The Federal Trade Commission (“FTC”) and Federal Communications Commission (“FCC”) have announced they will host a joint policy forum (“Forum”) in Washington, D.C. on March 23 titled, “Fighting the Scourge of Illegal Robocalls.” The Forum will cover recent policy changes and enforcement actions as well as the agencies’ efforts to encourage private sector technological solutions. We believe the event will be of interest to clients who launch legitimate account management or marketing campaigns from autodialers as well as those whose names have been misappropriated by fraudulent telemarketers.

The agenda will be posted on the event page when it becomes available. The FCC will likely use the venue to announce a “Second Further Notice of Proposed Rulemaking” on reducing unwanted calls to reassigned phone numbers, which is scheduled for a vote during the agency’s March 22 meeting.  According to the FCC, the notice would:

  • Propose to ensure that one or more databases are available to provide callers with the comprehensive and timely information they need to avoid calling reassigned numbers.
  • Seek comment on the information that callers who choose to use a reassigned numbers database need from such a database.
  • Seek comment on the best way for service providers to report that information and for callers to access that information, including the following three alternatives:
    • requiring service providers to report reassigned number information to a single, FCC-designated database;
    • requiring service providers to report that information to one or more commercial data aggregators; or
    • allowing service providers to report that information to commercial data aggregators on a voluntary basis.
  • Seek comment on whether, and if so how, the FCC should adopt a safe harbor from liability under the Telephone Consumer Protection Act for those callers that choose to use a reassigned numbers database.

This follows rules that became effective last month permitting voice service providers to proactively block calls from certain numbers that are suspected to be fraudulent. (You can read our summary of the FCC’s Report and Order adopting these rules here.)

A central theme of the Forum is likely to be collaboration between the FTC and FCC as well as between the agencies and the private sector. Such collaboration helps the agencies prevent and target illegal robocall scams, such as the spoofing scheme that made nearly 100 million robocalls and illegitimately invoked the names of major hotel and travel brands to sell vacation packages, resulting in a $120 million forfeiture order by the FCC in June 2017. Spoofing, which is a common tool used in robocall scam campaigns, involves altering or manipulating caller ID information to hide or falsify the identity or number of the calling party.

On April 23 (one month after the Forum), the agencies will host a “Stop Illegal Robocalls Expo” for consumers. Companies that offer technologies, devices and applications to minimize or eliminate illegal robocalls may request to exhibit at the Expo by contacting the FCC staff listed here by midnight on March 23.

A decision this week from a New York federal district court ruling that the U.S. Commodity Futures Trading Commission (CFTC) had jurisdiction to regulate a cryptocurrency business represents the first opinion from a federal court affirming the CFTC’s jurisdiction to regulate virtual currency spot and derivative markets.

The decision raises the possibility of jurisdictional tension between the CFTC and the SEC, which has recently brought a number of civil enforcement actions against virtual currency issuers premised on the theory that the virtual currency in question is an unregistered security.  A finding that a given virtual currency is, in fact, a commodity—rather than a security—could deprive the SEC of jurisdiction over that issuer, and vice versa with respect to instances in which a currency is deemed a security.  Another possibility is that a particular virtual currency with limited or no early utility might constitute a security at the time of its issuer’s initial coin offering but later evolve into a commodity once its utility is established, thereby creating the prospect that both the SEC and CFTC could have jurisdiction over a single virtual currency at different times in its market lifecycle.

For more on the decision, see Ballard’s legal alert.


The Department of Education has published a request for information in today’s Federal Register seeking comment on the factors used to evaluate claims of undue hardship made by student loan borrowers attempting to discharge student loans through adversary proceedings in bankruptcy court.  Responses to the RFI must be received by May 22, 2018.

Under the federal Bankruptcy Code, a student loan can be discharged in bankruptcy only if necessary to avoid an “undue hardship” on the borrower.  Congress did not define “undue hardship” in the Bankruptcy Code nor did it authorize the ED to do so by regulation.  As a result, the legal standard for a student loan borrower to prove “undue hardship” has been developed through case law, with courts generally using one of two tests to determine if “undue hardship” has been established.  The three-factor Brunner test (named after the case in which the test was first articulated) evaluates the debtor’s standard of living, likely duration of his or her financial difficulties, and the efforts he or she made to continue making loan payments before filing for bankruptcy.  The “Totality of the Circumstances” test looks at the debtor’s financial resources (past, present, and future), his or her reasonably necessary living expenses, and any other relevant factors and circumstances surrounding the debtor’s individual circumstances.

ED regulations require guarantors and educational institutions participating in the Federal Family Education Loan Program (FFELP) and Federal Perkins Loan Program (Loan Holders) to evaluate undue hardship claims to determine if requiring repayment of a student loan would constitute undue hardship.  Guidance issued by the ED in 2015 provides that Loan Holders should use a two-step analysis when evaluating undue hardship claims.  First, using the tests established by the federal courts, a Loan Holder should determine whether requiring repayment would impose an undue hardship.  Second, if the Loan Holder determines that requiring repayment would not impose an undue hardship, it must evaluate the costs of undue hardship litigation.  If the costs to litigate the matter in bankruptcy court are estimated to exceed one-third of the loan balance, the Loan Holder is permitted to accept an undue hardship claim.

The 2015 guidance included a discussion of factors that are appropriate for a Loan Holder to consider when evaluating an undue hardship claim and how such factors fit within the tests established by the federal courts.  It also stated that the guidance mirrored the ED’s existing practice for the Direct Loan program and for ED-held FFELP and/or Perkins loans.

The RFI seeks comment on:

  • Factors to be used in evaluating undue hardship claims and the weight to be given to such factors
  • Whether the use of two tests results in inequities among borrowers
  • Circumstances under which a Loan Holder should concede an undue hardship claim
  • Whether and how the 2015 guidance should be amended




A bipartisan group of 16 state attorneys general has filed an amicus brief in support of a petition for certiorari asking the U.S. Supreme Court to review a Ninth Circuit decision upholding the district court’s approval of a class action cy pres settlement.  The petition was filed by objectors to the settlement.

Cy pres typically refers to the distribution of residual funds to one or more nonprofit organizations where the settlement proceeds are not completely distributed to class members.  However, the $8.5 million settlement reviewed by the Ninth Circuit (which resolved privacy claims against Google) was a “cy pres-only arrangement” in which no funds were paid to the 129 million class members.  Instead, in addition to the $3.2 million paid to attorneys, the named plaintiffs, and the settlement administrator, $5.3 million was paid to several universities, a law school, a foundation, and a public interest research group.  In their amicus brief, the AGs argue that Supreme Court guidance is necessary to resolve a circuit split on the allowable uses of cy pres settlement arrangements and the analysis courts should use in weighing when (if ever) such arrangements should be judicially approved.

The use of cy pres arrangements in DOJ settlements was the subject of recent remarks by Associate U.S. Attorney General Rachel Brand.  Ms. Brand noted that the DOJ has included cy pres clauses in some settlements under which Treasury funds were paid to third parties instead of being returned to taxpayers.  As “one of the worst examples,” she described a case in which the DOJ had settled claims against the government by creating a $680 million fund to pay individual claimants.  Under the settlement’s cy pres clause, about 90% of the $300 million that remained after all individual claims were paid was to be distributed to nonprofit groups identified by a trust controlled by the plaintiffs’ attorneys.  Ms. Brand indicated that this “means that hundreds of millions of dollars of the taxpayer’s money will be spent in ways never appropriated by Congress, with virtually no oversight.”

Ms. Brand suggested that cy pres arrangements are now barred by the memorandum issued in June 2017 by Attorney General Jeff Sessions that prohibits DOJ attorneys in cases involving the federal government from entering into settlement agreements on behalf of the United States that require payments or loans to any non-governmental person or entity that is not a party to the dispute.  The DOJ and CFPB have frequently included such provisions in consent orders settling fair lending claims.

In her remarks, Ms. Brand also indicated that the DOJ intends to take a more vigorous approach to the review of proposed class action settlements under the Class Action Fairness Act (CAFA).  CAFA provides that notice of such settlements must be served on the DOJ at least 90 days before a final approval hearing.  The DOJ can then weigh in with the court if it concludes that a proposed settlement is not fair or reasonable.

According to Ms. Brand, the DOJ’s failure to be more proactive in its review of proposed settlements “wasn’t for a lack of worthy cases” but was instead caused by “an almost comical story of government bureaucracy” that often resulted in CAFA notices not being reviewed by a DOJ lawyer “until after the fairness hearing or even after the settlement had been finalized.”  Ms. Brand told audience members that the DOJ has “begun to fix that process” and that they should “[b]e on the lookout in the coming days for the first example [of DOJ review].”

The following bills were passed by the House earlier this week:

  • The “Making Online Banking Initiation Legal and Easy (MOBILE) Act, H.R. 1457.  Passed by a vote of 397-8, the MOBILE Act would allow a bank to scan and retain personal information from a state-issued driver’s license or personal identification card when an individual seeks to open an account online or obtain a financial product or service online.  The bill would also allow a bank to use the license or identification card to verify the individual’s identity and comply with a legal requirement to record, retain, or transmit the personal information of an individual seeking to open an account online or obtain a financial product or service online.  According to the accompanying House Report, the bill is intended to create a “new national standard” that would preempt state laws that do not permit the scanning of state-issued driver’s licenses or personal identification cards to verify a customer’s identity.  The bill contains an express preemption provision.  While the bill expands the documentation a bank can use to verify a customer’s identity in an online transaction, it does not require a bank to accept such documentation or limit a bank’s ability to decide who is eligible to open an account.
  • The “Federal Savings Association Charter Flexibility Act of 2017,” H.R. 1426.  Passed by a voice vote, the bill would allow a federal savings association to exercise the powers of a national bank without converting to a national bank charter.  According to the accompanying House Report, the bill is intended to allow a federal savings association to exceed the commercial and consumer loan limits to which it is subject under the Home Owners Loan Act while continuing to be treated as a federal savings association for purposes of governance, consolidation, merger, dissolution, conservatorship, and receivership.  Under the bill, a federal savings association would have to submit a notice of election to operate as a national bank and, unless the OCC otherwise notified the association, the election would be deemed approved 60 days after the OCC received notice.

On January 30, 2018 at 10 a.m., the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee will hold a hearing, “Examining Opportunities and Challenges in the Financial Technology (“Fintech”) Marketplace.”

The Committee Memorandum states that the hearing “will examine the current regulatory landscape [for fintech], the need to amend or modernize the regulatory landscape or the necessity to amend existing financial laws or develop new legislative proposals that would allow financial services entities to use fintech to deliver new products and services to consumers.”

We find it surprising that neither Joseph Otting, the new Comptroller of the Currency, nor any other federal or state regulator, is slated to testify.  Mr. Otting has not yet taken a public position on the OCC’s proposal to issue special purpose national bank charters to companies that make loans but do not accept deposits.  However, two Ballard attorneys recently authored an article, “Predicting Comptroller Otting’s Impact on Fintech,” in which they expressed the view that he is likely to be supportive of such charters.

Jelena McWilliams, President Trump’s nominee for FDIC chair, is reported to have told Senators in her confirmation hearing last week that she did not believe the FDIC’s grant of industrial loan company charters to fintech and other nonbank firms would pose a safety and soundness risk for the broader financial system and intended to look into why the FDIC has delayed its review of applications for such charters.  Ms. McWilliams is also reported to have said that her position on moving quickly on those reviews should be seen as an invitation for more such charter applications.




Last week, the OCC released its semiannual risk report highlighting credit, operational, and compliance risks to the federal banking system.  The report focuses on issues that pose threats to those financial institutions regulated by the OCC and is intended to be used as a resource by those financial institutions to address the key concerns identified by the OCC.  Specifically, the OCC placed cybersecurity and anti-money laundering (AML) issues among the three top concerns highlighted in the report.

The OCC called for banks to remain vigilant against the operational risks that arise from efforts to adapt business models, transform technology and operating processes, and respond to increasing cybersecurity threats.  The OCC stated that:

  • “The speed and sophistication of cybersecurity threats are increasing. Banks continually face threats seeking to exploit bank personnel, processes, and technology. These threats target large quantities of personally identifiable information and proprietary intellectual property and facilitate fraud and misappropriation of funds at the retail and wholesale levels.”
  • “Phishing is a primary method for breaching data systems and often leads to other malicious activity, such as installing ransomware, compromising internal systems to effect payments, or conducting espionage. Effective user awareness campaigns and training help prevent phishing attacks. Timely and thorough software patch and system update management, strong risk-based authentication, employee training, and effective network segmentation can prevent further damage if intrusions succeed.”
  • “The number, nature, and complexity of third-party relationships continue to expand, increasing risk management challenges for banks. Financial technology companies providing innovative financial products and services introduce opportunities, as well as potential risk, for banks.”
  • “Consolidation among larger service providers has increased third-party concentration risk, in which a limited number of providers service large segments of the banking industry for certain products and services. Operational events at these larger service providers can potentially affect wide segments of the financial industry.”
  • “The volume of products and services and the complexity of end-to-end processes for delivery in larger, complex banks are key drivers influencing the current level of operational risk. Insufficient monitoring and limited internal testing have failed to detect product and service delivery disruptions, resulting in slowed responses by banks and prolonged impact to customers. This condition is especially true of banks with legacy or disparate management information systems and risk management programs that may be ineffective.

The OCC also called for banks to address the compliance risks related to managing money laundering risks in an increasingly complex risk environment. The OCC stated that:

  • “The challenge for banks to comply with Bank Secrecy Act (BSA) requirements persists due to dynamism of money laundering and terrorism-financing methods. Also, bank offerings using new or evolving delivery channels may increase customer convenience and access to financial products and services, but banks need to maintain a focus on refining or updating BSA compliance programs to address any vulnerabilities created by these new offerings, which criminals can exploit.”
  • “In addition, BSA and anti-money laundering AML compliance risk management systems may not keep pace with evolving risks, constraints on resources, changes in business models, and an increasingly complex risk environment.”
  • “New and amended regulations strain bank change management processes and compliance management systems, which increases operational, compliance, and reputation risks. These changes include the integrated mortgage disclosures under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), as well as the new requirements under the amended regulations implementing the HMDA and the MLA.”
  • “Many banks face difficulties validating processes and systems that rely on software, automated tools, disclosure forms, and third-party relationships to process loan applications, create and distribute disclosures, and underwrite and close loans. Sound risk management practices should include maintaining processes and systems that are sufficient to identify covered borrowers and loan products, producing accurate calculations and required disclosures, and incorporating other required protections.”
  • “Some banks have difficulty fully and accurately implementing the significant system and operational changes necessary for the integrated mortgage disclosure forms—Loan Estimate and Closing Disclosure—required for most mortgage loans secured by real property… Banks need consumer compliance risk management and audit functions sufficient to promote ongoing compliance with the regulation.”

The Department of Education, in an issue paper submitted as part of negotiated rulemaking on its final “borrower defense” rule, is proposing to require schools that use pre-dispute arbitration agreements and class action waivers in agreements with students to provide disclosures to students regarding their use of such agreements and waivers.

The ED’s proposed approach represents a reversal of the ED’s position under the Obama Administration.  In its final “borrower defense” rule issued in November 2016, the ED banned the use of pre-dispute arbitration agreements by schools receiving Title IV assistance under the Higher Education Act.  The final rule also prohibited a school from relying on such an agreement to block the assertion of a borrower defense claim in a class action lawsuit.

In November 2017, the ED announced that it was postponing “until further notice” the July 1, 2017 effective date of various provisions of the final rule, including the rule’s provisions banning the use of arbitration agreements and reliance on such agreements to block class claims.  At that time, the ED also announced that it planned to establish two negotiated rulemaking committees, with one committee to develop proposed regulations to revise the “borrower defense” rule and the other to develop proposed revisions to the “gainful employment” rule that became effective in July 2015 and includes requirements for schools to make various disclosures such as graduation rates, earnings of graduates, and student debt amounts. [link to blog]


According to a Wall Street Journal article, the Treasury Department expects to make recommendations in early 2018 for changing Community Reinvestment Act regulations.

The article quotes a Treasury spokesperson who is reported to have said that CRA modernization is needed to align the statute’s goals and ensure that banks’ investments better support community needs.  The spokesperson is reported to also have said that Treasury has solicited input from consumer advocates, trade associations, financial institutions, legal scholars, think tanks, civil rights groups, and community development financial institutions, and plans to work with the OCC, FDIC, and Federal Reserve in developing the recommendations.

In discussing changes Treasury might propose, the article notes that Comptroller Otting has “floated the idea” that “community development loans” for CRA purposes be expanded to include more small business loans, and that the American Bankers Association has suggested expanding such loans to include infrastructure lending and other activities that do not solely benefit the poor.

In November 2017, the OCC issued a framework for evaluating applications from banks with less than satisfactory CRA ratings.  OCC regulations implementing the CRA provide that the OCC must consider a bank’s CRA rating when reviewing the bank’s application for branch establishment, branch relocation, main or home office relocation, a Bank Merger Act filing involving two insured depository institutions, conversion from a state to a federal charter, and conversion between federal charters.

On Monday, January 8, 2018, the United States Department of Justice weighed in with a Statement of Interest under 28 U.S.C. § 517 in a pending state-court action (No. 1784CV02682) brought by the Commonwealth of Massachusetts against the Pennsylvania Higher Education Assistance Agency (PHEAA). The Commonwealth alleges that PHEAA violated state and federal consumer protection laws by engaging in unfair and deceptive student loan servicing practices on loans owned or subsidized by the federal government, including with respect to popular programs such as income-driven repayment plans and so-called TEACH grants.  Section 517 authorizes the Department of Justice to appear in state court “to attend to the interests of the United States.”  In doing so, the Department of Justice, in its Statement, maintained that the Commonwealth’s claims are preempted because (1) PHEAA cannot comply with both the Commonwealth’s interpretation of the relevant statutes and the actual requirements of federal law, (2) the Commonwealth’s claims “stand as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress” as expressed in the Higher Education Act; and (3) the Commonwealth’s requested relief would likely “require PHEAA to violate its contract with the Department.”

PHEAA has moved to dismiss the Commonwealth’s claims on several grounds, including that the Department of Education is a necessary party without whom the case cannot proceed. Oral argument on PHEAA’s motion is currently calendared for January 10, 2018, in Suffolk County Superior Court.  Ballard Spahr LLP represents PHEAA in this matter.