Comptroller of the Currency Joseph Otting is scheduled to make two appearances before Congress next week.

On Wednesday, June 13, 2018, he is scheduled to appear before the House Financial Services Committee at a hearing entitled “Financial Industry Regulation: the Office of the Comptroller of the Currency.”

On Thursday, June 14, 2018, he is scheduled to appear before the Senate Banking Committee at a hearing entitled “Update from the Comptroller.”

The issues about which Mr. Otting is likely to be questioned by lawmakers include the OCC’s proposal to issue special purpose national bank charters to nondepository fintech companies and its plans to engage in rulemaking to modernize its regulations implementing the Community Reinvestment Act.

 

 

Jelena McWilliams, President Trump’s nominee, was sworn in on June 5 for a five-year term as FDIC Chairman and a six-year term as a member of the FDIC Board of Directors.  As a result, the FDIC is firmly in the hands of Republicans.  Last month, Republicans also took firm control of the FTC.

As FDIC Chairman, Ms. McWilliams succeeds Martin Gruenberg, who was appointed Chairman by President Obama.  Since his term as an FDIC Board member does not expire until the end of this year, Mr. Gruenberg remains an FDIC Board member.  According to media reports, he has been recommended by Senator Chuck Schumer to serve as FDIC Vice Chairman, the position he held before his nomination as FDIC Chairman.

The other two current FDIC Board members are Comptroller of the Currency Joseph Otting and CFPB Acting Director Mick Mulvaney.  The FDIC Act provides  that the Comptroller and CFPB Director shall be Board members and that the three other members “shall be appointed by the President, by and with the advice and consent of the Senate, from among individuals who are citizens of the United States, 1 of whom shall have State bank supervisory experience.”  The FDIC Act mandates that no more than three Board members may have the same party affiliation.  Accordingly, President Trump must nominate a Democrat or Independent to fill the fifth seat.

The CFPB has published a post blog indicating that it plans to reconstitute three of its advisory groups: the Consumer Advisory Board (CAB), the Community Bank Advisory Council (CBAC), and the Credit Union Advisory Council (CUAC).

The blog post’s publication followed an eruption of controversy over the CFPB’s cancellation of a CAB meeting scheduled for today and tomorrow as well as media reports that the blog post’s author, Anthony Welcher, CFPB Policy Associate Director for External Affairs, had informed CAB members in a conference call today that their terms were terminated and they were not permitted to reapply for membership.  (CAB members have generally been appointed for a 3-year term.)

The series of RFIs issued by the CFPB included an RFI seeking comment on its public and non-public external engagements, including meetings of the CFPB’s advisory groups.  Comments on the RFI were due by May 29, 2018.  In its blog post, the CFPB states that “this week the Bureau begins the process of transforming the Bureau’s Stakeholder Outreach and Engagement work, which includes transitioning from former modes of outreach to a new strategy to increase high quality feedback.”  It also states that the comments it received in response to the RFI “informed our shift to expand external engagements and modify our Advisory Board and Councils to be one focused tool in the evaluative process.”

Section 1014 of Dodd-Frank required the CFPB to establish the CAB and provides that the CAB “shall meet from time to time at the call of the Director, but, at a minimum, shall meet at least twice in each year.”  Dodd-Frank did not require the CFPB to establish either the CBAC or CUAC.  Both Councils were established by the CFPB in the exercise of the Director’s discretion pursuant to his executive and administrative authority under Dodd-Frank Section 1012.

The CFPB’s blog post states that it “will continue to fulfill its statutory obligations to convene the [CAB] and will continue to provide forums for the [CBAC] and the [CUAC].”  It further states that the Bureau “will continue these advisory groups and will use the current 2018 application and selection process to reconstitute the current advisory groups with new, smaller memberships.”  (The CFPB’s statement that it plans to reconstitute all three groups indicates that it has also terminated or plans to terminate the terms of current CBAC and CUAC members.)

The blog post further indicates that the CFPB plans to “increase its strategic outreach to encourage in-depth conversations, sharing information, and developing partnerships focused on consumers in underserved communities and geographies. These engagements will include regional town halls, roundtable discussions at the Bureau’s headquarters with consumer finance experts and representatives, regional roundtables, and regular national calls.”  In the blog post, the CFPB announces that on June 8, 2018, in Topeka, Kansas, the CFPB will co-host a town hall, “Fighting Elder Financial Exploitation in your Community,” with the Kansas Attorney General, to “recognize effective state and local efforts addressing elder exploitation generally and elder financial exploitation.”

The CFPB’s cancellation of the CAB meeting that was scheduled for today and tomorrow provoked criticism from CAB members.  The CFPB had previously cancelled the CAB’s February 2018 scheduled meeting.  In a letter to Acting Director Mulvaney signed by the CAB’s Chair and Vice Chair as well as 13 of the CAB’s 23 other members, CAB members stated that the cancellation “raises significant issues regarding compliance with legal obligations related to the CAB and CAB service.”  They cited to Dodd-Frank Section 1014(a) which requires the CAB to convene twice a year to “advise and consult with the Bureau in the exercise of its functions under the Federal consumer financial laws and to provide information on emerging practices in the consumer financial products and services industry, including regional trends, concerns and other relevant information.”  Calling the cancellation “a troubling sign,” the members state that they “are extremely concerned that our collective input is not valued.”

In a letter responding to the members’ letter, Mr. Mulvaney stated that he “can assure [them] that there is no cause for concern” and that the CAB “will meet at my call (or at the call of a newly confirmed Director) at least twice this calendar year, in fulfillment of the Bureau’s legal obligations.”  Under former Director Cordray, the CAB held three meetings each year.  As noted above, Section 1014 of Dodd-Frank requires only two CAB meetings per year.  Acting Director Mulvaney’s response is consistent  with his general practice of adhering to what Dodd-Frank requires rather than following the expansive approach to the CFPB’s exercise of its authorities that prevailed under former Director Cordray.

 

 

Four consumer advocacy groups have filed a motion seeking leave to file an amicus memorandum opposing the joint motion filed by the CFPB and two trade groups that seeks a stay of the compliance date for the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule).  The joint motion, which was filed in the trade groups’ April 2018 lawsuit challenging the Payday Rule, also seeks a stay of the litigation for the duration of the CFPB’s rulemaking to reconsider the Payday Rule.

The four consumer advocacy groups are Public Citizen, Inc., Americans for Financial Reform Education Fund, Center for Responsible Lending, and National Consumer Law Center.  They assert in their motion that because the stay was sought jointly by the parties to the lawsuit, “the Court lacks the benefit of adversarial briefing on the parties’ request.”

The joint motion filed by the CFPB and trade groups seeks a stay of the Payday Rule’s compliance date pursuant to Section 10(d) of the Administrative Procedure Act, 5 U.S.C. section 705, which provides:

When an agency finds that justice so requires, it may postpone the effective date of action taken by it, pending judicial review.  On such conditions as may be required and to the extent necessary to prevent irreparable injury, the reviewing court … may issue all necessary and appropriate process to postpone the effective date of an agency action or to preserve status or rights pending conclusion of the review proceedings.

In the proposed amicus memorandum accompanying their motion, the consumer advocacy groups argue that Section 705 cannot be properly invoked by the CFPB and trade groups to stay the Payday Rule’s compliance date for the following reasons:

  • For the court to stay the compliance date while also staying the litigation is at odds with the purpose of Section 705 “to stay agency action for the purpose of maintaining the status quo during judicial review.”  The CFPB and trade groups are not seeking to maintain the status quo to protect against litigation uncertainties but rather to address uncertainties created by the CFPB’s decision to engage in rulemaking to reconsider the Payday Rule.  Section 705 “cannot properly be used as the basis for a stay where the parties are not litigating and have no intention to do so.”
  • The joint motion is an “attempt to jerry rig non-adversarial litigation to effect an end-run around the [Administrative Procedure Act’s] statutory requirements.”  An agency ordinarily can only delay a rule’s compliance date through the APA’s notice-and-comment rulemaking procedures.
  • The same four-part test used to assess requests for stays pending appeal applies to Section 705 stays.  The joint motion does not satisfy this test because:
    • Little effort was made to show any likelihood of plaintiffs’ success on the merits in their challenge to the Payday Rule
    • No showing was made that the plaintiffs would suffer irreparable injury absent a stay pending review, with no actual information provided “as to whether any individual member of the plaintiff associations intends to spend money on compliance with the Payday Rule before the date when this lawsuit—if it were litigated—could reasonably be expected to end.”
    • No consideration was given to the impact of their request on the CFPB, which would include “bind[ing] the agency and its next director, based on the request of an acting director, who only serves temporarily and at the pleasure of the president.” (emphasis included).
    • No analysis was provided of how a stay would impact the public interest, such as “the impact of a stay on the consumers who the Payday Rule intends to protect.”

The consumer advocacy groups’ motion states that the trade groups have indicated that they oppose the filing of the amicus brief and that the CFPB has indicated that it takes no position on whether the amicus brief should be filed.  We would therefore expect the trade groups to file a response opposing the motion.  Once the court rules on the consumer advocacy groups’ motion, the next step would be for the court to decide the joint motion for a stay either after a hearing or without holding a hearing.

 

The end of the 210-day period during which Mick Mulvaney can serve as CFPB Acting Director under the Federal Vacancies Reform Act (FVRA) in the absence of President Trump’s nomination of a permanent Director is drawing dangerously closer.  Former Director Cordray’s resignation became effective at midnight on November 24, 2017, thereby making November 25 the first day on which the position of CFPB Director was vacant.  President Trump’s appointment of Mick Mulvaney as CFPB Acting Director also became effective on November 25 upon Mr. Cordray’s resignation.  Accordingly, including today, the position of CFPB Director will have been vacant for 194 days, making June 22 the last day of the 210-day period.

FVRA Section 3346(a)  provides:

Except in the case of a vacancy caused by sickness, the person serving as an acting officer as described under section 3345 may serve in the office—(1)  for no longer than 210 days beginning on the date the vacancy occurs; or (2) subject to subsection (b) [which addresses a rejected, withdrawn or returned nomination], once a first or second nomination for the office is submitted to the Senate, from the date of such nomination for the period that the nomination is pending in the Senate.

As an initial matter, it appears that President Trump could not use the FVRA to appoint another Acting Director once the 210-day period has expired.  According to a Congressional Research Service report, because the 210-day time limitation established by Section 3346(a)(1) runs from “the date the vacancy occurs,” the limitation is tied to the vacancy itself, rather than to any person serving in the office.

The absence of a nominee for permanent Director by June 22 could be problematic in several respects.  First, the expiration of the 210-day period could strengthen Leandra English’s claim that she is entitled to be the Acting Director under the Dodd-Frank Act (DFA) provision that provides that the Deputy Director shall serve as Acting Director in the Director’s “absence or unavailability.”

At the April 12 oral argument in the D.C. Circuit on Ms. English’s appeal from the district court’s denial of her preliminary injunction motion, the DOJ indicated that it did not dispute Ms. English’s position that “absence or unavailability” includes a vacancy created by a resignation.  In asserting that Mr. Mulvaney is the rightful Acting Director, the DOJ has relied on the argument that the President can use his FVRA authority as an alternative to the DFA provision.  Since it appears the President could not use the FVRA to replace Mr. Mulvaney as Acting Director after the 210-day period expires, Ms. English could argue that she is entitled to be Acting Director because the President’s FVRA authority is no longer available.

To avoid this possibility, Mr. Mulvaney might attempt to remove Ms. English prior to June 22.  While the DFA allows the President to only remove the CFPB Director “for cause,” it does not speak directly to the Deputy Director’s removal.  Since the Director appoints the Deputy Director, presumably the Director could remove the Deputy Director  for any reason.  It is unclear, however, whether Mr. Mulvaney, as Acting Director, would also have that authority.

It is also unclear whether Mr. Mulvaney could appoint a new Deputy Director if he were able to remove Ms. English and whether a new Deputy Director appointed by Mr. Mulvaney would become Acting Director at the end of the 210-day period.  Another open question is whether President Trump could remove Ms. English without cause should she become Acting Director.  (Mr. Mulvaney has asserted on various occasions that President Trump can remove him without cause.)

Second, subject to our comment below, under the FVRA, any action taken by Mr. Mulvaney as Acting Director after 210 days would be void and could not be ratified.  Section 3348(d)(1) provides that “an action taken by any person who [is not acting in compliance with the FVRA] in the performance of any function or duty of a vacant office . . . shall have no force or effect.”  Section 3348(d)(2) provides that “an action that has no force or effect under paragraph (1) may not be ratified.”

We note that in a 1999 opinion, the Office of Legal Counsel indicated that once a nomination is made, even if after the 210-day period has expired, the Acting Director can resume the exercise of his authority.  The opinion describes FVRA Section 3346(a)(2) as containing a “spring-back provision, which permits an acting officer to begin performing the functions and duties of the vacant office again upon the submission of a nomination.”

Of course, Ms. English’s lawsuit continues to be the “wildcard” in any potential scenario.  A ruling in favor of Ms. English would not only be problematic for Mr. Mulvaney’s continued tenure as Acting Director but could also call into question the validity of any actions he has taken as Acting Director.

We are hopeful that President Trump will soon nominate a permanent Director, thereby eliminating these concerns and allowing Mr. Mulvaney to continue to serve as Acting Director pursuant to the FVRA pending confirmation of the President’s nominee.

The National Credit Union Administration has published a notice in the Federal Register proposing to amend the NCUA’s general lending rule to provide federal credit unions (FCU) with a second option for offering “payday alternative loans” (PALs).  Comments on the proposal are due by August 3, 2018.

In 2010, the NCUA amended its general lending rule to allow FCUs to offer PALs as an alternative to other payday loans.  For PALs currently allowed under the NCUA rule (PALs I), an FCU can charge an interest rate that is 1000 basis points above the general interest rate set by the NCUA for non-PALs loans, provided the FCU is making a closed-end loan that meets certain conditions.  Such conditions include that the loan principal is not less than $200 or more than $1,000, the loan has a minimum term of one month and a maximum term of six months, the FCU does not make more than three PALs in any rolling six-month period to one borrower and not more than one PAL at a time to a borrower, and the FCU requires a minimum length of membership of at least one month.

The proposal is a reaction to NCUA data showing a significant increase in the total dollar amount of outstanding PALs but only a modest increase in the number of FCUs offering PALs.  In the proposal’s supplementary information, the NCUA states that it “wants to ensure that all FCUs that are interested in offering PALs loans are able to do so.”  Accordingly, the NCUA seeks to increase interest among FCUs in making PALs by giving them the ability to offer PALs with more flexible terms and that would potentially be more profitable (PALs II).

PALs II would not replace PALs I but would be an additional option for FCUs.  As proposed, PALs II would incorporate many of the features of PALs I while making four changes:

  • The loan could have a maximum principal amount of $2,000 and there would be no minimum amount
  • The maximum loan term would be 12 months
  • No minimum length of credit union membership would be required
  • There would be no restriction on the number of loans an FCU could make to a borrower in a rolling six-month period, but a borrower could only have one outstanding PAL II loan at a time.

In the proposal, the NCUA states that it is considering creating an additional kind of PALs (PALs III) that would have even more flexibility than PALs II.  It seeks comment on whether there is demand for such a product as well as what features and loan structures could be included in PALs III.  The proposal lists a series of questions regarding a potential PALs III rule on which the NCUA seeks input.

The NCUA’s proposal follows closely on the heels of the bulletin issued by the OCC setting forth core lending principles and policies and practices for short-term, small-dollar installment lending by national banks, federal savings banks, and federal branches and agencies of foreign banks.  In issuing the bulletin, the OCC stated that it “encourages banks to offer responsible short-term, small-dollar installment loans, typically two to 12 months in duration with equal amortizing payments, to help meet the credit needs of consumers.”

 

On June 6, 2018, the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit will hold a hearing entitled “Improving Transparency and Accountability at the Bureau of Consumer Financial Protection.”

The members of the panel of witnesses will be :

  • Steven G. Day, President, American Land Title Association
  • Richard Hunt, President and CEO, Consumer Bankers Association
  • Kate (Larson) Prochaska, Director, The Chamber of Commerce
  • Elmer K. Whitaker, Chief Executive Officer, Whitaker Bank Corporation of Kentucky

The Committee Memorandum states that the hearing will discuss the recommendations for legislative changes to the CFPB made by Acting Director Mick Mulvaney in the CFPB’s Semi-Annual Report issued in April 2018 as well as “other reforms that would promote greater transparency and accountability at the Bureau.”  (We note that Whitaker Bank’s inclusion as a witness is surprising since, based on its publicly available financial statements, its total assets appear to be substantially below the $10 billion threshold for a bank to be subject to the CFPB’s supervision or enforcement authority.)

 

CFPB Acting Director Mick Mulvaney reportedly announced on Thursday that he was lifting the freeze on the CFPB’s collection of personally identifiable information (PII) from companies it supervises.  As we previously reported in December 2017, Mr. Mulvaney imposed a freeze on the CFPB’s collection of PII due to concerns about the CFPB’s data security systems.

The freeze was reportedly lifted through a memo to the staff of the CFPB, in which Mr. Mulvaney stated that “Out of an abundance of caution and a desire to protect Americans’ privacy, I placed a hold on the collection of personally identifiable information and other sensitive data.”  However, “after an exhaustive review by outside experts, including a comprehensive ‘white-hat hacking’ effort, we can lift th[e] hold.”  The independent review concluded that “externally facing Bureau systems appear to be well-secured.”

The freeze had significantly impacted the CFPB’s supervisory program, prior to which companies being examined were able to submit information, including PII, to CFPB examiners by uploading it to the CFPB’s Extranet.  During the freeze, the CFPB halted use of the Extranet, and examination teams resorted to burdensome workarounds, such as requiring examination responses to be printed onto paper that could be shredded at the conclusion of the exam.  Notably, the freeze did not extend to the CFPB’s enforcement division, which continued to collect PII in connection with enforcement actions.

The CFPB has issued a new report, “Complaint snapshot: Debt collection,” which provides complaint data as of April 1, 2018.  The report represents the CFPB’s first complaint report since Mick Mulvaney was appointed Acting Director.  The CFPB’s last regular monthly complaint report was issued in May 2017 and provided complaint data as of April 1, 2017.   (Subsequent complaint reports issued prior to former Director Cordray’s departure were “special edition” reports.)

The new report is different from prior monthly complaint reports in several significant respects:

  • While the new report includes overall complaint volume information by product and state that was previously part of the CFPB’s monthly complaint reports, it does not include complaint volume information by company (i.e. the “top 10 most-complained about companies.”)
  • It does not highlight complaints received in a particular state as did prior monthly reports.
  • It provides context for certain complaint data.  More specifically, as described below, the new report provides context for the complaint categories showing the greatest percentage changes over the three month periods compared in the report and for the debt collection data highlighted in the report.  (In the RFI seeking comment on potential changes to the CFPB’s practices for the public reporting of consumer complaint information, the CFPB has asked for comment on whether it should change the amount of context it provides for complaint information, particularly with regard to product or service market share and company size.)

Also noteworthy is that the new report was not accompanied by a press release or blog containing editorial spin about the report information.  Rather, the blog post accompanying the new report provides an objective overview of the report information.

General findings include the following:

  • As of April 1, 2018, the CFPB handled approximately 1,492,600 complaints nationally, including approximately 30,300 complaints in March 2018.
  • Credit reporting complaints and debt collection complaints represented, respectively, approximately 37 and 27 percent of complaints submitted in March 2018.
  • Credit reporting, debt collection, and mortgage complaints collectively represented about 74 percent of the complaints submitted in March 2018.
  • Money transfer or service and virtual currency complaints showed the greatest percentage increase from January-March 2017 (352 complaints) to January-March 2018 (1,000 complaints), representing an increase of approximately 184 percent.  The CFPB comments that the increase was “driven by a spike related to virtual currency” and that in the complaints submitted from January-March 2018 “consumers described issues with the availability of funds held at virtual currency exchanges during periods of price volatility for the most active virtual currencies.”
  • Credit reporting complaints showed the second greatest percentage increase from January-March 2017 (4,848 complaints) to January-March 2018 (11,107 complaints), representing an increase of approximately 129 percent.  The CFPB comments that improvements to its complaint submission process in April 2017 allowed consumers “to submit consumer reporting complaints about concerns they are having with data furnishers that supply consumer information to consumer reporting agencies, contributing to this increase in [credit reporting] complaints.”
  • Student loan complaints showed the greatest percentage decrease from January-March 2017 (monthly average of 3,273 complaints) to January-March 2018 (monthly average of 974 complaints), representing a decline of approximately 70 percent.  The CFPB comments that the decline “is likely because student loan complaint data was elevated in 2017 following the Bureau’s enforcement action against a student loan servicer.”

Findings regarding debt collection complaints include the following:

  • The CFPB has received approximately 400,500 debt collection complaints since July 21, 2011, representing 27 percent of all complaints.
  • The CFPB has referred approximately 40 percent of the debt collection complaints it has received to other regulators.  The CFPB states that it typically makes such referrals when a complaint is about a first-party collector, where the debt did not arise from a financial product or service, or when the company complained about does not appear to be a third-party collector of a financial product or service-related debt.
  • The CFPB comments that “debt collection complaints submitted by consumers can be more meaningful when considered in context with other data, such as the number of consumers who have an account in collection.”  The CFPB observes that according to its most recent annual FDCPA report, “millions of Americans” are affected by the debt collection industry, according to its Consumer Credit Panel, “about 26 percent of consumers with a credit file have a third-party collection tradeline listed.”
  • The most common concerns identified by consumers were attempts to collect a debt not owed (39 percent), written notification about debt (17 percent), and communication tactics (17 percent).
  • Based on its review of the narrative descriptions in complaints, the CFPB observed that:
    • Consumers complained about debts appearing on their credit reports without prior written notice of the existence of the debt and not receiving additional information requested about such debts from companies.
    • Consumers complained about communication tactics, such as frequent and repeated calls and calls before 8 am and after 9 pm and calls after having requested no further telephone contact about the debt.

The CFPB has indicated that it intends to move forward on debt collection rulemaking.  Its Spring 2018 rulemaking agenda states that the Bureau “is preparing a proposed rule focused on FDCPA collectors that may address such issues as communication practices and consumer disclosures” and estimates the issuance of a NPRM in March 2019.

 

The CFPB and the two trade groups that filed a lawsuit in April 2018 in a Texas federal district court challenging the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule) have filed a joint motion seeking a stay of the litigation for the duration of the CFPB’s rulemaking to reconsider the Payday Rule. The motion also seeks a stay of the Payday Rule’s compliance date and a waiver of the CFPB’s obligation to file an answer.  The two trade groups are the Consumer Financial Service Association of America, Ltd. and the Consumer Service Alliance of Texas.

In January 2018, the CFPB announced that it intended to engage in a rulemaking process to reconsider the Payday Rule pursuant to the Administrative Procedure Act.  Although the Payday Rule became “effective” on January 16, 2018, the compliance date for the rule’s substantive requirements and limits (Sections 1041.2 through 1041.10), compliance program/documentation requirements (Section 1041.12), and prohibition against evasion (Section 1041.13) is August 19, 2019.

In the joint motion, the CFPB and trade groups assert that the rulemaking “may result in repeal or revision of the Payday Rule and thereby moot or otherwise resolve this litigation or require amendments to Plaintiffs’ complaint.”  They also assert that a stay of the Payday Rule’s compliance date during the litigation’s pendency is necessary to prevent  irreparable injury, claiming that none of the expenditures necessary to comply with the Payday Rule would be compensable by money damages should the Payday Rule be invalidated or repealed.  The CFPB and trade groups ask the court to stay the compliance date until 445 days from the date of final judgment in the litigation to ensure sufficient time for compliance should the plaintiffs’ claims be unsuccessful.