According to news reports yesterday, Ohio Supreme Court Justice Bill O’Neill has told media sources that he was informed by an unnamed mutual friend that Director Corday plans to enter the 2018 Democratic primary for Ohio governor.

Judge O’Neill indicated that the mutual friend had called him to ask whether the Judge planned to abide by prior statements that he would not enter the race if Director Cordray decided to run.  Judge O’Neill stated that he did plan to abide by his prior statements.

There is also speculation that Director Cordray will announce his candidacy on September 4 at the Cincinnati AFL-CIO annual Labor Day picnic where he is a scheduled speaker.  Should Director Cordray resign in September, plenty of time will remain for a new Director to take a fresh look at the CFPB’s arbitration rule and move forward on the steps necessary to prevent the rule from becoming operational on March 19, 2018 as currently scheduled.


This past Thursday, by a  vote of 31-21, the House Appropriations Committee approved the fiscal year 2018 Financial Services and General Government Appropriations bill.  In addition to multiple provisions to reform the CFPB, the bill contains a provision intended to override the Second Circuit’s opinion in Madden v. Midland Funding.  In Madden, the court held that a non-bank transferee of a loan from a national bank loses the ability to charge the same interest rate that the national bank charged on the loan under Section 85 of the National Bank Act.

The CFPB reforms are:

  • Bringing the CFPB into the regular appropriations process (Section 926)
  • Eliminating the CFPB’s supervisory authority (Section 927)
  • Removing the CFPB’s “rulemaking, enforcement, or other authority with respect to payday loans, vehicle title loans or other similar loans” (Section 928)
  • Removing the CFPB’s UDAAP authority (Section 929)
  • Repealing the CFPB’s authority to restrict arbitration (Section 930)

Section 925 of the Appropriations bill, which would override the Second Circuit’s Madden opinion, is identical to a provision in the CHOICE Act passed by the House.  The bill would add the following language to Section 85: “A loan that is valid when made as to its maximum rate of interest in accordance with this section shall remain valid with respect to such rate regardless of whether the loan is subsequently sold, assigned, or otherwise transferred to a third party, and may be enforced by such third party notwithstanding any State law to the contrary.”  Like the CHOICE Act, the Appropriations Bill would also add the same language (with the word “section” changed to “subsection” when appropriate) to the provisions in the Home Owners Loan Act, the Federal Credit Union Act, and the Federal Deposit Insurance Act that provide rate exportation authority to, respectively, federal savings associations, federal credit unions, and state-chartered banks.  (While these statutory amendments would be welcome, Alan Kaplinsky pointed out in an article for American Banker’s BankThink that the OCC could more simply and quickly accomplish the same objective for national banks by issuing a regulation.)




The CFPB has announced the following new members to its Consumer Advisory Board, Academic Research Council, Community Bank Advisory Council, and Credit Union Advisory Council.  New members to the Consumer Advisory Board and Academic Research Council will serve three-year terms and new members to the Community Bank and Credit Union Advisory Councils will serve two-year terms.

Consumer Advisory Board Members:

  • Randi Adelstein, Assistant General Counsel for Regulatory Affairs, MasterCard International Incorporated, Purchase, NY
  • Patricia L. Arvielo, President and Co-Founder, New American Funding, Tustin, CA
  • Julie Kalkowski, Executive Director, Financial Hope Collaborative, Creighton University, Omaha, NE
  • Brent A. Neiser, Senior Director, National Endowment for Financial Education, Denver, CO
  • Ohad Samet, CEO, One True Holding Company, San Francisco, CA
  • Dr. Howard B. Slaughter, Jr., President and Chief Executive Officer, Habitat for Humanity of Greater Pittsburgh, Pittsburgh, PA

Community Bank Advisory Council Members:

  • Richard H. Harvey, Jr., Senior Vice President and Chief Compliance Officer, Colonial Savings F.A., Fort Worth, TX
  • Max S. Yates, Senior Executive Vice President and Chief Risk Officer, Bank Plus, Ridgeland, MS

Credit Union Advisory Council Members:

  • Kayce Bell, Chief Development Officer, Alabama Credit Union, Tuscaloosa, AL
  • Jack Fallis, President and CEO, Global Credit Union, Spokane, WA
  • Luis Peralta,  Chief Administrative Officer, Kinecta Federal Credit Union, Manhattan Beach, CA
  • David Tuyo, Senior Executive Vice President and Chief Financial and Operations Officer, Power Financial Credit Union, Pembroke Pines, FL

Academic Research Council:

  • Dr. John G. Lynch, Senior Associate Dean for Faculty and Research, Leeds School of Business, University of Colorado Boulder, Boulder, CO


On July 12, 2017, a subcommittee of the House Financial Services Committee will hold a hearing entitled “Examining Legislative Proposals to Provide Targeted Regulatory Relief to Community Financial Institutions.”  The Subcommittee on Financial Institutions and Consumer Credit will examine nine bills that include bills that would: (1) amend the FDCPA, including by classifying debt buyers as “debt collectors” and subjecting debt collectors for federal agencies to FDCPA requirements, (2) require the GAO to study debt collection practices at the federal, state, and local levels; (3) repeal the CFPB’s UDAAP enforcement authority and raise the CFPB’s large depository institutions supervisory threshold to institutions with assets of $50 billion or more, and (4) amend various TILA mortgage-related provisions such as escrow and appraisal requirements.  All nine bills are described in more detail in the Subcommittee Memorandum.

The witnesses scheduled to appear at the hearing are:

  • Robert Fisher, President & CEO of Tioga State Bank on behalf of the Independent Community Bankers of America
  • Rick Nichols, President & CEO of River Region Credit Union on behalf of the Missouri Credit Union Association
  • J.W. Verret, Senior Affiliated Scholar and Associate Professor, George Mason University School of Law



On June 26, 2017, the en banc D.C. Circuit was equally divided on the question of whether SEC administrative law judges (“ALJs”) are “inferior officers.”  This leaves intact the D.C. Circuit panel decision in Lucia which held that SEC ALJs are not officers and do not have to be appointed by the President.  Because SEC ALJs are not appointed that way, a different decision may have called into question virtually every SEC ALJ decision ever issued.

Because it was an SEC ALJ who rendered the initial PHH decision, there was talk that a different decision in Lucia may have given the en banc D.C. Circuit a way to decide the PHH case in PHH’s favor without addressing the constitutional issues surrounding the CFPB’s structure.  Indeed, in its final merits brief at the panel level, PHH raised the same argument at issue in Lucia.  While the panel decision in PHH did not address the issue, in his concurrence, Judge Randolph stated that the problem with the ALJ’s appointment “itself rendered the proceedings against petitioners unconstitutional.”  It may be that the Lucia issue ends up being decided in the PHH case, which has an eleven-judge panel that cannot split evenly.

Today, the House Appropriations Committee’s Subcommittee on Financial Services and General Government will mark up its draft fiscal year 2018 appropriations bill.  The draft bill contains multiple provisions to reform the CFPB, which include:

  • Bringing the CFPB into the regular appropriations process;
  • Eliminating the CFPB’s supervisory authority;
  • Removing the CFPB’s UDAAP authority;
  • Repealing the CFPB’s authority to place restrictions on arbitration; and
  • Creating an exemption from risk retention requirements for nonresidential mortgages.

Notably, the bill does not challenge the CFPB’S leadership structure.  As reported in a blog post earlier this week, a group of financial trade associations had expressed support for including provisions in this appropriations bill that would reform the CFPB’s organizational structure, so that the CFPB would be controlled by a five person commission rather than a single director.

The legislative strategy of including CFPB reforms as a “policy rider” to appropriations bills has frequently been pursued by the House in prior years.  For example:

  • The FY2017 draft appropriations bill contained provisions requiring a commission structure; and
  • The FY2016 draft appropriations bill contained provisions requiring the CFPB to be funded through the congressional appropriations process, rather than through transfers from the Federal Reserve as provided in the Dodd-Frank Act.

These CFPB reforms were never incorporated into any of the final appropriations bills enacted by the Congress.  This may have been due to the fact that Senate Republicans do not have a strong enough majority to defeat a Democratic filibuster of CFPB reforms, although the Republicans have been the majority party since the 2014 elections.  As the House appropriations bill moves forward, the CFPB provisions could be impacted by Republican efforts to reform the CFPB through the budget reconciliation process.  For example, Republicans might attempt to use that process to defund the CFPB entirely by eliminating its funding from the Federal Reserve, while also avoiding a filibuster in the Senate.

Policy riders in appropriations bills typically influence agencies by directing how appropriated funds may be spent, such as a provision prohibiting the use of appropriated funds for a particular agency program.  Because the CFPB is not dependent on appropriations to fund its programs, it is questionable to what extent congressional directives  in an appropriations bill could result in the changes to the CFPB sought by Republicans.  Even if the CFPB were dependent on the appropriations process, any CFPB reforms implemented through an appropriations bill could face legal challenges.  Even the Supreme Court has concluded that the congressional “power of the purse” is not without limits.  See e.g., South Dakota v. Dole, 483 U.S. 203 (1987).

UPDATE: The Subcommittee reported out the bill by voice vote for consideration by the full House Appropriations Committee.

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.


At the Comply2017 conference held earlier this week in New York City, Scott Steckel, a member of the CFPB’s Office of Consumer Response, gave a presentation in which he detailed the CFPB’s complaint process and how the CFPB shares complaint data through its complaint database.

Also at the conference, Ballard Spahr attorney James Kim moderated a panel discussion focused on innovation in which the panelists were Paul Reymann, Director for Consumer Compliance Policy at the OCC, and Duane Pozza, Assistant Director, Division of Financial Practices, at the FTC.  Mr. Reymann is a member of the OCC’s Office of Innovation which is handling the OCC proposal to allow fintech companies to apply for special purpose national bank charters.  The panelists discussed the agencies’ work in various areas such as fintech, privacy and data security, marketplace lending and BSA/AML, as well as the Trump Administration’s potential impact on OCC and FTC priorities and plans.



The report issued earlier this week by the U.S. Treasury Department to President Trump in response to his February 2017 Executive Order 13772, “A Financial System That Creates Economic Opportunities-Banks and Credit Unions,” recommends numerous CFPB changes.

Entitled “Core Principles for Regulating the United States Financial System,” the Executive Order was a high-level policy statement consisting of a series of Core Principles designed to inform the manner in which the Trump Administration regulates the financial system.  The Order directed the Treasury Secretary to identify, in a report to the President, any laws, regulations, guidance and other Government policies “that inhibit Federal regulation of the United States financial system in a manner consistent with the Core Principles.”

Treasury’s report, the first in a series of four reports to be issued in response to the Executive Order, covers the depository system, i.e. “banks, savings associations, and credit unions of all sizes, types and regulatory charters.”  In addition to the recommendations directed at the CFPB, the report makes recommendations for addressing a wide range of issues such as market liquidity, capital requirements, and the supervisory and regulatory roles of the federal banking agencies.

Treasury’s CFPB recommendations are discussed in the section of the report entitled “Providing Credit to Fund Consumer and Commercial Needs to Drive Economic Growth,” with the CFPB viewed as the source of many of the “numerous regulatory factors [identified by Treasury] that are unnecessarily limiting the flow of credit to consumers and businesses and thereby constraining economic growth and vitality.”  The CFPB recommendations are intended to address the CFPB’s “unaccountable structure and unduly broad regulatory powers [which] have led to predictable regulatory abuses and excesses” and its “approach to rulemaking and enforcement [which] has hindered consumer access to credit, limited innovation, and imposed unduly high compliance burdens, particularly on small institutions.”

Several of Treasury’s recommended CFPB changes are similar to the changes to the CFPB contained in the Financial CHOICE Act passed by the House last week.  It is unclear how Treasury’s recommendations will impact the CHOICE Act’s prospects in the Senate or the Senate’s approach to Dodd-Frank reform.

In addition to recommendations for changes to the CFPB’s residential mortgage regulations that we will discuss in a separate blog post, the Treasury’s CFPB recommendations include the following:

  • Structure and Funding.  Amend Dodd-Frank to:
    • Make the Director removable at-will by the President or restructure the CFPB as an independent multi-member commission or board; fund the CFPB through the annual Congressional appropriations process
    • Allow the CFPB to only retain and use funds in the Consumer Financial Civil Penalty Fund for payments to victims of the activities for which civil money penalties were imposed and require the CFPB to remit any excess fund to the Treasury
  • Regulatory Authority.  Issue UDAAP regulations “that more clearly delineate [the CFPB’s] interpretation of the UDAAP standard” and change CFPB policy to only seek monetary damages “in cases in which a regulated party had reasonable notice—by virtue of a CFPB regulation, judicial precedent, or FTC precedent—that its conduct was unlawful.”
  • Supervisory Authority. Repeal the CFPB’s supervisory authority, with bank supervisory authority limited to the prudential regulators and supervision of nonbanks limited to state regulators.
  • Enforcement Authority.
    • Issue a CFPB rule barring enforcement actions “in areas in which clear guidance is lacking or the CFPB’s position departs from the historical interpretation of the law” unless the CFPB has issued “rules or clear guidance subject to public notice and comment procedures” before bringing the action
    • Change the requirements for no-action letters to make them less onerous by aligning CFPB policy with “the more effective policies of the SEC, CFTC, and FTC,” with specific changes to CFPB requirements to include expanding the scope of the CFPB’s policy beyond new products
    • Adopt a CFPB policy to bring enforcement actions in federal district court rather than use administrative proceedings but to the extent administrative proceedings continue to be used, issue a rule specifying the criteria the CFPB will use when deciding which forum to use
    • Reform the CID process, including by adopting procedures for allowing a confidential appeal of a CFPB decision on modifying or setting aside a CID appeal if requested and enacting a Dodd-Frank amendment to allow motions to modify or set aside CID to be directly filed in federal district court.
  • Other.  Make data in the Consumer Complaint Database available only to federal and state agencies and not to the general public.


On June 7, the CFPB submitted a Rule 28(j) letter to the D.C. Circuit in the PHH case.  In the letter, the CFPB embraced the fact that the Supreme Court’s recent Kokesh v. SEC decision makes the five-year statute of limitations in 28 USC § 2462 applicable to disgorgement remedies in CFPB administrative proceedings.  The CFPB asserted (incorrectly in our view) that Kokesh somehow obviated the applicability of RESPA’s three-year statute of limitations in the PHH case.

PHH forcefully responded to that argument in its reply letter.  It started with the point that § 2462’s limitation period applies “except as otherwise provided” by Congress. Because RESPA “otherwise provides” a three-year statute of limitations, § 2462 is inapplicable.  Next, it pointed out how unreasonable it is for the CFPB to assume that Congress would set one statute of limitations for judicial actions and another for administrative proceedings.  That “would destroy the certainty that Section 2614 was intended to provide,” it argued.  PHH also reminded the court of the CFPB Director’s holding in an earlier proceeding that no statute of limitations applies to administrative actions.  It chided the CFPB for trying to back away from that position at the “eleventh-hour.”

PHH also pointed out that “at the same time the CFPB argued in this Court that Section 2462 governs disgorgement, the Acting Solicitor General argued in Kokesh that it does not.  The CFPB’s freelancing merely underscores that the Director answers to no one but himself.”