The CFPB will be one of the members of the new Task Force on Market Integrity and Consumer Fraud (Task Force) to be established by the U.S. Department of Justice (DOJ).  Last week, the DOJ announced that it was disbanding the Financial Fraud Enforcement Task Force, established under the Obama Administration, and pursuant to an Executive Order issued by President Trump, plans to establish the Task Force in its place.

The purpose of the Task Force, according to the DOJ press release, is to deter fraud on consumers, especially veterans and the elderly, and the government, specifically as it relates to health care.  The Task Force will provide guidance both for the investigation and prosecution of specific fraud cases and provide recommendations “on fraud enforcement initiatives.”

Although the DOJ will lead the Task Force, the Executive Order directs him to include several other federal agencies, including the CFPB.  Acting Director Mulvaney, who joined Deputy AG Rod Rosenstein in the formal announcement of the Task Force, stated that  “[i]nteragency cooperation is incredibly important to these complex issues” and favorably cited the “growing cooperation” among the DOJ and other federal and state agencies.

The Task Force’s focus on consumer fraud is consistent with Acting Director Mulvaney’s statements that the CFPB will no longer use its enforcement authority to “push the envelope” and instead will use it to target violations that present “quantifiable and unavoidable harm to the consumer.”  It is also consistent with his previous statements identifying the prevention of elder financial abuse as a priority issue for the CFPB.  In his remarks at the formal announcement of the Task Force, Acting Director Mulvaney highlighted the CFPB’s initiatives to address elder financial exploitation.

We have blogged twice (here and here) about the conclusion in RD Legal Funding that Title X of Dodd-Frank is unconstitutional because it provides that the sole director of the CFPB can be removed only for cause.  This post addresses the issue that took up 95 pages of the 101-page opinion—whether RD Legal Funding violated UDAAP and usury laws because purported asset purchases were in fact disguised loans.  Before enforcement authorities or plaintiffs’ attorneys get too excited that the court found against RD Legal Funding on this issue, the unusual facts of the case and the basis for the court’s opinion need to be examined.

RD Legal Funding purchased at a discount, for immediate cash payments, benefits to which consumers were ultimately entitled under the NFL Concussion Litigation Settlement Agreement (the “NFLSA”) and the September 11th Victim Compensation Fund of 2001 (the “VCF”).  In both situations, the court indicated, consistent with the complaint, that the consumer’s right to a benefit and the amount of the benefit had been determined.  The party responsible for payment (the NFL or the U.S. Government) was unquestionably willing and able to make the required payment.  The only question was when payment would be made.  Of course, this scenario differs greatly from the typical situation where a litigation funding company purchases an interest in a claim in ongoing personal injury or other litigation. Indeed, an industry trade group, siding with the CFPB and NY AG against RD Legal Funding, made exactly this point:

The pre-settlement legal funding transactions referenced in ALFA’s amicus curiae brief differ in a crucial respect. (See ALFA Br.)   In those transactions, the pre-settlement legal funding agreements are entered into before the claim is resolved.  The ALFA Member’s right to repayment is contingent on the consumer’s ultimate success on his or her claim. (ALFA Br. 5.)

Opinion at p. 53.

For some reason, the CFPB and NY AG did not argue, and the court did not determine, that the payment of settlement benefits and subsequent payment to RD Legal Funding were assured and, hence, the advances functioned the same as loans.  Accordingly, and because the decision was on a motion to dismiss, where all factual allegations are required to be accepted as true, the RD Legal Funding decision did not address whether benefit payments were certain.

Rather, the decision was based on the court’s determination that the purported benefit assignments in question were void.  In the case of the NFLSA benefits, the underlying settlement agreement expressly provided that any “assignment, or attempt to assign … any rights or claims relating to the subject matter of the Class Action Complaint will be void, invalid, and of no force and effect.” (Opinion at 20).  As to the VCF benefits, the court pointed to three requirements under the federal Anti-Assignment Act, 31 U.S.C. § 3727, for the assignment of claims against the United States.  It then observed that “neither party has argued that the RD Entities complied with the Anti-Assignment Act’s three requirements under Section 3727(b).” (Opinion at 41).  (The court did not address why the assignments to RD Legal Funding could not function as valid assignments of the proceeds of VCF benefits and why such assignments could not be enforced against the VCF beneficiaries.)

After concluding that the assignments before it were void, the court leaped to the conclusion that, as a result, the transactions were necessarily disguised loans.  The basis for this conclusion was never articulated by the court.  Just because the underlying transactions are problematic does not mean that they meet the New York definition of usurious loans.

Remarkably, the decision never addressed the New York (or any other) definition of the term “loan.” It ignored that, for over 150 years, New York courts have declared that “there can be no usury unless the principal sum advanced is repayable absolutely.” Pomeroy v. Ainsworth, 22 Barb. 118 (1856).  Even the NY AG has recognized this principle.  In a February 2005 press release regarding litigation financing reforms, the Attorney General stated:

The cash advances provided by these firms are not considered “loans” under New York State law because there is no absolute obligation by a consumer to repay them. The contracts provide that, in the event the consumer receives no recovery from his or her claim, the consumer owes no money to the cash advance firm.

Maybe in the instant case, if it had confronted the issue, the court would have concluded that the assignments provided the requisite certainty of payment.  In most other cases, however, this certainty will be lacking.

But even putting aside this glaring omission, it is clear that the decision applies to a narrow range of transactions, where the assignments of the underlying claims are void for some reason.  That is not the case when the anticipated proceeds of lawsuit claims are sold on a non-recourse basis.  See Williams v. Ingersoll, 89 N.Y. 508, 518-521 (1882). (binding authority in New York holding that the proceeds of personal injury claims may be assigned).  Critically, “[i]f the assignments are valid … the entire basis of the Government’s jurisdictional theory under the CFPA [that the transactions are loans’ would fall apart.”  (Opinion at 19).

In its June 21 decision in Lucia v. Securities & Exchange Commission, the U.S. Supreme Court ruled that administrative law judges (ALJs) used by the SEC are “Officers of the United States” under the Appointments Clause in Article II of the U.S. Constitution because they exercise “significant authority pursuant to the laws of the United States.”  Under the Appointments Clause, the power to appoint “Officers” is vested exclusively in the President, a court of law, or the head of a “Department.”

In Lucia, the plaintiff had challenged the validity of an SEC administrative proceeding in which the ALJ issued a decision finding that he had violated securities laws.  Mr. Lucia argued that because the ALJ in his case was appointed by SEC staff rather than the Commission itself, the ALJ’s appointment violated the Appointments Clause and made the administrative proceeding invalid.  The Supreme Court adopted Mr. Lucia’s view, holding that because ALJs perform a number of tasks—conducting trials, managing discovery, writing opinions often adopted as final—the ALJ in his proceeding qualified as an “Officer” under the Appointments Clause and the ALJ’s appointment by SEC staff did not satisfy the Appointments Clause.

Going forward, the Supreme Court’s Lucia decision will impact all federal agencies that use ALJs for administrative proceedings, including the CFPB and the federal banking agencies.  With regard to the CFPB and federal banking agencies, we make the following observations:

CFPB.  The CFPB’s Rules of Practice for Adjudication Proceedings were modeled on the SEC’s Rules of Practice and give an ALJ conducting a CFPB administrative proceeding substantially the same authority as an ALJ used in a SEC proceeding.  (The Rules of Practice are the subject of one of the series of RFIs issued by the CFPB.)  For example, applying the Supreme Court’s Lucia analysis, a CFPB ALJ, as does a SEC ALJ, has “the authority needed to ensure fair and orderly adversarial hearings” (for example, to punish an attorney’s discovery violations or other contemptuous conduct with exclusion or suspension) and the CFPB Director can decline to review an ALJ decision that has not been appealed.  As a result, it is very likely that a CFPB ALJ would be deemed an “Officer” for purposes of the Appointments Clause.

It is worth noting that in the D.C. Circuit’s order granting the petition for rehearing en banc in PHH, one of the issues the court ordered the parties to address was what the appropriate disposition would be in PHH if the court were to hold in Lucia that the ALJ was an “Officer.”  The initial PHH decision was issued in 2014 by an ALJ who was on loan to the CFPB from the SEC pursuant to an agreement between the CFPB and SEC.  In its opening en banc brief, PHH argued that if the Supreme Court were to hold that the ALJ in Lucia was improperly appointed, then the ALJ in its case was also an “Officer” whose appointment violated the Appointments Clause.  In its en banc decision in PHH, the D.C. Circuit specifically “decline[d]to reach the separate question whether the ALJ who initially considered this case was appointed consistently with the Appointments Clause.”

The CFPB’s website currently shows the name of an ALJ, Christine Kirby.  The CFPB solicited applications for an ALJ in 2015 and presumably Ms. Kirby was appointed as a result of that solicitation while Richard Cordray was still CFPB Director.  Our research indicates that all federal agencies hire ALJs through a merit-selection process administered by the Office of Personnel Management (OPM).  An agency may select an ALJ from the top three ranked applicants.  It is unclear who at the CFPB would have been responsible for selecting and hiring Ms. Kirby from the list of candidates presented by OPM.  Clearly, anyone other than Mr. Cordray would not have qualified as the “head of a Department” for purposes of the Appointments Clause.

However, even if Ms. Kirby was hired by former Director Cordray, it is not certain that the CFPB Director would qualify as the “head of a Department.”  The Dodd-Frank Act provided that “[t]here is established in the Federal Reserve System, an independent bureau to be known as the “[BCFP].”  Under U.S. Supreme Court decisions that have addressed the meaning of the term “Department,” it is unclear whether an establishment’s status as an independent agency with a principal officer who is not subordinate to any other executive officer is sufficient to render it a “Department” or whether it must also be self-contained.  While compelling arguments can be made that that the CFPB’s status as an independent agency should be sufficient to render it a “Department,” Congress’ decision to house the CFPB in the Federal Reserve means that the CFPB’s status as a “Department” is not free from doubt.

Other than PHH, Integrity Advance is the only CFPB enforcement matter shown on the CFPB’s website in which a decision was issued by an ALJ.   Integrity Advance appealed from the ALJ’s recommended decision and argued in its appeal that the ALJ’s appointment violated the Appointments Clause.  (The ALJ was on loan to the CFPB from the Coast Guard.)  On March 14, 2018, Acting Director Mulvaney issued an order directing that the case be put on hold and stating that he would determine how the appeal should proceed after the Supreme Court issued its decision in Lucia.

Federal Banking Agencies.  It appears that the Fed, OCC, FDIC, and NCUA do not have their own ALJs but instead use the same ALJs who are hired by the Office of Financial Institution Adjudication (OFIA).  (The OPM’s website indicates that the OFIA currently has 2 ALJs.)   OCC regulations describe the OFIA as “the executive body charged with overseeing the administration of administrative enforcement proceedings for the [four agencies].”  In 2017, the Fifth Circuit ruled that a bank official seeking to stay a FDIC order pending review had shown a likelihood of success on the merits of his argument that the FDIC ALJ was an “Officer” whose appointment violated the Appointments Clause.  (The Fifth Circuit subsequently stayed its review pending the Supreme Court’s decision in Lucia.)

Assuming the ALJs used by the banking agencies would be deemed “Officers” for purposes of the Appointments Clause, the validity of their appointments would depend on (1) how ALJs are hired by the OFIA (i.e. are they hired by OFIA or other agency staff or by one or more agency heads), and (2) if ALJs hired by the OFIA are hired by one or more agency heads, whether those agencies qualify as “Departments” for purposes of the Appointments Clause.  For example, the OCC might not qualify as a Department because it is housed in the Treasury Department.

If the ALJs used by the banking agencies were unconstitutionally appointed, it would raise the question of how the agencies must deal with past decisions issued by those ALJs.  Lucia did not overturn all prior decisions issued by SEC ALJs.  Instead, the Supreme Court held that only parties who made timely constitutional challenges could request new hearings, which must be overseen by a different ALJ.  Last year, the SEC formally ratified the staff appointments of current ALJs to limit the impact of a negative decision in Lucia, but the Supreme Court explicitly sidestepped the question of whether that ratification was effective.  The CFPB and banking agencies will have to take steps to ensure that they use properly appointed ALJs in future administrative proceedings.


In a SEC filing dated June 22, 2018, Zillow Group announced that it is no longer under investigation by the CFPB for RESPA and UDAAP compliance with regard to its co-marketing program.  Zillow Group had disclosed the existence of the investigation in May 2017.

According to the SEC filing, Zillow Group received a letter from the CFPB on June 22 stating that the CFPB “had completed its investigation, that it did not intend to take enforcement action, and that the Company was relieved from the document-retention obligations required by the Bureau’s investigation.”

The completion of the investigation leaves unanswered what concerns the CFPB may have had with Zillow Group’s co-marketing program, and whether the investigation was terminated because the concerns were addressed to the CFPB’s satisfaction or for other factors.



The CFPB announced that it has entered into a consent order with Security Group Inc. and its subsidiaries (Security Group) to settle an administrative enforcement action that charged the companies with having engaged in unlawful debt collection and credit reporting practices.  The consent order requires Security Group to pay a civil money penalty of $5 million.

The consent order states that Security Group owned and operated approximately 900 locations in 20 states.  According to the consent order, certain Security Group entities were primarily in the business of making consumer loans and other entities were primarily in the business of purchasing retail installment contracts from auto dealers. The consent order concludes that Security Group engaged in debt collection practices that constituted unfair acts and practices in violation of the Consumer Financial Protection Act and credit reporting practices that violated the Fair Credit Reporting Act and Regulation V.

The consent order finds that:

  • The unlawful debt collection practices in which Security Group engaged included the following:
    • Visiting consumers’ homes and places of employment, as well as the homes of their neighbors, and visiting consumers in other public places, thereby disclosing or risking disclosure of consumers’ delinquencies to third parties, disrupting consumers’ workplaces and jeopardizing their employment, and humiliating and harassing consumers
    • Routinely calling consumers at work, sometimes calling consumers on shared phone lines and in the process speaking with co-workers or employers and thereby disclosing or risking disclosure of consumers’ delinquencies to third parties, and also calling after being told that consumers were not allowed to receive calls at work and that future calls could endanger their employment
    • Failing to heed and properly record consumers’ and third parties’ requests to cease contact or to give personnel access to cease-contact requests logged by employees in other stores, thereby resulting in repeated unlawful calls to consumers and third parties
  • The unlawful credit reporting practices in which Security Group engaged included the following:
    • Failing to establish and implement any reasonable policies and procedures regarding the accuracy and integrity of information furnished to consumer reporting agencies (CRAs)
    • Failing to address in policies and procedures how to properly code customer account information or responses to consumer disputes using the Metro 2 Guide and not ensuring that its monthly furnishing system was coordinated with its consumer dispute furnishing practices
    • Regularly furnishing information to CRAs that it had determined was inaccurate based on information maintained in its data base or other information, such as information provided by consumers as part of a credit reporting dispute or information provided to CRAs

The consent order appears to indicate that first-party collectors that engage in conduct that the FDCPA would prohibit as unfair conduct by third-party collectors continue to be at risk for violating the CFPA’s UDAAP prohibition.  It also appears to indicate that the CFPB continues to disfavor in-person debt collection activities and that companies that do so remain in great peril.  In December 2015, the CFPB issued a bulletin to provide guidance to creditors, debt buyers and third-party debt collectors about compliance with the CFPA UDAAP prohibition and the FDCPA when conducting in-person debt collection visits, such as visits to a consumer’s workplace or home.

In addition to imposing the $5 million civil money penalty, the consent order prohibits Security Group from engaging in the debt collection practices found to be unlawful, and requires it to:

  • implement and maintain reasonable written policies and procedures regarding the accuracy and integrity of the information furnished to CRAs
  • correct or update any inaccurate or incomplete information furnished to CRAs
  • provide a prescribed notice to customers affected by inaccurate information furnished to CRAs
  • update its policies and procedures to include a specific process for identifying when information furnished to CRAs is inaccurate or requires updating (which must include at a minimum the monthly examination of sample accounts and monitoring and evaluation of disputes received from CRAs and customers)
  • submit a compliance plan to the CFPB to ensure that Security Group’s credit reporting and collections comply with applicable federal consumer financial laws and the terms of the consent order (which includes a list of items that, at a minimum, must be part of the compliance plan

It is noteworthy that while the consent order imposes a $5 million civil penalty on Security Group, unlike a 2015 CFPB consent order that required the respondents to refund amounts collected through in-person visits found to be unlawful, the consent order does not require Security Group to make refunds to consumers.

In its Spring 2018 rulemaking agenda, the CFPB stated that it “is preparing a proposed rule focused on FDCPA collectors that may address such issues as communication practices and consumer disclosures.”  It estimated the issuance of a NPRM in March 2019.

As expected, CFPB Acting Director Mick Mulvaney has signed an order directing that the Notice of Charges filed against PHH be dismissed and terminating the matter.  The order indicates, that in dismissing the matter, Mr. Mulvaney accepted the recommendation made jointly by the CFPB and PHH that the matter be dismissed.

The order recites that on January 31, 2018, the D.C. Circuit issued its en banc PHH decision reinstating the RESPA-related portions of the D.C. Circuit’s panel decision.  The panel had held that the plain language of RESPA permits captive mortgage re-insurance arrangements like the one at issue in the PHH case, if the mortgage re-insurers are paid no more than the reasonable value of the services they provide.  The order states that “it is now the law of this case that PHH did not violate RESPA if it charged no more than the reasonable market value for the reinsurance it required the mortgage insurers to purchase, even if the reinsurance was a quid pro quo for referrals.”

PHH issued a press release about the dismissal in which it commented that the CFPB’s order “is consistent with our long-held view that we complied with RESPA and other laws applicable to our former mortgage reinsurance activities in all respects.”



American Banker has reported that that CFPB is planning to dismiss its lawsuit against PHH.  According to the American Banker report, the CFPB and PHH have issued a joint statement in which the parties confirm that they have conferred and agreed to recommend the dismissal and request that Acting Director Mulvaney proceed to dismiss the CFPB’s administrative proceeding.

On January 31, 2018, the D.C. Circuit issued its en banc PHH decision reinstating the RESPA-related portions of the D.C. Circuit’s October 2016 panel decision.  The panel had held that the plain language of RESPA permits captive mortgage re-insurance arrangements like the one at issue in the PHH case, if the mortgage re-insurers are paid no more than the reasonable value of the services they provide.  However, disagreeing with the panel decision, the en banc court rejected PHH’s challenge to the CFPB’s constitutionality based on its single-director-removable-only-for-cause structure.  Neither PHH Corporation nor the CFPB filed a petition for certiorari asking the U.S. Supreme Court to review the en banc decision.

For the first time in 2015, in prosecuting the case against PHH, the CFPB announced a new interpretation of RESPA under which captive mortgage reinsurance arrangements were prohibited.  The panel rejected this interpretation on the ground that the statute unambiguously allows the kinds of payments that the CFPB’s 2015 interpretation prohibited.  The panel remanded the case to the CFPB to determine whether PHH complied with RESPA under the longstanding interpretation previously articulated by HUD.   The en banc court’s reinstatement of that aspect of the panel decision led it to order that the case be remanded to the CFPB for further proceedings.

Although the D.C. Circuit panel had agreed with PHH that the RESPA three-year statute of limitations applies to administrative proceedings, it left undecided another statute of limitations issue for the CFPB to consider on remand.  The panel stated:  “We do not here decide whether each alleged above-reasonable-market value payment from the mortgage insurer to the reinsurer triggers a new three-year statute of limitations for that payment.  We leave that question for the CFPB on remand and any future court proceedings.”

Since the en banc court reinstated the panel’s decision “insofar as it related to the interpretation of RESPA and its application to PHH,” the issue of when the RESPA three-year statute of limitations is triggered, which is of great significance to the mortgage industry, might have been addressed on remand.  The CFPB’s dismissal of the administrative proceeding means the CFPB will not have an opportunity to rule on that issue in this case.

A determination on remand as to whether PHH complied with RESPA under the longstanding interpretation previously articulated by HUD would have required the CFPB to consider whether the mortgage re-insurers were paid more than reasonable market value for the services they provided.  The dismissal of the administrative proceeding also means the CFPB will not have an opportunity to rule on how reasonable market value is determined in mortgage re-insurance arrangements.


According to a Politico report, CFPB Acting Director Mick Mulvaney, speaking at a Washington, D.C. event, commented on changes to the Bureau’s approach to bringing enforcement actions and the Bureau’s plans to review the use of the disparate impact theory of ECOA liability.

With regard to enforcement actions, Mr. Mulvaney is reported to have indicated that the Bureau plans to consider the scale and frequency of violations when deciding whether to bring an enforcement action against a company.  According to Politico, Mr. Mulvaney suggested that he might view a company’s violations as unintentional, and thus exercise his discretion not to take enforcement action, where the number of transactions that involve violations is a small fraction of the company’s total transactions.

While Mr. Mulvaney’s comments appear to have been directed to the CFPB’s decision to bring an enforcement action, it seems likely he would take a similar approach to the CFPB’s assessment of civil penalties in supervisory actions.  Among the factors listed in the matrix for assessing civil penalties used by OCC examiners is the duration and frequency of a bank’s violations before it was notified by the OCC of the violations.  This factor includes an evaluation of “the relationship of the number of instances of conduct to the bank’s total activity.”  In its RFI on its enforcement processes, the CFPB seeks comment on whether it should adopt a civil penalty matrix for determining the amount of civil penalties.

Politico also reported that Mr. Mulvaney indicated that, as a result of Congress’s override of the CFPB bulletin concerning discretionary pricing by auto dealers, the CFPB is reviewing the application of the disparate impact theory under the ECOA.  Although the bulletin set forth the CFPB’s disparate impact theory of assignee liability for so-called auto dealer “markup” disparities, Mr. Mulvaney is reported to have indicated that the Bureau’s review is not limited to the auto finance context and instead will look at the Bureau’s overall approach to ECOA liability.  His comments appear to be consistent with the statement issued by the CFPB following President Trump’s signing of the joint resolution overriding the CFPB bulletin in which the CFPB indicated that it would be reexamining ECOA requirements 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.”




The CFPB has obtained a default judgment in the lawsuit it filed in October 2017 in Maryland federal district court against two commonly-owned debt relief companies, their affiliated payment processor, and three individual principals for alleged violations of the Telemarketing Sales Rule and the Consumer Financial Protection Act.  (The debt relief company defendants were Federal Debt Assistance Association, LLC and Financial Document Assistance Administration, Inc.  The payment processor defendant was Clear Solutions, Inc.)

Since the lawsuit was filed under the leadership of former Director Cordray, the Bureau’s decision to pursue a default judgment suggests that the debt relief industry will remain a target of CFPB enforcement actions.  The industry has also faced a barrage of enforcement actions by the FTC and state AGs and is likely to remain a target of such actions.

The Default Judgment and Order (Order), in its findings of fact, finds that the defendants did not answer or otherwise defend the CFPB’s action.  It further finds that the two debt relief companies, who targeted credit card debt, violated the TSR and CFPA by engaging in conduct that included the following:

  • Requesting and receiving fees before they had renegotiated the terms of at least one debt pursuant to a bona fide plan with the creditor or debt collector, before the customer had made one payment pursuant to that plan and in which the fee was not proportional to the amount saved.
  • Misrepresenting that they would reduce consumers’ principal balances by at least 60%, leave consumers’ creditors without recourse on the debts, and increase consumers’ credit scores
  • Instructing consumers to stop making payments on the debts enrolled in the program without disclosing that doing so might lead to the consumer being sued or to an increase in the amount owed.
  • Misrepresenting their affiliation with, endorsement by, or sponsorship by the CFPB and FTC.

The Order also includes as a finding of fact that for each of the CFPA and TSR violations committed by the two debt relief companies, the payment processor and three individual defendants also violated the CFPA and TSR by providing substantial assistance or support to the debt-relief companies’ unlawful acts and practices.  It also finds that the individual defendants each violated the CFPA “by directly contributing to the development, review, and approval of materials containing the misrepresentations about the companies’ government affiliations.

The Order enters judgment in favor of the Bureau against all of the defendants, jointly and severally, in the amount of $4,972, 389.31 for the purpose of providing consumer redress.  It also enters judgment against all of the defendants, jointly and severally, for a civil penalty of $16 million and imposes an injunction that permanently bans the defendants from engaging in the telemarketing of debt relief and credit repair products and services.

Ballard Spahr has successfully brought actions against fraudulent debt relief companies on behalf of bank clients seeking to protect their customers.  Litigation is only one prong of our multi-pronged strategy, which includes coordination with government regulatory entities and, where applicable, state bar associations.



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 Government 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.”