On July 17th, the Federal Trade Commission (FTC) announced reforms to its civil investigative demand (CID) process designed to streamline information requests and improve transparency in FTC investigations.  The process reforms that will be implemented for consumer protection cases include:

  • Providing plain language descriptions of the CID process and developing business education materials to help small businesses understand how to comply;
  • Adding more detailed descriptions of the scope and purpose of investigations to give companies a better understanding of the information the agency seeks;
  • Where appropriate, limiting the relevant time periods to minimize undue burden on companies;
  • Where appropriate, significantly reducing the length and complexity of CID instructions for providing electronically stored data;
  • Where appropriate, increasing response times for CIDs (for example, often 21 days to 30 days for targets, and 14 days to 21 days for third parties) to improve the quality and timeliness of compliance by recipient; and
  • Ensuring companies are aware of the status of investigations by adhering to the current practice of communicating with investigation targets concerning the status of investigations at least every six months after they comply with the CID.

The reforms are part of the FTC’s broader initiative to implement Presidential directives aimed at eliminating wasteful, unnecessary regulations, and processes.  The FTC had previously announced other efforts that are already underway:

  • Forming new groups within the Bureau of Competition and the Bureau of Consumer Protection working to eliminate unnecessary costs to companies and individuals who receive CIDs.
  • Reviewing FTC dockets and closing older investigations, where appropriate.
  • Working to identify unnecessary regulations that are no longer in the public interest.
  • The FTC Bureau of Consumer Protection is actively reviewing closed data security investigations to extract key lessons for improved guidance and transparency.
  • The FTC Bureaus of Consumer Protection and Economics are working together to integrate economic expertise earlier in FTC investigations to better inform agency decisions about the consumer welfare effects of enforcement actions.
  • Acting Chairman Ohlhausen has established a new capability within her office to collect and review ideas on process streamlining and operational efficiency opportunities from across the agency.

The CFPB, which originally modeled many of its own investigatory processes on the FTC model, should consider whether any of these reforms make sense for its own CIDs, which have been frequently criticized as being expansive in scope, vague, and unduly burdensome.

The CFPB final arbitration rule is scheduled to be published in the Federal Register tomorrow, July 19.

The rule’s effective date will be the 60th day after publication and the mandatory compliance date will be March 19, 2018.  Based on our calculation, the effective date will be Monday, September 18, 2017 (since the 60th calendar day is Sunday, September 17).

The final rule’s publication in the Federal Register is a trigger for the filing of a petition with the Federal Stability Oversight Council to set aside the rule.  The Dodd-Frank Act (DFA) provides that such a petition must be filed “not later than 10 days” after a regulation has been published in the Federal Register.  The 10th calendar day after publication would be Saturday, July 29.  Since the DFA does not specify whether the term “day” means a “calendar” or a “business” day, it is uncertain whether the deadline for filing a petition with the FSOC will be July 29 or Monday, July 31.

A resolution of disapproval under the Congressional Review Act (CRA) is another potential route for overturning the arbitration rule.  According to a report prepared by the Congressional Research Service (CRS), the receipt of a final rule by Congress begins a period of 60 “days-of-continuous-session” during which a member of either chamber can submit a joint resolution disapproving a rule under the CRA.

For purposes of the CRA, a rule is considered to have been “received by Congress” on the later of the date it is received in the Office of the Speaker of the House and the date of its referral to the appropriate Senate committee.  The arbitration rule was received by the Speaker of the House on July 10 and referred to the Senate Banking Committee on July 13.

In calculating “days of continuous session,” every calendar day is counted, including weekends and holidays.  However, because the count is suspended for periods when either chamber (or both) is gone for more than three days (i.e. pursuant to an adjournment resolution), the deadline for when a CRA resolution to disapprove the arbitration rule would have to be submitted cannot be calculated with certainty.  Assuming no adjournment of the House or Senate, the 60th calendar day after the arbitration rule’s receipt by Congress would be September 11, 2017.

In order to be eligible for the special Senate procedure that allows a CRA disapproval resolution to be passed with only a simple majority, the Senate must act on the resolution during a period of 60 days of Senate session which begins when the rule is received by Congress and published in the Federal Register.  That deadline would appear to be either September 17 or 18, 2017.  (The CRS report indicates that if the House passes a joint resolution of disapproval, the Senate might only be able to use its special procedure if there is a companion Senate resolution.)





State bankers associations from all 50 states and Puerto Rico have sent a letter to Senate Majority Leader Mitch McConnell and Senate Minority Leader Charles Schumer urging them to support efforts to override the CFPB’s final arbitration rule under the Congressional Review Act.

The associations state that the rule “would create a windfall for unscrupulous class-action attorneys, provide little or no relief to harmed consumers, and effectively eliminate an accessible alternative to the often-daunting judicial system.”  They assert that because most consumer disputes are unique and not appropriate for class actions, “shutting down arbitration will leave this vast majority of consumers with only one option: the expense and frustration of courtroom litigation.”  They also state that the CFPB ignored data showing that the average award to consumers in arbitration is substantially greater than the average amount received by consumers in class actions and effectively eliminated arbitration “without proposing a reasonable alternative process for timely, low-cost resolution of consumer disputes.”

Keith Noreika, the Acting Comptroller of the Currency, has sent a letter dated July 17 to Director Cordray asking him to delay publication of the CFPB’s final arbitration rule in the Federal Register.  The July 17 letter responds to Director Cordray’s July 12 letter to Mr. Noreika.  In his July 12 letter, Director Cordray responded to Mr. Noreika’s July 10 letter in which he stated that OCC staff had expressed safety and soundness concerns arising from the proposed arbitration rule’s potential impact on U.S. financial institutions and their customers.

In addition to raising safety and soundness concerns, Mr. Noreika’s July 10 letter asked Director Cordray to provide the data used by the CFPB to develop and support its proposed arbitration rule.  In his July 17 letter, Mr. Noreika repeats his data request, commenting that “despite your prior telephonic and in-person assurances that we would have access to the CFPB’s data, your July 12 letter ignores my request.”  While stating that he “appreciate[s]” Director Cordray’s assurances in his July 12 letter that the final arbitration rule does not have any safety and soundness impact on the federal banking system, Mr. Noreika also observes that “the CFPB, by design, is not a safety and soundness prudential regulator.”

Mr. Noreika explains that he asked the OCC’s Economics Department to analyze the proposed rule for its impact on the federal banking system when he became aware of the proposal several weeks after becoming Acting Comptroller and, so that the OCC could complete its review, was asked by the OCC’s chief economist on July 5 to request the CFPB data.  Mr. Noreika adds that he “had hoped to discuss this request with [Director Cordray] prior to the release of the Final Rule, but the timing of the release of the Final Rule was not shared with me in advance.”  While expressing appreciation for Director Cordray’s offer in his July 12 letter to have the CFPB staff review its arbitration study and rulemaking analysis with OCC staff, Mr. Noreika states that such review would “be helpful, but not sufficient, to allay my concerns.”

Mr. Noreika, in his July 17 letter, not only repeats his request for the CFPB data, but also asks Director Cordray to delay publication of the final arbitration rule in the Federal Register “until my staff has had a full and fair opportunity to analyze the CFPB data so that I am able to fulfill my safety and soundness obligations.”  Mr. Noreika’s request for the publication delay is undoubtedly tied to the timing in the Dodd-Frank Act for an agency that is a member of the Financial Stability Oversight Council (FSOC) to file a petition with the FSOC to set aside a CFPB final regulation.  A member agency can file such a petition with the FSOC if the member agency “has in good faith attempted to work with the Bureau to resolve [safety and soundness or financial system stability] concerns” and files the petition no later than 10 days after the regulation has been published in the Federal Register.  If a petition is filed, any member agency can ask the FSOC Chairperson (i.e. Treasury Secretary Mnuchin) to stay the effectiveness of a regulation for up to 90 days from the filing.


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

The CFPB reforms are:

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

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




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.






Recently, Professor Jeff Sovern criticized Senator Tom Cotton of Arkansas for announcing that he would seek to block the CFPB’s final arbitration rule using the Congressional Review Act.  Professor Sovern quoted Senator Cotton as stating that the rule “‘ignores the consumer benefits of arbitration and treats Arkansans like helpless children, incapable of making business decisions in their own best interests ….’”  According to Professor Sovern, this rationale for opposing the rule is flawed because consumers are generally not aware of the arbitration clauses in their financial contracts and “don’t understand” them.  Moreover, he asserted, “[i]f we were to take Senator Cotton’s logic to its extreme, we wouldn’t require prescriptions for medications, because after all, requiring prescriptions assumes patients are incapable of making medical decisions in their own best interests.  We wouldn’t require cars to be safe, because such requirements assume consumers can’t make decisions about whether they want a safe car or not.”

Professor Sovern is missing the point.  If consumers — notwithstanding the near universal legal principle that people are legally responsible for understanding the contracts they enter into — are not aware of the arbitration clause in their financial contracts, it is because other features of the contract (for example, interest rate, fees, etc.) are more immediately important to them.  And, if consumers “don’t understand” arbitration clauses — notwithstanding that most financial services providers strive to make them as consumer-friendly and understandable as possible — it is because the CFPB has forsaken its responsibility to help educate consumers about arbitration.   We have urged the CFPB for the past several years to have its Consumer Education and Engagement division educate consumers about the relative costs and benefits of arbitration and litigation, particularly class action litigation.  Regrettably, it has steadfastly refused to do so.

It is not that educating consumers about arbitration is impossible or even difficult.  The CFPB itself has gone to great lengths to educate its own employees about the use of alternative dispute resolution to resolve workplace disputes.  And, just a few days ago, Consumer Reports published an article directed to consumers titled, “How to Make Arbitration Work in Disputes With Your Bank.”  The bottom line is that the CFPB made a policy judgment that consumers are better off learning about class actions rather than arbitration.

In the final rule, the CFPB stated that it “is skeptical as to whether it is realistic to believe that all or most consumers could be educated about the terms of arbitration agreements to significantly improve consumer attitudes or awareness.”  Yet at the same time that it issued the final rule, the CFPB released a video on YouTube titled, “CFPB’s New Arbitration Rule: Take Action Together.”  The video urges consumers to “[w]atch to see how the CFPB’s new rule will ban mandatory arbitration clauses that deny groups of people their day in court.  Many consumer financial products like credit cards and bank accounts have clauses in their contracts that prevent consumers from joining together to sue their bank or financial company for wrongdoing.  The new rule will deter wrongdoing and allow consumers to pursue justice and relief by prohibiting companies from using arbitration clauses to block group lawsuits.”

In terms of education, the CFPB unconscionably made no effort at all to educate consumers about arbitration — except to convey the message that they are bad — and completely tilted the playing field in favor of class actions.  Hyperbolically analogizing arbitration clauses to medical prescriptions and car safety does nothing to gloss over that unfortunate fact.




This Wednesday, July 19, the U.S. Chamber’s Center for Capital Markets Competitiveness  and U.S. Chamber Institute for Legal Reform will hold an event in Washington, D.C. entitled “CFPB’s Anti-Arbitration Rule: Analysis & Implications.”

The scheduled speakers include Senator Tom Cotton, who has announced the he plans to draft a resolution of disapproval to overturn the arbitration rule under the Congressional Review Act.


As we have previously reported, in October 2015 the CFPB adopted significant revisions to the Home Mortgage Disclosure Act (HMDA) rule, most of which become effective January 1, 2018.  Among the revisions, the reporting of home equity lines of credit under HMDA, which currently is voluntary, will become mandatory for both depository institutions and non-depository institutions that originated at least 100 home equity lines of credit in each of the two preceding calendar years.

The CFPB is now proposing to temporarily increase the threshold to the origination of 500 home equity lines of credit in each of the two preceding calendar years.  The temporary increase would apply for data collection years 2018 and 2019.  The CFPB notes that through outreach it “has heard increasing concerns from community banks and credit unions that the challenges and costs of reporting open-end lending may be greater than the Bureau had estimated when adopting the 100-loan threshold.  Additionally, the Bureau’s analysis of more recent data suggests changes in open-end origination trends that may result in more institutions reporting open-end lines of credit than was initially estimated.”  The temporary increase will allow the CFPB to assess the appropriate threshold for smaller-volume lenders.

Comments on the proposal are due by July 31, 2017.  The CFPB notes that at a later date it will issue a separate proposal with a longer notice and comment process to consider adjustments to the permanent threshold.

In its final arbitration rule issued on July 10, 2017, the CFPB responds to our calculation, made when the proposed rule was issued in May 2016, that the rule will cause 53,000 providers who currently use arbitration agreements to incur between $2.6 billion and $5.2 billion over a five-year period to defend against an additional 6,042 class actions. Those numbers are expected to be repeated every five years.

The CFPB acknowledges the accuracy of our calculations except that it disagrees that $5.2 billion “ is a reasonable upper bound.”  In both the proposed rule and the final rule, the CFPB calculated the costs associated with additional federal court class actions to be $2.6 billion, and estimated that there will be an equal number of additional state court class actions.  As it did in the proposed rule, however, the CFPB states that “it does not have reliable data to estimate the cost of additional State class actions.”  While the CFPB “acknowledges again that the total additional litigation costs to providers will exceed costs from Federal class actions” when the state class actions are accounted for, it believes that the state class actions will not add an additional $2.6 billion to the calculation, although it is unable to estimate what the upper bound number should be.

We arrived at the $5.2 billion estimate as follows:  In the proposed rule, the CFPB concluded that there would be as many additional state court class actions as federal court class actions.  (“Based on the Study’s analysis of cases filed, the Bureau believes that there is roughly the same number of class settlements in state courts as there is in Federal courts across affected markets.”)  They monetized the additional federal cases as $2.6 billion.  They estimated that the state court costs would be lower but were unable to monetize them “because limitations on the systems to search and retrieve state court cases precluded the Bureau from developing sufficient data on the size or costs of state court class action settlements.”  However, the CFPB also stated that they were not including the cost of providing in-kind relief, because they could not quantify it, and also were not including the cost of providing injunctive relief, which “could result in substantial forgone profit (and a corresponding substantial benefit to the consumers), but cannot be easily quantified.”  They further noted that “for several markets the estimates of additional Federal class action settlements are low.”  Looking at all of these factors, including the “substantial forgone profit” that the CFPB did not include, it was reasonable to project $5.2 billion as the maximum cost of federal and state court cases combined.  We were merely estimating that the combined cost of additional federal and state class actions would be somewhere between $2.6 billion and $5.2 billion based on the CFPB’s calculations and analysis.  (Of course, it might even be more than $5.2 billion).

We believe our calculations are consistent with the CFPB’s in that everyone estimates that the cost to providers from additional federal and state court class actions will exceed $2.6 billion.  The only disagreement is on the amount of the excess.  Given the CFPB’s belief that there will be as many additional state court class actions as additional federal court class actions, and the CFPB’s omission of other relief that will impose “substantial” costs on providers that the CFPB could not calculate, we continue to believe that $5.2 billion is a reasonable upper bound.  The CFPB disagrees, which it is certainly entitled to do.  In fact, we hope that if the rule is implemented, it does not cost providers an additional $5.2 billion every five years.  Unfortunately, even the lower bound estimate of $2.6 billion will exact a very heavy and unnecessary toll on providers but do little, if anything, to help consumers. Only their lawyers will benefit.