federal student loans, including providing the complaints to servicers and providers servicers’ responses to borrowers.  The ED will have “near real-time access” to complaints about federal student loans through the use of functionality currently being developed by the Bureau “to share complaint analytical tools via its secure Government Portal.”  This functionality “aims to provide government users with search functionality similar to that used by Bureau staff to enhance data sharing and coordination efforts.”
  • If either the Bureau or the ED receives a complaint about federal and private student loans, the agency that receives the complaint will share it with the other agency and the Bureau and the ED will work to determine an efficient process to discuss and track such complaints and collaborate when possible to attempt to resolve the complaint.
  • For complaints regarding the servicing of federal student loans with “program issues,” the ED is responsible for resolving the program issues, attempting to resolve such complaints, and as appropriate, will discuss such issues with the Bureau “regarding the impact, if any, on Federal consumer financial law.”
  • For complaints regarding the servicing of federal student loans with “Federal consumer financial law issues,” the ED will collaborate with the Bureau and the Bureau is responsible for providing the ED with “expertise, analysis, and recommendations regarding resolution consistent with Federal consumer financial laws.”  The ED is responsible for attempting to resolve such complaints informally with the Bureau’s input.
  • For complaints regarding private student loans with “Federal consumer financial law issues,” the Bureau is responsible for attempting to resolve such complaints informally, and as appropriate, will discuss issues with the ED “regarding products offered by, or on the premises of, Institutions of Higher Education or other issues that may impact Federal programs overseen by ED.”

The MOU provides that the agencies will meet at least quarterly “to discuss observations about the nature of complaints received, characteristics of borrowers, and available information about resolution of complaints, as well as analysis and recommendations.”

At the House hearing, Director Kraninger came under fire from Democratic Committee members regarding the CFPB’s supervision of federal student loan servicers.  Since December 2017, based on ED guidance, servicers of certain federal student loans have declined to produce information requested by the Bureau’s examiners.  (Last month, Democratic Senators Sherrod Brown and Robert Mendez, both members of the Senate Banking Committee, sent a letter to Director Kraninger criticizing the Bureau’s failure to resume examinations of federal student loan servicers.)  As reported by American Banker, Director Kraninger told lawmakers at the House hearing that the CFPB and ED are working on a joint examination plan for federal student loan servicers under which the CFPB would examine for compliance with federal consumer financial laws and the ED would examine for contractual compliance.  She also indicated that the agencies were negotiating a second MOU that would detail the new supervision process and indicated that she expected that MOU to be in place by year-end.

 

 

On Wednesday, February 5, the House Financial Services Committee will hold the first part of a two-part hearing on “rent-a-bank” structures. The hearing is titled “Rent-A-Bank Schemes and New Debt Traps: Assessing Efforts to Evade State Consumer Protections and Interest Rate Caps.”  (Part Two is scheduled for February 26.)

The Committee Memorandum for Part One discusses the relevant case law, including Marquette and Madden, and the OCC’s and FDIC’s proposals to undo Madden.  It also discusses H.R. 5050, the “Veterans and Consumers Fair Credit Act,” which would establish a 36% nationwide rate cap for consumer loans.  (The Committee has not yet acted on the bill.)

The scheduled witnesses for Part One are:

  • Monique Limón, Chair, Banking & Finance Committee, California State Assembly
  • Graciela Aponte-Diaz, Director of Federal Campaigns, Center for Responsible Lending
  • Creola Johnson, Professor, The Ohio State University Moritz College of Law
  • Lauren Saunders, Associate Director, National Consumer Law Center
  • Brian Knight, Director and Senior Research Fellow, Program on Innovation and Governance, Mercatus Center at George Mason University

On Thursday, February 6, Director Kraninger is scheduled to testify before the House Financial Services Committee at a hearing titled, “Protecting Consumers or Allowing Consumer Abuse? A Semi-Annual Review of the Consumer Financial Protection Bureau.”  Since such a “semi-annual review” is typically associated with the release of a CFPB semi-annual report and the Fall 2018 semi-annual report was issued last February, it seems likely that the hearing was scheduled with the expectation that the CFPB will release its Fall 2019 semi-annual report before the hearing.  We would expect Director Kraninger to be the target of strong criticism from Democratic Committee members regarding, among other issues, the Bureau’s enforcement of fair lending laws under Director Kraninger’s leadership and its proposal to eliminate the final payday loan rule’s ability-to-repay requirement.

 

On January 31, the University of Utah S.J. Quinney College of Law will hold a program, “Consumer Protection in the Trump Administration,” at which CFPB Director Kathy Kraninger will deliver remarks.  The program, which is part of the University’s 2020 Law and Biomedicine Colloquium, is free and open to the public.

Director Kraninger will be responding to questions from Professor Chris Peterson of S.J. Quinney College of Law and from members of the audience.  Professor Peterson served as Special Counsel for Enforcement Policy and Strategy in the CFPB’s Office of Enforcement from 2012 to 2014 and since 2018, has served as Financial Services Director and Senior Fellow of the Consumer Federation of America.  He has authored several Consumer Federation of America reports critical of the Bureau’s policies under the Trump Administration.  Those reports include Dormant: The Consumer Financial Protection Bureau’s Law Enforcement Program in Decline (March 12, 2019) and Missing in Action? Consumer Financial Protection Bureau Supervision and the Military Lending Act (November 1, 2018).

 

 

 

CFPB Director Kraninger has rejected the argument made by Equitable Acceptance Corp (EAC) that because the Bureau’s structure is unconstitutional, the civil investigative demand it received from the Bureau should be set aside or at least modified to stay the CID’s response deadlines pending the U.S. Supreme Court’s decision in Seila Law.

In her decision and order denying EAC’s petition to set aside or modify the CID, Director Kraninger stated that the Bureau “has consistently taken the position that the administrative process set out in the Bureau’s statute and regulations for petitioning to modify or set aside a CID is not the proper forum for raising and adjudicating challenges to the constitutionality of the Bureau’s statute.”  She also stated that should the Bureau seek a court order to compel compliance with the CID, EAC could raise its constitutional challenge as a defense before the district court.

Director Kraninger also rejected EAC’s argument that the CID was overly burdensome, stating that EAC had not established that it “meaningfully pursued” that objection with the Bureau’s enforcement staff during the meet-and-confer process.  While directing EAC to comply in full with the CID within 10 days of her order, Director Kraninger indicated that EAC “is welcome to engage with Bureau staff about any specific suggestions for modifying the CID…which may be adopted by the Assistant Director for Enforcement or Deputy Enforcement Director, as appropriate.”