Congressman Emanuel Cleaver, II announced last week that he had launched an investigation into small business financial technology (fintech) lending by sending a letter to the CEOs of several fintech small business lenders.  The letter includes 10 questions and asks for responses to be provided by no later than August 10, 2017.

In the letter, Mr. Cleaver expressed concern that “some FinTech lenders may be trapping small business owners in cycles of debt or charging higher rates to entrepreneurs of color.”  He noted that he is “particularly interested in payday loans for small businesses, also known as ‘merchant cash advance.'”  He observed that “current law does not provide certain protections for small business loans, compared to other consumer laws,” and cited Truth in Lending disclosures given to consumers as an example of such difference.  He also observed that fintech lenders are not subject to the same level of scrutiny as small community banks and credit unions which are subject to supervision for compliance with anti-discrimination laws.

The questions set forth in Mr. Cleaver’s letter include inquiries about a lender’s small business products and originations, approach to protecting borrowers belonging to protected classes, percentage of “loan and advances [that] are originated to borrowers of color [and] [w]omen,” “the typical rate charged to borrowers of color as compared to [the lender’s] overall borrower population,” typical fee schedule for small business lending products, and use of mandatory arbitration agreements.  In his announcement about the letter, Mr. Cleaver listed the lenders to whom his letter was sent.  We understand that most of such lenders do not make small business loans.

This past March, Mr. Cleaver sent a letter to the CFPB in which he asked the agency to investigate whether fintech companies were complying with anti-discrimination laws, including the Equal Credit Opportunity Act.  Mr. Cleaver also asked the CFPB to respond to a series of questions that included when the CFPB anticipated finalizing regulations to implement Dodd-Frank Section 1071.  Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses. The Financial CHOICE Act passed this month by the House includes a repeal of Section 1071 and the Treasury report issued this month recommended that Section 1071 be repealed.



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.


I have previously expressed serious doubt whether Director Cordray will issue a final arbitration rule. In the CFPB’s last semi-annual regulatory agenda issued last year, the CFPB stated that the arbitration rule would be issued in February of this year. It is almost July and the CFPB has still not issued the rule. All they have stated publicly, most recently in May at the Chicago version of the PLI Annual Institute on Consumer Financial Services which I co-chair, is that the staff is still wading through comment letters and that the rule was not ready to be issued.

As I have stated previously, I think that the real reason for the delay is a result of Director Cordray’s concern that if he issued a final rule, Congress would nullify it under the Congressional Review Act (the “CRA”). Under the CRA,  through a joint resolution passed by a simple majority in the House and Senate and signed by the President, Congress may override any final rule within 60 legislative days after it receives notice of the rule. Already, at least 14 rules issued by agencies other than the CFPB have been nullified. However, Congress didn’t nullify the CFPB’s prepaid accounts rule. If a rule is nullified, then the agency is precluded from ever issuing a similar rule in the future.

I felt that the fear of a CRA override would be enough to deter Director Cordray from ever issuing a final arbitration rule. It appears that I may be wrong.

I’m now hearing a rumor from a reliable source that Director Cordray is willing to roll the dice and will issue a final arbitration rule by the end of July. If he does so, the rule will become effective on the 211th day after the rule is published in the Federal Register, well within Director Cordray ‘s remaining term which expires on July 21,2018. However, I heard from the same source who told me that the rule will be finalized by the end of July that Director Cordray will resign in the 4th quarter of this year to return to Ohio to run for governor.

So where does this leave us? If Cordray issues the rule by the end of July, there will certainly be an effort to override it under the CRA. It should succeed as long as the Republican Senators vote as a bloc to override it. With a 52-48 voting margin in the Senate, the Republicans can only afford to lose 2 votes and still pass the override resolution.

It is also likely that there will be a lawsuit filed challenging the legality of the rule. While I think there are very strong arguments in support of a court invalidating the rule, the outcome of litigation is always uncertain.

There is yet a potential third way for the arbitration rule to not become effective. If Director Cordray resigns to run for Governor of Ohio in the 4th quarter and President Trump appoints a successor (either a permanent one or a temporary one), and the rule is not yet effective, the successor could delay the effective date and then take steps to repeal the rule before it ever becomes effective. Of course, any such repeal would need to comply with the Administrative Procedures Act.

As you can see, there are lots of “moving parts” here and it is very uncertain how this will all play out.

In conjunction with its public event today on student loan servicing, the CFPB issued a new report, “Staying on track while giving back.”  The report, which provides a mid-year update on student loan complaints, highlights complaints from borrowers seeking to access federal law protections for borrowers working in the public service arena, particularly the Public Service Loan Forgiveness (PSLF) program.  The report analyzes complaints submitted by consumers from March 1, 2016 to February 28, 2017.

During the period covered by the report, the CFPB handled approximately 7,500 private student loan complaints, approximately 11,500 federal student loan complaints, and 2,200 debt collection complaints related to private and federal student loans.  In February 2016, the CFPB began accepting complaints about federal student loans.  Previously, such complaints were directed to the Department of Education.  The report states that “over the past 12 months, the Bureau saw a 325 percent increase in student loan complaints.”  While noting that the CFPB “also began handling complaints” about federal student loans prior to the period covered by the report, the report does not connect the increase to this change.  As a result, readers are likely to assume that the increase in student loan complaints reflects an increase in the number of borrowers making student loan complaints and may not observe that the increase in student loan complaints most likely reflects the change in where such complaints were sent.

The PSLF program provides loan forgiveness to borrowers who work full-time for a qualified employer and meet certain other eligibility requirements.  “Qualified employers” include a federal, state, local, or tribal government and certain non-profit organizations.  Because the PDLF program was launched in 2007 and a borrower must also make 120 qualifying payments (i.e. 10 years of payments) to be eligible, the ED will begin accepting applications from borrowers seeking PSLF forgiveness in October 2017.  Other eligibility requirements are that the borrower must have one or more Direct Loans and  be enrolled in a qualified repayment plan.  With regard to each eligibility requirement, the report discusses various servicing-related problems reported by borrowers that impacted a borrower’s ability to meet that requirement.

For example, with regard to the Direct Loan eligibility requirement, the report discusses borrower complaints about delays and defects in the process of consolidating loans not eligible for PSLF into an eligible Direct Consolidation Loan.  With regard to the qualified employer eligibility requirement, the report discusses problems encountered by borrowers in completing employer certification forms or in learning the reason for denial of an ECF.  With regard to the requirements for a borrower to be enrolled in a qualified repayment plan (which primarily consist of income-driven repayment (IDR) plans) and make 120 qualified payments, the report discusses borrower reports of lost IDR enrollment as a result of delays in processing IDR recertification paperwork and payments being deemed non-qualifying because the servicer had advanced payment due dates when excess payments were received.  The report also includes a series of recommendations for policymakers and student loan industry participants to address the problems reported by borrowers in accessing the PSLF program and other federal law protections.

In addition to issuing the report, the CFPB updated its “Education Loan Examination Procedures.”  The Student Loan Servicing module (Module 3) includes a description of the PSLF program and directs servicers to look at a servicer’s policies and practices related to PSLF programs such as the accuracy and adequacy of information provided to borrowers about PSLF, steps taken when a borrower expresses interest in PSLF, providing information to subsequent servicers and collecting information from prior servicers, and determining whether a payment is a qualifying payment under various scenarios.

The CFPB also launched a consumer education campaign for student loan borrowers working in public service and released a toolkit for public service employers to use in assisting employees qualify for the PSLF program.



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.



An informative new American Banker podcast discusses recent and possible future changes to traditional credit scores, what they mean for industry, and possible industry responses.

The podcast begins with a discussion of changes that will take effect on July 1, 2017 to the public record data standards used by the “Big 3” consumer reporting agencies (CRAs) for the collection and updating of civil judgments and tax liens.  The new standards, which will apply to new and existing public record data on the CRAs’ credit reporting databases, create new verification requirements for data about civil judgments and tax liens, such as certain minimum consumer personal identifying information and a minimum frequency of courthouse visits to obtain new and updated data of at least every 90 days.

The experts participating in the podcast suggested that under current credit score models, the change could result in small credit score increases for impacted consumers averaging about 10 to 11 points.  However, they indicated that credit scores generated by newer credit score models under development that consider other data are unlikely to be impacted.

Among the topics discussed was the potential benefits and challenges in using alternative data in credit score models.  This past February, the CFPB issued a request for information seeking information about the use of alternative data and modeling techniques in the credit process.




As we previewed earlier this year, the CFPB, on June 15, proposed substantive changes to the Prepaid Final Rule (the “Rule”).  The proposed changes are generally positive for prepaid providers and incorporate feedback and comments from industry representatives.  The proposal, however, does not lift the onerous restrictions on credit features currently in the Rule.  Because the proposal invites comments regarding extending the effective date, we expect the effective date, which was originally set for October 1, 2017 and then delayed to April 1, 2018, to be further delayed.

The proposal would reverse two controversial aspects of the Rule, and make several other changes:

  • Error Resolution and Limitation of Liability. One of the existing Rule’s most controversial mandates requires error resolution and limited liability protections on unregistered accounts (e., accounts that have not concluded the verification process, accounts where the process is concluded but the consumer’s identity could not be verified, and accounts in programs for which there is no such verification process).  The CFPB has apparently acknowledged these concerns engendered by this mandate, as the proposed rule would no longer require financial institutions to resolve errors or limit consumers’ liability on unregistered prepaid accounts.  The proposal would impose these obligations after a financial institution successfully completes its consumer identification and verification process.  The requirements would also apply retroactively to disputed transactions that occurred before verification was completed and that fell within the general timing requirements of the Rule.  If no verification process is available, financial institutions would be required to disclose to consumers the absence of, or limitations on, such protections.
  • Digital Wallets. The proposed rule also narrows the definition of “business partner” under Regulation Z to clarify the Rule’s application to digital wallets and to alleviate burdens for digital wallet providers.  Under the existing Rule, requirements such as a 30-day waiting period and additional disclosures are required to link a credit card issued by a business partner to a digital wallet, but these requirements do not apply to non-business partners, thereby creating disparity between credit cards in the wallet, as well as customer confusion.  Under the proposed rule, business arrangements between prepaid account issuers and issuers of traditional credit cards would be excluded from coverage under the Rule’s hybrid prepaid-credit card provisions as long as (1) the prepaid card cannot access credit from the credit card account during a prepaid card transaction without written consent to link the two accounts, (2) the acquisition or retention of either account is not conditioned on whether the consumer authorizes such a connection, and (3) the parties do not vary certain terms and conditions based on whether the two accounts are linked.  This change may not go as far as some would like because it does not completely exclude digital wallets that can store funds, or person-to-person (“P2P”) payment products from the Rule, but it does benefit digital wallets providers that allow consumers to link their debit and credit cards and to store and access funds.
  • Loyalty, award, and promotional gift cards. The existing Rule provides that loyalty, award, or promotional gift cards are excluded from the definition of “prepaid account” if the cards contain disclosures required by the Gift Card Rule.  But the Rule is not clear on how to treat loyalty, award, or promotional gift cards that are not marketed to the general public, and are therefore exempted from the Gift Card Rule’s disclosure requirements.  The proposed rule clarifies that loyalty, award, or promotional gift cards that are not marketed to the general public are not covered by the Rule, regardless of whether they provide disclosures under the Gift Card Rule.
  • Unsolicited Issuance. Regulation E provides that a financial institution may issue an access device for an account to a consumer only when solicited to do so by the consumer in response to an oral or written request for the device, or as a renewal of, or in substitution for, an accepted access device, or on an unsolicited basis in accordance with certain requirements. The current Rule raises questions about how the unsolicited issuance rules of Regulation E apply to prepaid accounts used for making disbursements where the consumer is given no other option but to receive the disbursement via a prepaid account, such as prison release cards, jury duty cards, and certain types of refund cards.  The proposed rule seeks to provide clarification – if an access device for a prepaid account is provided on an unsolicited basis where the prepaid account is used for disbursing funds to a consumer, and there are no alternative means for the consumer to receive those funds, the financial institution can comply with the unsolicited issuance rule by informing the consumer that there is no other way to access funds in the prepaid account if the consumer disposes of the access device.
  • Retail Location Exception. The existing Rule requires a financial institution to provide a long form disclosure after a consumer acquires a prepaid account at a retail location, and also requires the underlying information from this long form disclosure to be provided via the mandatory initial disclosures.  These initial disclosures must be provided at the time a consumer contracts for an electronic funds transfer (“EFT”) service or before the first EFT is made, and are thus typically provided inside the packaging of prepaid accounts sold at retail.  The CFPB considered feedback about this requirement from a trade association, which explained that, for at least some institutions, this requirement might necessitate a substantial increase in the size of the packages in order to accommodate the long form disclosure, thus requiring retooling of their “J-hook” packaging used at retail. The trade association suggested alternative methods of delivery such as sending the long form disclosure to the consumer by mail, or providing the disclosure electronically without E-Sign consent.  In response to these suggestions, the proposed rule provides that financial institutions that qualify for the retail location exception may deliver the long form disclosure after acquisition without E-Sign consent, “if it is not provided inside the prepaid account packaging material, and the financial institution is not otherwise mailing or delivering to the consumer written account-related communications within 30 days of obtaining the consumer’s contact information.”  The CFPB seeks comments on this proposal, and on whether financial institutions were, in fact, planning to include in their retail packaging the long form disclosure, and whether there are other accommodations the CFPB could make to the retail location exception to facilitate financial institutions’ inclusion of the long form disclosure inside retail packaging.
  • Pre-acquisition Disclosures. One of the primary reasons the CFPB opted to delay implementation of the existing Rule was its concern over the compliance burden posed by the Rule’s pre-acquisition disclosure requirements.  The proposed rule seeks to narrow the scope of several disclosure provisions to facilitate compliance and reduce burdens.  First, according to the CFPB, “if a financial institution provides pre-acquisition disclosures in writing, and a consumer subsequently completes the acquisition process online or by telephone, the financial institution need not provide the disclosures again electronically or orally.”  Second, financial institutions disclosing additional fee types with three or more fee variations would be able “to consolidate those variations into two categories and allow those two categories to be disclosed on the short form.”  Third, foreign language pre-acquisition disclosures would not be “required for payroll card accounts and government benefit accounts, where the foreign language is offered by telephone only via a real-time language interpretation service provided by a third party.”
  • Submission of Agreements. The proposed rule would make several changes to the Rule’s requirements regarding submission of prepaid account agreements to the CFPB to reduce compliance burdens:  (1) issuers could “delay submitting a change in the names of other relevant parties to a prepaid account agreement (such as employers for a payroll card agreement) until the issuer is submitting other agreement changes”; and (2) short form and long form disclosures could be provided as separate addenda to the agreement, rather than integrated into the agreement or provided as a single addendum.  The latter change is proposed due to recognition of the fact that, given the form and content requirements of the short form and long form disclosures, many issuers will likely create two separate documents, making the task of combining the documents into the agreement or a single addendum potentially “unnecessarily complex.”

The CFPB is also seeking comment on whether these proposed amendments would make a further delay of the Rule’s effective date (originally October 1, 2017, currently April 1, 2018) necessary or appropriate, and whether any conflict(s) exist between the Rule as amended and current federal regulation governing prepaid accounts, such that a safe harbor provision addressing compliance with the final Rule before its effective date is needed.

Comments are due 45 days after the proposed rule is published in the Federal Register.

With this proposed rule, the CFPB concurrently announced an updated version of its previously issued small entity compliance guide, which reflects the April 1, 2018 effective date and provides clarification on several issues.  For example, the guide clarifies that reversing a provisional credit does not otherwise trigger Regulation Z coverage under the Rule, and states that if a financial institution makes 12 months of account transaction history available through its website and also offers a mobile application, the mobile application need not provide a full 12 months of history.

While the Senate did not reject the Prepaid Final Rule under the Congressional Review Act (“CRA”), it is unclear whether this proposal, if adopted, would be subject to the CRA.  The CRA’s plain language, and at least one prior use of the CRA, suggests that the proposed amendments would be subject to review.  However, because the proposal largely favors industry participants, we think it unlikely that there will be a significant push for rejection under the CRA.

The Federal Trade Commission has provided its annual Financial Acts Enforcement Report to the CFPB covering the FTC’s enforcement activities in 2016 relating to compliance with Regulation Z (Truth in Lending Act), Regulation M (Consumer Leasing Act), and Regulation E (Electronic Fund Transfer Act).  Under Dodd-Frank, the FTC retained its authority to enforce these regulations with respect to entities subject to its jurisdiction.  The FTC and CFPB coordinate their enforcement and related activities pursuant to a MOU entered into in 2012 and reauthorized in 2015.  The Report responds to the CFPB’s request for information regarding the FTC’s efforts, which focused on three areas: enforcement actions; rulemaking, research, and policy development; and consumer and business education.

Regulation Z/TILA.  The FTC’s TILA enforcement activities included: (1) initiating two actions in federal district court for civil penalties involving alleged deceptive advertising by auto dealers, one of which focused on dealer advertising aimed at non-English speaking consumers; (2) winning a $1.3 billion dollar judgment against a group of payday lenders in Kansas City for alleged deceptive lending practices, including failing to truthfully disclose loan terms; (3) obtaining a $13.4 million judgment for contempt against a consumer electronics retailer for violations of a prior consent order, which arose from failures to provide required written disclosures and account statements; and (4) continuing to litigate two federal cases involving alleged forensic audit scams by mortgage assistance relief services that offered, among other things, to review or audit mortgage documents to identify violations of the TILA, Regulation Z, and other federal laws, and obtaining in both cases monetary judgments against multiple defendants.

In the first of the federal court actions involving alleged deceptive advertising by auto dealers, the FTC sued three auto dealers who it alleged concealed sale and lease terms that added significant costs or limited who could qualify for advertised prices.  Such alleged concealment included using print too small to read without magnification to disclose that, in addition to a low monthly price, the consumer would be required to pay a down payment and fees up front and pay a large amount at the end of the financing term.  The dealers were alleged to have violated the TILA by advertising credit terms without clearly and conspicuously disclosing required information and by failing to keep and produce required records.

In the second of such federal court actions, the FTC sued nine dealerships and owners who it alleged had enticed consumers, particularly financially distressed and non-English speaking consumers, with advertisements that made misleading claims about the availability of vehicles for advertised prices and financing terms.  The group was alleged to have violated TILA and Regulation Z by not clearly disclosing required credit information in advertisements.

The FTC reported that its TILA rulemaking, research and policy efforts continued through 2016.  Though the FTC does not have rulemaking authority under the TILA, it nonetheless engages in research related to the TILA.  The FTC’s research initiatives included: (1) proposing a qualitative survey of consumer experiences in buying and financing automobiles at dealerships; (2) beginning a forum series exploring emerging financial technologies, where the inaugural forum addressed marketplace lending; (3) holding a workshop on improving the effectiveness of consumer disclosures related to advertising claims and privacy policies; (4) hosting a conference focused on TILA and other compliance issues facing Midwest consumers, and in particular payday loans and car title loans; and (5) participating in the interagency group that provides advice to the Department of Defense on Military Lending Act regulations.

TILA consumer and business education efforts by the FTC included: (1) providing online guidance to the military community about personal financial decisions and military consumer lending issues; (2) issuing blog posts and videos for consumers regarding automobile purchasing and financing; and (3) issuing guidance on deceptive payday lending practices, marketplace lending issues, and disclosures.

Regulation M/Consumer Leasing Act.  The FTC’s Regulation M enforcement efforts included one final administrative consent order involving auto dealers alleged to have deceived consumers and the filing of the two federal court actions discussed above.  In the consent order, the auto dealers, Southwest Kia and Sage Auto, were alleged to have advertised low monthly car lease payments and down payments, without disclosing other key terms and, in violation of the CLA, failed to disclose or clearly and conspicuously disclose lease terms.  In the Southwest Kia action, the dealers were alleged to have violated the CLA by advertising lease terms without clearly and conspicuously disclosing required information—for instance, a television advertisement offered vehicles for less than $200 a month and disclosed in fine print visible for two seconds that the offer only applied to leases and required a $1,999 payment at signing.  The Sage Auto defendants allegedly violated the CLA by failing to clearly and conspicuously disclose lease terms.  As an example, the defendants ran newspaper advertisements offering vehicles for $38 a month and $38 down, but the fine print below the ad listed additional charges of $2,695 at signing, limited the offer to leases, and limited the $38 payment to the first six months.

The CLA does not confer rulemaking authority on the FTC.  Nonetheless, the FTC hosted a workshop to examine consumer leasing of rooftop solar panels.  The FTC also worked with the ABA committee on consumer leasing issues.  FTC blog posts also addressed consumer leasing.

Regulation E/EFTA. The FTC’s Regulation E enforcement actions included six new or ongoing cases.  Four cases involved negative options and the payment terms that applied automatically absent cancellation.

In the first, the defendants allegedly obtained consumers’ credit or debit card information purportedly to pay shipping costs but imposed recurring monthly charges to their credit or debit card accounts for unordered products.  This case resulted in a $72.7 million monetary judgment suspended upon the defendants’ surrender of virtually all assets.

In the second case, customers were allegedly enticed to sign up for “free” or “risk free” trials but their bank accounts were electronically charged recurring monthly fees without authorization.  The second case resulted in an agreed-upon $280.9 million judgment against some defendants, though others continue to litigate.

The third case involved the alleged use of personal information to sign up for a “free trial” or discount program for weight-loss supplements, where customers’ bank accounts were then charged electronically on a recurring basis.  The defendants also allegedly failed to allow consumers to stop the charges.  The third case led to a $105 million judgment, again suspended after surrender of over $9 million in personal and business assets.

The fourth case also involved weight loss supplements.  Here, the FTC alleged consumers were promised a “risk-free trial” offer, and were then enrolled in an inadequately disclosed monthly plan resulting in additional charges to their credit card or debit card accounts.  Consumers who failed to cancel trial memberships were allegedly billed on a monthly basis.  The fourth action was filed along with a stipulated final order imposing a $16.4 million judgment, suspended after the sale and liquidation of personal and business assets.

The FTC’s two other EFTA-related cases were the payday lending case and consumer electronics retail cases discussed above.  In the payday lending case, the defendants allegedly violated the EFTA by conditioning payday loans on payment by preauthorized debits from bank accounts.  In the consumer electronics retail case, the FTC alleged an EFTA violation where the extension of credit was conditioned on mandatory preauthorized transfers.

As with the TILA and the CLA, the FTC lacks rulemaking authority under the EFTA, although it conducts research and policy work that touches on related issues.  In that regard, the FTC worked with the Department of Defense interagency group and ABA on electronic fund transfer issues, interpretive rules, and trainings.  The FTC also hosted various conferences addressing EFTA issues and other compliance issues in connection with marketplace lending, crowdfunding and peer-to-peer payments.

The FTC continued its consumer and business education efforts with blog posts providing guidance on negative option plans and recent cases, explaining possible EFTA and Regulation E violations, giving advice to consumers, and providing guidance to businesses on EFTA issues.

The CFPB will hold a public event on June 22, 2017 in Raleigh, N.C. about student loan servicing. The CFPB’s announcement provides no description other than that the event will feature remarks from Director Cordray and North Carolina Attorney General Josh Stein.

The CFPB may be labeling the event a “public event” rather than a “field hearing” because it is not inviting “witnesses” to provide “testimony” as it typically does for field hearings.  However, similar to its field hearings, it is likely the CFPB will use the event as a venue for announcing a new development involving student loan servicing.  Isaac Boltansky of Compass Point has suggested that that the CFPB may announce the release of either an update on the industry’s consumer complaint profile or an updated supervisory highlights report.  It is also possible that the CFPB will discuss the comments it has received in response to the notice it published in the Federal Register in February 2017 regarding its plan to require student loan servicers to report quarterly data on aggregated servicing metrics and borrower outcomes.

Mr. Stein, the North Carolina AG, was among the group of state AGs who sent a letter to U.S. Department of Education Secretary Betsy DeVos in April 2017 criticizing the ED’s withdrawal of various memoranda issued during the Obama Administration regarding federal student loan servicing reforms.  He also recently announced the settlement of a lawsuit involving an alleged student loan debt relief scam.  Mr. Stein might discuss these developments at the CFPB event.

In an unusual turn-about, the U.S. Justice Department has reconsidered its earlier position in a set of closely watched arbitration cases that the Supreme Court will decide next term and filed an amicus brief supporting the use of class action waivers in employment agreements.

Previously, under the Obama administration, the DOJ had sided with the National Labor Relations Board (NLRB) in arguing that federal labor statutes prohibit employers from including such waivers in their employees’ contracts.  Nevertheless, in its amicus brief filed on June 16, Acting Solicitor General Jeffery B. Wall advised the Court that the DOJ has “reconsidered the issue and has reached the opposite conclusion” that the NLRB’s ban on class action waivers failed to give “adequate weight to the congressional policy favoring enforcement of arbitration agreements that is reflected in the FAA [Federal Arbitration Act]” and also failed “to respect the FAA’s directive that arbitration agreements should be enforced unless they run afoul of arbitration-neutral rules of contract validity.”

In January, the Supreme Court granted certiorari in three circuit court cases that rendered conflicting results on the enforceability of class action waivers in employment agreements.  Opinions of the Seventh and Ninth Circuits agreed with the NLRB’s position that class action waivers in employment agreements violate Section 7 of the National Labor Relations Act, which protects an employee’s right to engage in “other protected activities.”  The Fifth Circuit, however, rejected the NLRB’s position and held that class action waivers in employment arbitration agreements are enforceable under the FAA because the use of class or collective action procedures does not constitute a substantive right protected by Section 7.

A key issue is whether the Court will apply the test set forth in its 2012 decision in CompuCredit Corp. v. Greenwood for determining the arbitrability of a federal claim.  That case held that if a federal statute does not expressly prohibit arbitration, it is trumped by the FAA and claims brought under the statute are arbitrable.  The DOJ’s amicus brief relies heavily on CompuCredit, arguing that:

CompuCredit demonstrates the formidable burden a party bears when seeking to show that “the FAA’s mandate has been ‘overridden by a contrary congressional command.’ ”  ….  One feature of CompuCredit and other decisions is especially notable for present purposes:  When examining text and legislative history, the Court has looked for evidence that Congress intended to address arbitration agreements in particular.  A statute’s general reference to litigation rights, even when combined with a provision forbidding the waiver of statutory protections, is insufficient to overcome the FAA’s presumption of enforceability.

The amicus brief, which liberally cites not only CompuCredit but also the Court’s landmark decisions in AT&T Mobility, LLC v. Concepcion and American Express Co. v. Italian Colors Restaurants upholding the use of class action waivers in consumer arbitration agreements, aligns the DOJ’s position with these recent pro-arbitration rulings and with the consumer financial services industry’s strong pro-arbitration positions.  The DOJ’s filing coincides with the CFPB’s efforts to prohibit consumer financial services companies from including class action waivers in their customer agreements.  In May 2016, the CFPB issued a proposed rule finding a ban on such waivers to be in the public interest and for the protection of consumers.  However, the rule has not yet been made final.  While the CFPB has publically attributed this to the time needed to review the thousands of comments it received on the proposed rule, many observers speculate that the change in administrations may also be delaying issuance of a final rule.  Indeed, the House of Representatives recently passed the Financial Choice Act which would repeal the Dodd-Frank Act section authorizing the CFPB to regulate consumer arbitration agreements in financial services contracts.

There have been rumors that the CFPB may attempt to finalize the arbitration rule by the end of this summer.  Importantly, however, under Dodd-Frank and the Administrative Procedures Act, even if the rule became final it would not become effective for 210 days.  During that grandfather period, one or more events could stop any final arbitration rule from taking effect.  For example, the Financial Choice Act could become law; Congress could disapprove the rule under the Congressional Review Act; and/or a ruling by the D.C. Circuit in PHH v. CFPB that the agency’s structure is unconstitutional could derail the rule.  The DOJ’s amicus brief is yet another event that should give the CFPB pause in considering whether and when to finalize the proposed rule as it demonstrates that the current administration strongly supports the use of class action waivers in arbitration agreements.