The National Council of Higher Education Resources (NCHER), a national trade association representing higher education finance organizations, has written to the Department of Education urging the ED to issue preemption guidance.

In its letter, NCHER urges the ED “to issue regulatory guidance that clearly states that federal student loan servicers and guaranty agencies are governed by the Department’s rules and requirements and those of other federal agencies, and preempt state and local laws and actions that purport to regulate the activities of participants in the federal student loan programs, including federal contractors.”  Earlier this month, the Education Finance Council, another national trade group representing higher education finance organizations, wrote to the ED requesting similar guidance.

In its letter, NCHER discusses the broad coverage of recently-enacted state laws requiring servicers of student loans to be licensed and the need for covered entities, which can include guaranty agencies, to comply with varying state-specific requirements that, in some cases, are contrary to the Higher Education Act (HEA).  NCHER also discusses the resulting compliance costs of such requirements and their potential to create borrower confusion.

In addition, NCHER observes that a number of state attorneys general have begun to take action against student loan servicers for activities governed by the HEA, federal regulatory requirements, and the terms of federal contracts.  It urges the ED to take “a leadership role” with regard to federal contractors, which could include intervening with an AG’s office on behalf of an agency or working with both parties to achieve a resolution.  According to NCHER, state AGs “should not be permitted to make an end run around the Department by intimidating its contracted loan servicers.”  Also discussed in NCHER’s letter is an attempt by Connecticut to apply its registration requirement for collection agencies to guaranty agencies that have agreements with the ED.

 

 

 

On July 5, 2017, the U.S. District Court for the District Columbia, in the lawsuit filed in 2014 challenging “Operation Choke Point” — a federal  enforcement initiative involving various  agencies, including the Consumer Protection Branch of the Department of Justice (DOJ), the Federal Depository Insurance Corporation (FDIC), the Federal Reserve (Fed), and the Office of the Comptroller of the Currency —  denied the  agencies’ motions to dismiss and/or for summary judgment and permitted the payday lender-plaintiffs’ due process claims to proceed.

Initiated in 2012, Operation Choke Point targeted banks serving online payday lenders and other companies that have raised regulatory or “reputational” concerns.  In June 2014, the national trade association for the payday lending industry and Advance America, a payday lender, initiated the action against the FDIC, Fed, and the OCC.  The lawsuit alleged that certain actions taken by the agencies as part of Operation Choke Point violated the Administrative Procedure Act (APA) and that Operation Choke Point violated their due process rights.  The court granted the agencies’ motion to dismiss the defendants’ APA claim and, although ruling that the due process claim could proceed, subsequently dismissed the trade association as a party for lack of standing.  Following the addition of  six new payday lenders to the complaint, the agencies moved to dismiss the new payday lenders’ due process claim for lack of standing and failure to state a claim, and moved for summary judgment as to all plaintiffs on the basis that they cannot show that they suffered a deprivation of liberty without due process.

The Court rejected the agencies’ arguments, holding that the newly-added plaintiffs had established both standing and a plausible claim for relief, and concluding that the agencies were not entitled to judgment on any of the plaintiffs’ due process claims.  First, the Court rejected the agencies’ attempt to challenge the new plaintiffs’ allegations of future harm — i.e., their potential for future loss of access to the banking system, and potential preclusion from the payday lending industry — finding that they demonstrated the requisite elements of standing, and stated a plausible claim for relief, by alleging that they previously lost bank accounts as a result of Operation Choke Point, and that they will continue to do so if the agencies’ actions continue.

The Court also held that the agencies’ were not entitled to summary judgment on any of the plaintiffs’ due process claims.  The court rejected the agencies’ argument that plaintiffs could not show a due process violation where they “continue to access the banking system and remain quite profitable.”  According to the court, the agencies had not definitively demonstrated that plaintiffs would “not be put out of business by the continued regulatory pressure from Federal Defendants.”

The Court was also unmoved by the agencies’ argument that plaintiffs “are able to pursue other lines of business.”  In support of that argument, the agencies cited cases finding no due process violation where the plaintiffs were barred from conducting business with the government, but remained free to transact with private individuals and entities.  The court held that these cases, which distinguished between a person’s ability to sell services to the government versus one’s ability to sell services at all,  did “little to support [the agencies’] argument that the Due Process Clause tolerates the destruction of an entire line of Plaintiffs’ business, so long as there are other lines of business they can pursue.” Citing to the Plaintiffs’ Opposition, the Court observed that “it would be of little consolation to an attorney, driven from his practice by improper governmental stigma, that McDonalds is still hiring.”

Despite the change to a Republican Administration, lawmakers continue to raise concerns that Operation Choke Point remains in operation.  In a letter to Attorney General Jeff Sessions dated July 6, 2017, Republican Senators Mike Crapo and Thom Tillis stated that “[w]hile many would claim that this program has ceased to operate, this does not appear to be the case as we continue to receive complaints that indicate the program is still in effect.”  The Senators asked “that DOJ review all options available to ensure lawful businesses are able to continue to operate without fear of significant financial consequences, which should include taking the additional step of issuing a Statement of Enforcement Policy that Operation Choke Point is no longer in effect and that administrative subpoenas issued pursuant to DOJ’s civil investigative authority under [FIRREA] may be issued only where there is an articulable suspicion of illegal activity being conducted or facilitated by the intended recipient of the subpoena.”

Legislation has also been proposed in the House, with Republican Congressman Blaine Leutkemeyer (R-Mo.) introducing a bill (H.R. 2706) that seeks to prevent future recurrences of Operation Choke Point by limiting the authority of banking regulators and the DOJ.

As part of its “Class Action Fairness Project,” the FTC is seeking comment on its plans to use an Internet panel to conduct research on class action notices.  According to the FTC’s Federal Register notice, the project “strives to protect injured consumers from settlements that provide them with little to no benefit and to protect businesses from the incentives such settlements may create for the filing of frivolous lawsuits.”  Actions taken by the FTC as part of the project include monitoring class actions and filing amicus briefs or intervening in appropriate cases; coordinating with state, federal, and private groups on important class action issues; and monitoring the progress of legislation and class action rule changes.  Comments in response to the FTC’s notice will be due on or before August 17, 2017.

In 2015, the FTC announced its plans to study whether consumers receiving class action notices understand the process and implications for opting out of a settlement, the process for participating in a settlement, and the implications for doing nothing (Notice Study).  It also announced that it planned to conduct a study to determine what factors influence a consumer’s decision to participate in a class action settlement, opt out of a class action settlement, or object to the settlement (Deciding Factors Study).

In the new notice, the FTC states that as part of the Notice Study, it proposes to conduct an Internet-based consumer research study to explore consumer perceptions of class action notices.  Using notices sent to class members in various nationwide class action settlements and “streamlined versions designed by the FTC staff,” the study will focus on notices sent to individual consumers via email and will examine whether variables such as the sender’s email address and subject line impact a consumer’s perception of and willingness to open an email notice.  The FTC plans to send an Internet questionnaire to participants drawn from an Internet panel with nationwide coverage maintained by a consumer research firm that operates the panel.

While the FTC plans to assess consumer comprehension of the options conveyed by the notice, including the process for participating in the settlement and the implications of consumer choice, in the Notice Study, it no longer plans to examine whether consumers understood the implications of opting out of a settlement,  According to the FTC, it has determined that the opt-out issue is more appropriately addressed in the Deciding Factors Study.

In November 2015, the FTC issued orders to eight claims administrators requiring them to provide information on their procedures for notifying class members about settlements and the response rates for various methods of notification.  While the FTC notes that it has used data obtained through the orders to inform the Notice Study and that such data will also be used to inform its Deciding Factors Study, it does not provide any information about what such data revealed.  We had commented that the response rate data provided to the FTC by the claims administrators was expected to show extremely low response rates (i.e., less than 5 percent) in most cases, providing support for critics of the CFPB’s proposed rule to prohibit providers of certain consumer financial products and services from using a pre-dispute arbitration agreement that contains a class action waiver.

That rule has now been finalized and like the CFPB’s proposed rule, is based on the CFPB’s view that consumers obtain more meaningful relief through class actions than in arbitration.  Low average response rates would be further evidence that the CFPB’s premise is incorrect and arbitration is more beneficial to consumers than class actions.

 

 

 

 

 

Politico has reported that James Clinger, President Trump’s nominee to be the next FDIC Chairperson, has asked the White House to withdraw his nomination, citing family issues.

Last month, the White House announced that President Trump intended to nominate Mr. Clinger to be a FDIC member for a six-year term and to be Chairperson for a five-year term, effective November 29, 2017 when the current FDIC chairperson’s term ends.

 

 

The Federal Housing Finance Agency has announced that it has extended until July 31, 2017 the comment period on its Request for Input on improving language access in mortgage lending and servicing.

Issued this past May, the RFI asked for input to be provided by no later than July 10, 2017.  The extension is shorter than the extension of at least 45 days that a group of eight trade associations had requested in a letter sent to the FHFA.

The FHFA has stated that it intends to use the information it receives in response to the RFI to inform “additional steps that could potentially be taken to further support [Limited English Proficiency] borrowers and the mortgage industry’s ability to serve them throughout the mortgage life cycle.”

 

 

The OCC announced that its Office of Innovation will host office hours for national banks, federal savings associations, and financial technology (fintech) companies from July 24 through July 26, 2017 at the OCC’s district office in New York City.  According to the OCC, the office hours are intended to “provide an opportunity for meetings with OCC officials to discuss financial technology, new products or services, partnering with a bank or fintech company, or other matters related to financial innovation.”

The OCC stated that its staff “will provide feedback and respond to questions” and that each meeting will be no longer than one hour.  Persons wishing to meet with the OCC can request a meeting through July 5 and are expected to indicate the reason for their interest in having the meeting.  The OCC plans to hold office hours in other cities at later dates.  (An initial round of office hours meetings took place in San Francisco last month.)

Last October, the OCC announced that it was creating the Office of Innovation to serve as an office dedicated to responsible innovation and to implement a formal framework to improve the agency’s ability to identify, understand, and respond to financial innovation affecting the federal banking system.  The announcement followed the OCC’s release last spring of a white paper, “Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective.”  The white paper was part of an initiative announced by former Comptroller Thomas J. Curry in August 2015 to develop a comprehensive framework to improve the OCC’s ability to understand innovation in the financial services industry, and to help national banks and federal savings associations in the face of  increasing competition from fintech companies.  In December 2016, the OCC announced its proposal to allow fintech companies to apply for special purpose national bank (SPNB) charters and, in March 2017, it issued a draft supplement to its existing Licensing Manual for SPNB charters as well as its responses to comments received on its SPNB charter proposal.

It is unclear whether the latest office hours announcement can be read as an indication of continuing OCC support for the SPNB charter proposal following Mr. Curry’s departure.  Last month, Keith Noreika was appointed by President Trump to serve as Deputy Comptroller and began serving as Acting Comptroller on May 5.  It has since been widely reported that President Trump will nominate Joseph Otting to replace Mr. Curry as Comptroller.  Neither Mr. Noreika or Mr. Otting is known to have yet taken a public position with respect to the SPNB charter.

 

 

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The White House announced that President Trump intends to nominate James Clinger to be a FDIC member for a six-year term and to be Chairperson for a five-year term, effective November 29, 2017 when the current FDIC chairperson’s term ends.  Mr. Clinger’s nomination must be confirmed by the Senate.

According to the White House announcement, Mr. Clinger was most recently the Chief Counsel for the House Financial Services Committee, having held this position since 2007.  He previously served as Deputy Assistant Attorney General from 2005 to 2007.  Prior to his DOJ service, Mr. Clinger served as Senior Banking Counsel for the House Financial Services Committee from 2001 to 2005, and as Assistant Staff Director from 1995 to 2001.  Before entering public service, he was a litigator in private practice.

 

 

Earlier this month, Attorney General Jeff Sessions issued a memorandum in which he prohibited DOJ attorneys from entering into settlement agreements on behalf of the United States that require a payment or loan to any non-governmental person or entity that is not a party to the dispute.  The AG’s press release explained that the directive was intended to end the use of settlement funds to “to bankroll third party special interest groups or the political friends of whoever is in power.”

Last week, Senator Charles E. Grassley, who chairs the Senate Judiciary Committee, sent a letter to the AG in which he asked Mr. Sessions to explain whether any payments made by settling defendants to non-governmental third parties during the Obama Administration at the DOJ’s direction “could lawfully be rescinded and re-directed back into the General Fund of the U.S. Treasury.”  Mr. Grassley also asked Mr. Sessions to explain when the DOJ will begin to seek the rescission or re-direction of settlement payments “[i]f such a procedure is consistent with law and the Department’s authority.”

Mr. Grassley’s letter includes a request for a “complete list of all settlement agreements reached during the Obama administration that involved payments to non-governmental third parties” and related information for each of the settlements, including a full accounting of what payments have been made to non-governmental third parties to date.

 

 

On June 7, 2017, Attorney General Jeff Sessions issued a memorandum directing that “Department attorneys may not enter into any agreement on behalf of the United States in settlement of federal claims or charges . . . that directs or provides for a payment or loan to any non-governmental person or entity that is not a party to the dispute.” In a press release, he explained that “settlement funds should go first to the victims and then to the American people—not to bankroll third party special interest groups or the political friends of whoever is in power.”

The DOJ and CFPB frequently include such provisions in consent orders settling fair lending claims. For example, in BancorpSouth Bank’s consent order with the CFPB and DOJ, the bank agreed to spend $500,000 on “partnerships” with “one or more community-based organizations or governmental organizations that provide credit, financial education, homeownership counseling, credit repair, and/or foreclosure prevention services to the residents of majority–minority neighborhoods . . . .” Other banks in other fair lending cases have been required to contribute $750,000 to similar organizations.

Each of the fair lending settlements involved substantially more money than the funds directed at community organizations. Nevertheless, the sums that the defendants were required to spend on these organizations were not insubstantial. Under the DOJ’s new policy, these components of the settlements would be prohibited. Given that the DOJ and CFPB do not always see eye to eye under the new administration, it is unclear how the Attorney General’s new policy will impact future fair lending settlements involving both federal agencies. We will, of course, continue to monitor these cases and keep you posted.

The American Bankers Association and numerous media sources, including Politico and American Banker, have reported that the White House has announced that President Trump will nominate Joseph Otting to serve as Comptroller of the Currency.  According to these reports, Mr. Otting is a former president and CEO of California-based OneWest Bank, where he worked with Steven Mnuchin, who now serves as Secretary of the Treasury. 

Mr. Otting is reported to have worked in banking for several decades, including at various other banks before joining OneWest Bank.  If confirmed by the Senate, Mr. Otting will replace Acting Comptroller Keith Noreika, who was appointed as Deputy Comptroller by President Trump last month and began serving as Acting Comptroller on May 5, 2017 after the departure of Comptroller Thomas J. Curry.