The bulletin issued yesterday by the OCC encouraging the banks it supervises “to offer responsible short-term, small-dollar installment loans” quickly met with mixed reviews from consumer advocates.

The Pew Charitable Trusts issued a press release in which it praised the OCC’s action for “remov[ing] much of the regulatory uncertainty that has prevented [banks] from entering the market [for small installment loans].”  The press release quotes the director of Pew’s consumer finance project who called the OCC bulletin “a welcome step that should help pave the way for banks to offer safe, affordable small-dollar installment loans to the millions of Americans that have been turning to high-cost nonbank lenders.”

Other consumer advocates took a more critical view of the OCC bulletin.  The Center for Responsible Lending’s senior policy counsel is reported to have raised the concern that “in a broader deregulatory environment, banks may be given more latitude to make high-cost loans than they’ve been given in the past, and that would have disastrous consequences.”  She also reportedly noted the absence of a federal usury ceiling and suggested that the policies and practices for small dollar loans set forth in the OCC bulletin would not allow a bank to charge more than a 36% annual percentage rate on such loans.

Christopher Peterson, a senior fellow at the Consumer Federation of America and a law professor at the University of Utah, took an even harsher view of the OCC bulletin.  Professor Peterson tweeted that he “[doesn’t] support this guidance” and that “[t]he OCC is replacing the 2013 policy with a new, weaker guidance that will tempt banks back into the subprime small dollar lending.”  (The “2013 policy” referred to by Professor Peterson is the OCC’s rescinded guidance on deposit advance products).

Professor Peterson also criticized the OCC for not setting an “all-in usury limit,” commenting that the absence of such a limit “means many banks will be tempted to impose crushing rates and fees on borrowers.”  Perhaps because he recognizes that the OCC cannot set a usury limit (because that limit is set forth in Section 85 of the National Bank Act), Professor Peterson called upon Congress to “step up with [a] national usury limit.”  (Professor Peterson’s tweets can be viewed by clicking on the link below.)

 

This afternoon, President Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act) into law.  The Act was passed by the House on Tuesday by a vote of 258 to 159 and by the Senate on March 14 by a vote of 67 to 31.

Although the Act does not make the sweeping changes to the Dodd-Frank Act contemplated by other proposals, it nevertheless provides welcome regulatory relief to both smaller and larger financial institutions.  After President Trump signed the Act, CFPB Acting Director Mick Mulvaney issued a statement applauding Congress for passing the Act and indicating that he is “pleased to see the long-overdue reforms to the regulations governing mortgage lending.”  Mr. Mulvaney also stated that he “stand[s] ready to work with Congress and the rest of the Administration to implement these new reforms that will promote a brighter, more prosperous future.”

On June 19, 2018, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar—Economic Growth, Regulatory Relief, and Consumer Protection Act: Anatomy of the New Banking Statute.  The webinar registration form is available here.

In addition to the changes regarding mortgage lending, the Act makes a number of changes to provisions of federal laws regarding credit reporting, and loans to veterans and students.  It also reduces the regulatory burdens on financial institutions—particularly financial institutions with total assets of less than $10 billion.  Bank holding companies with up to $3 billion in total assets would be permitted to comply with less-restrictive debt-to-equity limitations instead of consolidated capital requirements.  This change should promote growth by smaller bank holding companies, organically or by acquisition.  Larger institutions should benefit from the higher asset thresholds that would apply to systemically important banks subject to enhanced prudential standards.  The higher thresholds may lead to increased merger activity between and among regional and super regional banks.

For a summary of some of the Act’s key provisions applicable to financial institutions, click here for our full alert.

 

 

As readers of this blog already know, Professor Jeff Sovern and I come at most issues from different sides of the street.  Over the years, through our respective blogs and at various programs, we have engaged in spirited but respectful debate about many consumer finance issues.  For that reason, I was particularly disappointed to read Jeff’s blog post about Andrew Smith’s appointment as Director of the FTC’s Bureau of Consumer Protection.

Despite his comment that he does not “mean that Mr. Smith is a thief,” Jeff’s characterization of Andrew as a “Payday Lender Lawyer” in the title of his blog post coupled with his use of the quote “set a thief to catch a thief,” seems intended to raise questions about Andrew’s integrity based solely on his past representation of payday lenders.  Although we strongly disagree with Jeff’s support for the CFPB’s payday lending rule and his criticism of the payday lending industry, those matters are certainly fair game for debate.  However, Andrew has had an unblemished ethical record as an attorney in private practice and as a government attorney in his previous tenure with the FTC.  Indeed, Andrew is considered to be among the country’s most prominent consumer financial services lawyers, as evidenced by his position as Chair of the American Bar Association Consumer Financial Services Committee, his appointment long ago as a fellow of the American College of Consumer Financial Services Lawyers, and his ranking by Chambers USA which evaluates America’s leading lawyers for business.

We also strongly reject the inference that payday lending is a form of theft and observe that, regardless of how an attorney’s clients are viewed, it is bad policy for a lawyer’s qualifications for government appointment to depend on his or her clients’ reputations.  If that were the standard, white collar criminal lawyers would never qualify for government service.

I am confident that in his new leadership role at the FTC, Andrew will continue to adhere to the highest ethical standards.

In addition to the CFPB’s Spring 2018 rulemaking agenda that we have already blogged about, the Spring 2018 rulemaking agendas of several other federal agencies contain some items of interest to consumer financial services providers.

Items of particular interest are:

  • OCC.  The OCC plans to issue an Advance Notice of Proposed Rulemaking “for modernizing the current regulations to carry out the purposes of the Community Reinvestment Act.”  The agenda gives a May 2018 estimated date for the ANPRM.  Last month, the Treasury Department issued a memorandum in which it made recommendations for modernizing the CRA.  The memorandum was directed to the primary CRA regulators, consisting of the OCC, the Federal Reserve, and the FDIC.  Of the three agencies, only the OCC’s Spring 2018 rulemaking agenda included a CRA item.
  • NCUA.  The NCUA is drafting an amendment to its general lending rule to give federal credit unions an additional option for offering Payday Alternative Loans (PALs).  The proposal would be an alternative to the current PALs rule.  It would modify the minimum and maximum loan amounts, eliminate the minimum membership requirement, and increase the maximum loan maturity while incorporating the other features of the current PALs rule.  The NCUA expects to issue a Notice of Proposed Rulemaking in May 2018.
  • Dept. of Education.  In June 2017, the ED announced that it was postponing “until further notice” the July 1, 2017 effective date of various provisions of the “borrower defense” final rule issued by the ED in November 2016, including the rule’s ban on arbitration agreements.  It also made a concurrent announcement that it planned to enter into a negotiated rulemaking to revise the “borrower defense” rule.  In October 2017, the ED published an interim final rule postponing the effective date of such provisions of the “borrower defense” final rule until July 1, 2018, and in February 2018, the ED published a final rule to further postpone the effective date until July 1, 2019.  In its Spring 2018 rulemaking agenda, the ED indicates that it expects to issue a NPRM in May 2018 regarding the “borrower defense” rule.

I was pleased to see the announcement yesterday afternoon by FTC Chairman Joseph Simons that the FTC has approved the appointment of Andrew Smith to serve as Director of the agency’s Bureau of Consumer Protection, beginning next week.

As I indicated in my prior blog post, I have known Andrew for many years going back to his tenure at the FTC earlier in his career and have always felt that Andrew was a very fair-minded attorney who studiously called the shots as he saw them.  In addition to bringing his excellent lawyering skills to the FTC, I am confident that Andrew will continue to take an even-handed approach in his new leadership role.

Andrew’s appointment was approved by a 3-2 vote, with both Democratic commissioners, Rohit Chopra and Rebecca Slaughter, voting against his appointment.

 

The FCC has issued a notice announcing that it is seeking comments on several TCPA issues following the D. C. Circuit’s decision in ACA International v. FCC.  Comments are due by June 13, 2018 and reply comments are due by June 28, 2018.

The FCC’s notice follows the filing of a petition by several industry trade groups seeking clarification of the TCPA’s definition of “automatic telephone dialing system” (ATDS) in light of the D.C. Circuit decision.  The FTC seeks comment on the issues described below.

  • What constitutes an ATDS
    • The TCPA defines an ATDS as “equipment which has the capacity—(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” The D.C. Circuit reversed the FCC’s interpretation of “capacity” as overly expansive.  The FCC seeks comments “on how to more narrowly interpret the word ‘capacity’ to better comport with the congressional findings and intended reach of the statute.”
    • The FCC seeks comment on the functions a device must perform to qualify as an ATDS. The D.C. Circuit set aside the FCC’s interpretations regarding whether a device must be able to generate and dial random and sequential numbers to be an ATDS and whether a device must be able to dial numbers without human intervention to be an ATDS.  The court also noted that uncertainty was created by the FCC’s statement that another “basic function” of an ATDS is “to dial thousands of numbers in a short period of time.”  Among the questions asked by the FCC are whether, to be “automatic,” a system must dial numbers without human intervention and dial thousands of numbers in a short period of time (and, if so, what constitutes a short period of time).  It also asks whether a system can be an ATDS if it cannot dial random or sequential numbers.
    • The D.C. Circuit noted that the statutory prohibition on making calls using an ATDS raised the question of whether the prohibition only applies to calls made using a device’s ATDS functionality.  The FCC seeks comment on that question.
  • How to treat calls to reassigned numbers
    • The TCPA’s autodialed call prohibition excepts calls made “with the prior express consent of the called party.” The D.C. Circuit set aside the FCC’s one-call safe harbor as well as its interpretation that the “called party” means the current subscriber rather than the intended recipient.  The FCC seeks comment on how to interpret the term “called party” for calls to reassigned numbers.
  • How a called party can revoke prior express consent to receive calls
    • The D.C. Circuit upheld the FCC’s ruling that a called party can revoke consent to receive autodialed calls at a wireless number “at any time and through any reasonable means that clearly expresses a desire not to receive further messages.”  In response to concerns that the ruling would make it burdensome to adopt systems to implement revocations using methods chosen by consumers, the court observed that “callers will have every incentive to avoid TCPA liability by making available clearly-defined and easy-to-use opt-out methods” and that, if such methods were afforded to consumers, consumers’ use of  “idiosyncratic or imaginative revocation requests might well be seen as unreasonable.”  The FCC seeks comment on “what opt-out methods would be sufficiently clearly defined and easy to use such that ‘any effort to sidestep the available methods in favor of idiosyncratic or imaginative revocation requests might well be seen as unreasonable.'”  (In its 2017 Reyes decision, the Second Circuit held that TCPA consent cannot be revoked when it is part of the bargained-for exchange memorialized in the parties’ contract.)
  • Whether contractors acting on behalf of federal, state, and local government are “persons” under the TCPA (The issue as to federal contractors is raised by two pending petitions for reconsideration of the FCC’s 2016 Broadnet Declaratory Ruling.  The FCC states that it is seeking renewed comment on the petitions in light of the D.C. Circuit’s decision.)
  • The interplay between the Broadnet ruling and the 2015 TCPA amendment that removed a prior express consent requirement for autodialed calls ”made solely to collect a debt owed to or guaranteed by the United States.” The FCC asks whether its 2016 Federal Debt Collection Rules would apply to a federal contractor collecting a federal debt if a federal contractor is not a “person” under the TCPA.  (The FCC also seeks renewed comment on a pending petition for reconsideration of its 2016 Federal Debt Collection Rules because the issues raised in the petition include the applicability of the TCPA’s limits on calls to reassigned numbers and such limits were addressed by the D.C. Circuit.)

Ballard Spahr’s TCPA Team has deep experience in FCC comment letters and related filings.

 

 

 

According to media reports, the FTC is expected to appoint Andrew Smith, an attorney in private practice in Washington, D.C. who currently represents many industry clients, to lead the FTC’s Consumer Protection Bureau.  His expected appointment has reportedly met with criticism from two Democratic Senators.

Before entering private practice, Andrew was an attorney with the FTC.  He currently chairs the American Bar Association’s Consumer Financial Services Committee.

I have known Andrew for many years going back to his tenure at the FTC where he served in senior supervisory and policy-making positions.  I always felt that Andrew was a very fair-minded attorney who studiously called the shots as he saw them.  As a leader of the ABA Consumer Financial Services Committee, including in his current position as Committee Chair, he has been very even-handed, always ensuring that the voices of consumer advocates are heard.  The ABA represents all of it members, not just lawyers who work for or represent the consumer financial services industry.

The knee-jerk criticism of Andrew by two Democratic Senators based on his prior legal work for clients and his need to recuse himself from FTC investigations involving those clients is completely unfounded.  If anything, it demonstrates that Andrew is an excellent lawyer and that his services are in high demand.  Indeed, the BTI Consulting Group recently named Andrew to its 2018 “Client Service All-Stars” list, which recognizes “the leaders in superior client service.”  Andrew is one of only three consumer financial services lawyers in the country named to this list.  My partner, Scott Pearson, also received this rare honor.

The U.S. Department of Housing and Urban Development (HUD) recently announced that it will “formally seek the public’s comment on whether its 2013 Disparate Impact Regulation is consistent with the 2015 U.S. Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.

As we reported previously, the regulation provides that liability may be established under the Fair Housing Act (FHA) based on a practice’s discriminatory effect (i.e., disparate impact) even if the practice was not motivated by a discriminatory intent, and that a challenged practice may still be lawful if supported by a legally sufficient justification.  Under the regulation a practice has a discriminatory effect where it actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin.  The regulation also addresses what constitutes a legally sufficient justification for a practice, and the burdens of proof of the parties in a case asserting that a practice has a discriminatory effect under the FHA.

While the Supreme Court held in its Inclusive Communities Project opinion that disparate impact claims may be brought under the FHA, it also set forth limitations on such claims that “are necessary to protect potential defendants against abusive disparate impact claims.”  In particular, the Supreme Court indicated that a disparate impact claim based upon a statistical disparity “must fail if the plaintiff cannot point to a defendant’s policy or policies causing that disparity” and that a “robust causality requirement” ensures that a mere racial imbalance, standing alone, does not establish a prima facie case of disparate impact, thereby protecting defendants “from being held liable for racial disparities they did not create.”  Significantly, while the Inclusive Communities Project opinion held that liability may be established under the FHA based on disparate impact, the disparate impact claim against the Texas Department of Housing and Community Affairs was later dismissed by the District Court based on the limitations on such impact claims prescribed by the Supreme Court in its opinion.

We have previously reported on a challenge to the HUD regulation by the American Insurance Association and National Association of Mutual Insurance Companies in the federal district court for the District of Columbia.  The trade associations assert that the regulation is not consistent with the limitations on disparate impact claims set forth by the Supreme Court its Inclusive Communities Project opinion.  A status conference was held on May 10, 2018, and HUD filed a notice with the court advising of its intent to solicit comment on the regulation.  The upcoming HUD request for comment will provide the opportunity for the mortgage industry and other interested parties to address whether the regulation reflects the limitations set forth by the Supreme Court and other concerns with the regulation.

We will report on the HUD request for comment once it is released, and hold a webinar on the request following its release.

The U.S. Department of Justice announced earlier this week that it has reached an agreement with KleinBank, a state-chartered Minnesota bank, to settle the redlining lawsuit that the DOJ filed against the bank in January 2017, only a week before President Trump’s inauguration.  The agreement represents the first fair lending settlement entered into by the DOJ under the Trump administration.

The DOJ’s complaint, which related to the bank’s residential mortgage lending business, alleged that KleinBank violated the Fair Housing Act and the Equal Credit Opportunity Act by engaging in a pattern or practice of unlawful redlining of the majority-minority neighborhoods in the Minneapolis-St. Paul metropolitan area.  From 2010 to at least 2015, the bank was alleged to have avoided serving the credit needs of individuals seeking residential mortgage loans in majority-minority census tracts in the Metropolitan Statistical Area encompassing Minneapolis and St. Paul (MSA).

The redlining claim was based, in part, upon an allegation that KleinBank established and maintained a discriminatory Community Reinvestment Act (CRA) assessment area that was “horseshoe-shaped,” “include[d] the majority white suburbs, and carve[d] out the urban areas of Minneapolis and St. Paul that have higher proportions of minority populations.”  Specifically, the complaint alleges that the bank’s main CRA assessment area excluded 78 of 97 majority-minority census tracks in the MSA, “all but two of which are located in Hennepin and Ramsey Counties.”  The DOJ alleged that, in addition to the main CRA assessment area of the bank, the “proper CRA assessment area would include the entirety of Hennepin and Ramsey Counties.”

Unlike other redlining lawsuits that the DOJ had recently filed when it sued KleinBank, the DOJ’s action against KleinBank was contested by the bank which issued a statement in which it vigorously disputed the alleged redlining claims and called them an “unprecedented reach by the government.”  Although supported by the American Bankers Association, the Independent Community Bankers Association, the Minnesota Bankers Association, and forty other state bankers associations, the bank’s motion to dismiss the complaint was unsuccessful.

Under the settlement agreement, the DOJ agrees to jointly stipulate with KleinBank to the dismissal of the lawsuit and KleinBank agrees to take various actions including:

  • Opening one full-service brick and mortar office within a majority-minority census track within Hennepin County
  • Continuing to develop partnerships with community organizations to help establish a presence in majority-minority census tracks in Hennepin County
  • Employing a full-time Community Development Officer who is a member of management to oversee the development of the bank’s lending in majority-minority census tracks in Hennipin County
  • Spending a minimum of $300,000 on advertising, outreach, education, and credit repair initiatives over the next 3 years
  • Providing at least 2 outreach programs annually for real estate brokers and agents, developers, and public or private entities already engaged in residential and real estate-related business in majority-minority census tracks in Hennepin County to inform them of the products offered by KleinBank
  • Investing a minimum of $300,000 over 3 three years in a special purpose credit program that will offer residents of majority-minority census tracks in Hennepin County home mortgage  and home improvement loans on a more affordable basis than otherwise available from KleinBank, with such more affordable terms to be provided through one or more of the following means:
    • Originating or brokering a loan at an interest rate that is at least 1/2 of a percentage point (50 basis points) below the otherwise prevailing rate
    • Providing a direct grant of a portion of the loan amount for the purpose of down payment assistance, up to a maximum of 3.5%
    • Providing closing cost assistance in the form of a direct grant of a minimum of $500 and a maximum of $1,500
    • Paying the initial mortgage insurance premium on loans subject to mortgage insurance
    • Using other means approved by the DOJ

Most notably, unlike previous redlining settlements, such as those involving Hudson City Savings Bank and BankcorpSouth Bank, the KleinBank settlement does not require the bank’s payment of a civil money penalty.

Yesterday, a coalition of numerous trade organizations, including, among others, the U.S. Chamber of Commerce, the American Bankers Association, the Consumer Bankers Association, and the Mortgage Bankers Association, filed a Petition for Declaratory Ruling with the Federal Communications Commission (the “FCC”), seeking clarification of the definition of “automatic telephone dialing system” (“ATDS”) under the Telephone Consumer Protection Act (“TCPA”).  Specifically, Petitioners request that, in light of the D.C. Circuit’s recent guidance on this topic in ACA International v. FCC, the FCC (1) confirm that to be an ATDS, equipment must use a random or sequential number generator to store or produce numbers and dial those numbers without human intervention, and (2) find that only calls made using actual ATDS capabilities are subject to the TCPA’s restrictions.

The Petition sets the stage for its request by explaining that the TCPA’s original purpose was to prevent a specific type of abusive call by telemarketers, but that its implementation has resulted in a whirlwind of litigation against legitimate businesses attempting to lawfully communicate with their customers.  The Petition further asserts that the current state of TCPA litigation is hurting businesses, not helping consumers, and instead is just serving as a boondoggle for plaintiffs’ lawyers.  The Petitioners then urge the FCC to use the D.C. Circuit’s recent decision in ACA as an opportunity to rationalize the dysfunctional TCPA landscape.

Turning to their specific requests, the Petitioners argue that the FCC should not deviate from the straightforward text of the TCPA in defining ATDS.  Thus, Petitioners contend that for equipment to constitute an ATDS, it must be able to generate numbers in either random order or sequential order, be able to store or produce those numbers, and be able to dial those numbers.  The Petitioners also request the FCC to make clear that if human intervention is required in generating the list of numbers to call or in making the call, then the equipment in use is not an ATDS.

In addition, the Petitioners argue that the FCC should make clear that the ATDS functions must be actually – not theoretically – present and active in a device at the time the call is made.  Thus, a device that requires alteration to add auto dialing capability is not an ATDS.  Rather, the capability must be inherent or built into the device for it to constitute an ATDS.  For example, if a smartphone required downloading an app or changing software code to gain autodialing capabilities, the smartphone would not qualify as an ATDS.

Finally, the Petitioners request that the FCC clarify that a caller must use the statutorily defined functions of an ATDS to make a call for liability to attach.  As such, a device’s potential capabilities would not be relevant to determining whether it is an ATDS, because the inquiry will focus only on the functions actually used to make the call or calls in question.

The Petitioners repeatedly urge the FCC to take prompt and speedy action on their Petition.  Significantly, the FCC is now controlled by Republicans, two of whose dissents from the FCC’s 2015 TCPA Declaratory Ruling and Order demonstrate that they strongly prefer a narrow interpretation.  We will keep a close watch on the progress of the Petition, and report on developments as they occur.