On July 28, 2020, the CFPB issued a request for information (“RFI”) seeking public input on how best to create a regulatory environment that expands access to credit and ensures consumers and communities are protected from discrimination in all aspects of credit transactions. The Bureau issued the RFI in lieu of a symposium it had planned to host this fall on Equal Credit Opportunity Act (“ECOA”) issues.

Concurrently, CFPB Director Kathleen Kraninger issued a blog post (entitled “The Bureau is taking action to build a more inclusive financial system”) explaining that the Bureau seeks to play a leading role in the national conversation about racial inequality by taking action concerning fair treatment and equitable access to credit. Toward that end, the CFPB is “taking steps to help create real and sustainable changes in our financial system so that African Americans and other minorities have equal opportunities to build wealth and close the economic divide.” According to Director Kraninger, issuance of the RFI – with the goal of establishing clear standards to help minorities – is the first step in that effort.

The information sought in the CFPB’s RFI is designed to help the Bureau explore ways to promote access to credit, identify opportunities to prevent credit discrimination, encourage responsible innovation, and address regulatory uncertainty. In particular, the Bureau seeks to explore “cutting-edge issues” at the intersection of fair lending and innovation and develop “viable solutions” to regulatory compliance challenges financial institutions face in complying with ECOA and Regulation B. Specifically, the CFPB seeks public comment on whether it should provide additional clarity or guidance on the following issues:

  • The CFPB’s approach to disparate impact analysis under ECOA and Regulation B
  • Ways in which creditors may be encouraged to provide assistance, products or services to limited English proficiency (“LEP”) borrowers
  • How to facilitate greater usage of special purpose credit programs
  • Suggestions to encourage the use of affirmative advertising to traditionally disadvantaged consumers and communities
  • Recommendations for better meeting the credit needs of small businesses, particularly minority-owned and women-owned firms
  • The CFPB’s interpretation of ECOA’s prohibition on discrimination on the basis of sex following the U.S. Supreme Court’s recent decision in Bostock v. Clayton County
  • The scope of federal preemption of state law when it is inconsistent with ECOA and Regulation B
  • Situations in which creditors seek to ascertain the continuance of public assistance benefits in underwriting decisions
  • Credit underwriting when decisions are based in part on models using artificial intelligence or machine learning
  • Adverse action notice requirements

In our view, these are appropriate questions for the CFPB to be asking the industry concerning both old and new issues presented by ECOA and Regulation B, and the industry would certainly benefit from more clarity from the Bureau concerning how to proceed concerning some of the issues. For example, few institutions have availed themselves of special purpose credit programs that have long been offered under Regulation B because of the uncertainty of how such programs will be treated by examiners post-implementation, so additional regulatory guidance or pre-clearance by the Bureau of special purpose credit programs may alleviate that concern. A more recent illustration is the increasing use of machine learning (“ML”) and artificial intelligence (“AI”) across a range of functions. Additional guidance from the CFPB would be useful in terms of how these innovative methodologies can be further leveraged in credit underwriting while not running afoul of ECOA and Regulation B. As the Bureau pointed out in its recent blog post concerning use of adverse action notices when using AI/ML, “industry uncertainty about how AI fits into the existing regulatory framework may be slowing its adoption, especially for credit underwriting.” Although we detect significant consumer advocate skepticism of AI/ML models, our view is that such models can be superior to traditional logistic regression models, and in fact produce results that are more tailored to individual consumers’ circumstances than traditional models can. So long as appropriate attention is paid to variable selection in the model development process, we do not believe there should be any inherent fair lending problem with the use of AI/ML models, and it would be extremely helpful for the Bureau to set forth “rules of the road” for how AI/ML models should be developed and validated to avoid fair lending concerns.

How best to serve LEP individuals is another topic that would benefit from additional Bureau guidance. The CFPB last issued meaningful LEP guidance in its Supervisory Highlights Fall 2016 edition, which appeared to open the door to the concept that it may be permissible for financial institutions to advertise and market their products in non-English languages without the entire product being originated and serviced in a foreign language (as some previous enforcement actions had implied). Importantly, the Bureau noted that in some examinations, it required financial institutions to provide “clear and timely disclosures to prospective consumers describing the extent and limits of any language services provided throughout the product lifecycle.” That statement appears to indicate that, from the CFPB’s perspective, a successful path to advertising and marketing in non-English languages is one that contains a clear disclosure concerning which parts of the product experience are and are not in a foreign language. Regulatory guidance clarifying that approach would be tremendously helpful to the financial services industry, especially to provide more concrete guidance about the content, location and timing of such disclosures. It is noteworthy that on July 29, the CFPB held an invitation-only virtual roundtable with consumer advocates and industry representatives, attended by Director Kathy Kraninger, to discuss potential guidance the CFPB may issue with respect to serving LEP customers. Chris was one of only two private sector attorneys who attended this roundtable, and he will be posting a separate blog about it soon.

On the other hand, it may be difficult for the CFPB to provide additional clarity on the subject of the disparate impact theory under ECOA. As background, the CFPB issued a bulletin in 2012 (Bulletin 2012-14, Fair Lending) confirming that it planned to apply a disparate impact test in exercising its supervisory and enforcement authority under ECOA and Regulation B. After Congress overrode the Bureau’s indirect auto finance bulletin in 2018 under the Congressional Review Act, there were statements by the Bureau that suggested an intention to re-evaluate the disparate impact doctrine. Although the CFPB last noted an ECOA disparate impact rulemaking in its Fall 2018 rulemaking agenda, that item was noticeably absent from the 2019 and 2020 agendas, so such a rule does not appear to be in the Bureau’s near-term plans. But the range of possible outcomes here is wide – from declaring that there is no disparate impact liability under ECOA at all (which is the result we believe most appropriate from the language in ECOA itself) to adopting something similar to HUD’s current proposed disparate impact rule under the Fair Housing Act, to adopting something more like the previous HUD rule. Moreover, this seems likely to be a matter of significant disagreement, so it will be interesting to see what the Bureau does in wading into this highly contentious subject.

Financial institutions that seek to submit comments to the CFPB concerning one or more of these issues should carefully parse through each set of questions to determine whether additional clarity provided by the Bureau may create benefits or burdens. It is advisable to conduct these analyses through legal counsel and/or trade groups.

The preamble to the RFI notes that the questions posed are not intended to be exhaustive, and that the CFPB welcomes “additional relevant comments” on these topics. Comments on the RFI will be accepted for 60 days after publication in the Federal Register.

Recent amendments to NYC’s debt collection rules impose new requirements relating to consumers’ language proficiency.  Following an overview, we take a close look at the specific requirements and their applicability to first- and third-party collections, discuss the DCA’s authority, availability of federal preemption, and compliance challenges, and offer thoughts on best compliance practices.

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The New York Department of Financial Services (DFS) has filed its opening brief with the Second Circuit in the OCC’s appeal from the district court’s final judgment in DFS’s lawsuit challenging the OCC’s issuance of special purpose national bank (SPNB) charters to non-depository fintech companies.


In May 2019, the district court denied the OCC’s motion to dismiss and found that the term “business of banking” as used in the National Bank Act  (NBA) “unambiguously requires receiving deposits as an aspect of the business.”  Because the district court also ruled that its decision should have nationwide effect regardless of whether the charter applicant has a New York nexus, the OCC has been unable to approve any applications for SPNB charters from non-depository fintech companies regardless of whether the applicant has a New York nexus.  With the OCC’s and DFS’s consent, the district court entered a final judgment against the OCC in October 2019, thereby enabling the OCC to file an appeal.  The OCC filed its opening brief in April 2020.


In its brief, DFS makes the following principal arguments: 

  • DFS has standing and its claims are ripe.  The OCC has argued that DFS cannot show that it has suffered an “injury in fact” because its claims are entirely speculative and rely on a chain of events that has not occurred and may never occur, namely the OCC’s receipt and approval of an SPNB charter application from a non-depository fintech that intends to conduct business in New York and the commencement of business in New York by such fintech in a manner that causes the harms identified by DFS (such as lost revenues).  The OCC also asserts that DFS’s claims do not satisfy the test for prudential ripeness—they are not fit for judicial consideration because they are contingent on the chartering of an applicant with a New York nexus and there is no present hardship to DFS from the court withholding a decision on its claims.  In response, DFS argues that standing and ripeness exist not only when injury has already occurred, but also when it is imminent or when there is a substantial risk of harm.  It asserts that injury to DFS’s sovereign interests is not speculative and sufficiently impending to support both standing and ripeness because (1) the OCC has actively invited and solicited the fintech industry to apply for charters and has represented that companies had begun the application process, and (2) one of the OCC’s stated objectives in deciding to accept applications is to allow fintech companies that receive an SPNB charter to escape state regulation.
  • Nondepository institutions are not engaged in the “business of banking” within the meaning of the NBA.  The OCC has argued that its interpretation of the “business of banking” is reasonable and entitled to Chevron deference because the NBA’s language is ambiguous as to whether deposit-taking is a necessary component of the “business of banking” and its legislative history does not support a finding that deposit-taking is necessary.  In response, DFS argues that when the NBA was enacted in 1863, banks were understood to be depository institutions and that understanding is reflected in the NBA itself.  In addition, the broader federal statutory scheme applicable to banks (which includes the Federal Reserve Act, the Federal Deposit Insurance Act, and the Banking Holding Company Act) presumes that banks regulated by the OCC will be depository institutions.  DFS contends that when Congress has authorized the OCC to charter nondepository institutions, it has done so by amending the NBA outside of the business-of-banking clause.
  • DFS is entitled to nationwide relief.  The OCC has asserted that a federal court only has power under Article III to provide a remedy that is tailored to redress the plaintiff’s injury and DFS’s alleged injuries, and any remedies to which it is entitled, are limited to New York.  In response, DFS argues that both the Administrative Procedure Act’s plain language and applicable precedent hold that when a court finds a regulation to be contrary to law, the regulation must be set aside.

Acting Comptroller of the Currency Brian Brooks recently previewed the OCC’s plans to introduce another special purpose national bank charter that would give payment companies a nationwide servicing platform and federal preemption of state laws regarding licensing and regulation of money transmitters and payment services providers.  The outcome of the litigation in the Second Circuit can be expected to impact those plans.

The CFPB and the two trade groups challenging the CFPB’s 2017 final payday/auto title/high-rate installment loan rule (2017 Rule) have filed a joint motion asking the Texas federal district court hearing the trade groups’ lawsuit to lift the stay of the lawsuit, originally entered in June 2018 on the heels of the trade group’s motion for a preliminary injunction and before the CFPB’s response to the motion or answer to the complaint in the case.

Following the court’s initial stay of the lawsuit, the court entered an order in November 2018 staying the August 19, 2019 compliance date for both the 2017 Rule’s ability-to-repay provisions and its payment provisions.  While both sides now agree that the stay of the lawsuit should be lifted, they disagree on next steps.  Once the stay is lifted, the Bureau intends to file a motion to also lift the stay of the compliance date for the payment provisions so they can take effect.  The trade groups, however, plan to oppose that motion and continue to challenge the payment provisions.

One issue in ensuing litigation will be the effect of last month’s U.S. Supreme Court decision in Seila Law and Director Kraninger’s purported ratification of the payment provisions of the 2017 Rule.  As set forth in the joint motion, the Bureau takes the position that the ratification cures any constitutional defect in the 2017 Rule while the trade groups assert that the ratification is legally insufficient to cure any constitutional defect.

In their joint motion, the parties seek an extension of the deadlines for briefing on the motion to lift the stay of the compliance date for the payment provisions.  (The trade groups have not previously briefed the validity of the payment provisions in detail and the CFPB has not briefed it at all nor has it ever filed a formal response to the complaint.)  While both sides anticipate that the lawsuit can be finally resolved on cross-motions for summary judgment, they did not reach an agreement on a briefing schedule for the cross-motions.  Accordingly, they have offered the following alternate proposals to the court:

  • The trade groups assert that it is premature to set a briefing schedule because resolution of the cross-motions will depend on how the court rules on the Bureau’s motion to lift the stay of the compliance date and related proceedings that may follow (such as a preliminary injunction motion if the court lifts the stay).  The trade groups state that they “have an interest in resolving the merits of their challenge to the payment provisions before those provisions take effect.”  They assert that they cannot “intelligently negotiate a timeline for summary judgment” without knowing when the provisions will take effect “which will turn on whether the Court lifts the stay of the compliance date and how much time Plaintiffs’ members are given to bring their business operations into compliance.”
  • The Bureau asserts that it is not necessary to wait for the court to rule on its motion to lift the stay of the compliance date before beginning summary judgment briefing.  It states that although the trade groups have indicated that they are interested in resolving the merits of their challenge before the payment provisions take effect, “it is unclear how delaying summary judgment briefing will serve their interest in expeditious resolution of their challenge.” (emphasis provided).  The Bureau asks the court to order the parties to negotiate a proposed briefing schedule to be proposed jointly or if no agreement can be reached, to provide each side’s proposed schedule to the court within 14 days of the court’s order lifting the stay of the lawsuit.

We have been indirectly advised that initially the trade groups are asking for a 9.5 month delay in implementation of the payment provisions and the Bureau is recommending 60 days.  Presumably, the requested time periods (or any subsequently negotiated time period) would begin to run from the date the court decides to lift the stay of the compliance date—assuming, of course, that the court sides in whole or in part with the CFPB.  This would be after conclusion of briefing, any required discovery and drafting of the court’s decision and order.

While this period might well run several months, depending upon the briefing schedule determined by the parties and/or the court, the 60-day implementation period the CFPB is seeking is nevertheless patently inadequate.  In advance of the court’s decision on lifting the stay, the industry will not know whether it needs to implement the payment provisions and, if so, which ones.  To take one key example, the structure of compliance programs will be greatly impacted by the court’s decision whether the 2017 Rule’s treatment of card payments is arbitrary and capricious (as seems clear to us).  If the court rules that some or all of the payment provisions are valid, 60 days would be grossly insufficient for companies to implement the necessary operational and programming changes.  Thus, a 60-day implementation period would pressure companies in the industry to prepare ahead of time for payment provisions that might never go into effect or might be substantially modified.

Stay tuned!




The OCC issued a letter last week stating that  “a national bank [and a federal savings association] may provide . . . cryptocurrency custody services on behalf of customers, including by holding the unique cryptographic keys associated with cryptocurrency.”  The letter also reaffirms the OCC’s position that “national banks [and federal savings associations] may provide permissible banking services to any lawful business they chose, including cryptocurrency business, so long as they effectively manage the risks and comply with applicable law.”

The key phrase above is “any lawful business.”  When a financial institution deals with crypto clients, whether the institution is actually dealing with a customer engaged in lawful activity is literally the question.  Oddly, therefore, the OCC’s letter is simultaneously groundbreaking and yet also nothing new.

The letter, which is 11 pages long, first describes cryptocurrencies and the related distributed ledger technology, and then explains at length that providing fiduciary and non-fiduciary customer services for cryptocurrency (here, “holding” a digital currency on behalf of a customer typically would mean taking possession of the cryptographic access keys to the cryptocurrency units) merely falls within banks’ longstanding authority to provide all forms of safekeeping and custody activities.  The letter states that the OCC

. . . . recognizes that, as the financial markets become increasingly technological, there will likely be increasing need for banks and other service providers to leverage new technology and innovative ways to provide traditional services on behalf of customers.  By providing such services, banks can continue to fulfill the financial intermediation function they have historically played in providing payment, loan and deposit services.  Through intermediated exchanges of payments, banks facilitate the flow of funds within our economy and serve important financial risk management and other financial needs of bank customers.

So, although the medium of value may be “new fangled,” the role of banks here is nothing new.

However, the letter’s last paragraph is likely the most instructive.  It makes the “suggestion” to confer first with the OCC before onboarding any cryptocurrency clients.  The letter states:

Consistent with OCC regulations and guidance on custody activities, the risks associated with an individual account should be addressed prior to acceptance.  A custodian’s acceptance process should provide an adequate review of the customer’s needs and wants, as well as the operational needs of the account.  During the acceptance process, the custodian should also assess whether the contemplated duties are within it’s capabilities and are consistent with all applicable law.

Just in case the message is not sufficiently clear, the letter continues (with emphasis added):

Understanding the risks of cryptocurrency, the due diligence process should include a review for compliance with anti-money laundering rules.  Banks should also have effective information security infrastructure and controls in place to mitigate hacking, theft, and fraud.  Banks should also be aware that different cryptocurrencies may have different technical characteristics and may therefore require risk management procedures specific to that particular currency.  Different cryptocurrencies may also be subject to different OCC regulation and guidance outside of the custody context, as well as non-OCC regulations.  A national bank should consult with OCC supervisors as appropriate prior to engaging in cryptocurrency custody activities.  The OCC will review these activities as part of its ordinary supervisory processes.

Translation:  providing custody services for digital currency assets is not inherently wrong.  However, a bank’s compliance obligations will still be significant, because financial institutions must satisfy their AML obligations when dealing with an industry, form of value, and customer base that, historically at least, often has resisted full transparency, the cornerstone value of any AML system.

Because it clearly signals the growing acceptance of digital currency by regulators and the global financial system, the letter is significant.  But the letter also makes clear that traditional financial institutions must still be very careful when dealing with digital currency, which contains many potential AML traps in practice.  “Not inherently wrong” does not equate to “safe at all times.”

The CFPB has announced that it plans to issue an advance notice of proposed rulemaking (ANPR) later this year on consumer-authorized access to financial records.  The announcement was made concurrently with the Bureau’s release of a report summarizing its February 2020 symposium on this topic.

Section 1033 of the Dodd-Frank Act requires that “[s]ubject to rules prescribed by the Bureau, a covered person shall make available to a consumer, upon request, information in the control or possession of such person concerning the consumer financial product or service that the consumer obtained from such covered person, including information related  to any transaction, or series of transactions, to the account including costs, charges, and usage data.”  In November 2016, the CFPB issued a request for information about market practices related to consumer access to financial information, and in October 2017, it released a set of “Consumer Protection Principles” for participants “in the developing market for services based on the consumer-authorized use of financial data.”

According to the Bureau, the symposium’s purpose was to allow the Bureau to hear from stakeholders and to review the Bureau’s approach to consumer-authorized third-party access to financial records, “which has been largely identifying and promoting consumer interests—in access, control, security, privacy, and other areas—and allowing the market to develop without direct regulatory intervention.”  The Bureau intends to use the ANPR to obtain information to help it understand and address competing perspectives. 

ANPR.  Through the ANPR, the Bureau will:

  • Solicit stakeholder input on ways that the Bureau might effectively and efficiently implement the financial access rights described in Section 1033.  While market participants have helped authorized data access become more secure, effective, and subject to consumer control, the Bureau sees indications that some emerging market practices may not reflect the access rights described in Section 1033.
  • Seek information regarding the possible scope of data that might be made subject to protected access as well as information that might bear on other terms of access, such as those relating to security, privacy, effective consumer control over access and accessed data, and accountability for data errors and unauthorized access.
  • Inquire into whether (and if so, how) regulatory uncertainty with respect to Section 1033’s interaction with other statutes within the Bureau’s jurisdiction, such as the FCRA, may be impacting this market to consumers’ potential detriment, and seek information that may help resolve such uncertainty.

Report on Symposium.  In the report, the Bureau summarizes its understanding of the key facts, issues, and points of contention raised at the symposium.  The Bureau describes the composition of the symposium’s three panels as follows:

  • Six panelists represented non-bank fintech companies and consisted of: three “aggregator” companies, one trade association that represents aggregators and other companies that rely on consumer-permissioned access to financial data, one consumer-facing lender that relies on consumer-permissioned financial data, and one industry attorney who represents companies that use consumer-permissioned financial data
  • Five panelists represented banks, consisting of four “large banks” and one “smaller bank”
  • Two panelists were consumer advocates
  • Three panelists were researchers

The Bureau highlights the views presented by stakeholders in the following areas:

  • Data access and scope.  Panelists focused on permissioned third-party access to consumer data, the scope of data consumers should be allowed to share via authorized third parties, and sharing of proprietary data.
  • Credential-based access and “screen scraping.”  Panelists discussed different methods for accessing consumer data, the benefits of replacing current methods with application program interfaced (API)-based access, and challenges related to transitioning to API-based access.
  • Disclosure and informed consent.  Panelists discussed the adequacy of consumer disclosure and consent management practices of companies seeking consumer authorization for permissioned data sharing.
  • Privacy.  Panelists discussed privacy risks arising from credential-based access and screen scraping and whether increased regulatory oversight of aggregators and other fintechs is needed.
  • Transparency and control.  Panelists discussed consumer control over the data they permission, including consumers’ ability to monitor and regulate data flows, revoke access, and request retroactive deletion of data.
  • Security and minimization.  Panelists discussed security risks in permissioned data sharing and mitigation of such risks.
  • Accuracy, disputes, and accountability.  Panelists discussed accuracy of shared data and the FCRA’s applicability to credit-related uses of permissioned data, dispute resolution mechanisms for uses of permissioned data, and liability for unauthorized transactions associated with permissioned use of data.
  • Legal issues.  Issues raised by panelists included:
      • The meaning of Section 1033, including whether it is “self-executing” (i.e. effective without the issuance of Bureau rules), whether consumer agents (such as aggregators) are considered consumers for purposes of Sec. 1033, and whether Sec. 1033 provides authority for the Bureau to allow for data field exclusions from a consumer’s right to access or to deny data access to third parties relating to security concerns
      • Whether development of API standards should be market-led or Bureau-prescribed
      • Whether the Bureau should limit certain secondary uses of consumer-permissioned data
      • Whether a market-driven equilibrium of ultimate liability allocation for unauthorized transactions relating to permissioned data use would emerge absent regulatory intervention
      • Whether the Bureau, relying on Section 1033, should prescribe a right for consumers and permissioned third parties to access their data (as sought by fintechs)
      • Whether the Bureau should issue a larger participant rule for the data aggregation market (as sought by banks)



The CFPB has issued its Spring 2020 Semi-Annual Report to Congress covering the period September 30, 2019 through March 31, 2020.

The report represents the CFPB’s fourth semi-annual report under Director Kraninger’s leadership and continues the practice of the prior three reports of not providing aggregate numbers for how much consumers obtained in consumer relief and how much was assessed in civil money penalties in supervisory and enforcement actions during the period covered by the report.

The new report indicates that the Bureau had 1,421 employees as of March 31, 2020, representing a decrease of 9 employees from the number of employees as of September 30, 2019 (1,430) and a decrease of 31 employees from the number of employees as of March 31, 2019 (1,452).

In addition to discussing ongoing or past developments that we have covered in previous blog posts, the report includes the following noteworthy information:

  • In October 2019, the Bureau created a Taskforce on Federal Consumer Financial Law.  The Taskforce is charged with examining the existing legal and regulatory environment for consumers and financial services providers and making recommendations to the Bureau’s leadership for improving consumer financial laws and regulations, with a focus on harmonizing, modernizing, and updating the enumerated consumer credit laws, and their implementing regulations.  In April 2020, the Bureau published a request for information seeking comments and information to assist the Taskforce.  In the report, Bureau states that in Fall 2020, the Taskforce intends to participate in a publicly available listening session with the Bureau’s four advisory committees and to engage with federal and state regulatory partners before delivering its final report in early 2021.
  • The Bureau’s Fair Lending Supervision program initiated 14 supervisory events during the period covered by the report, which is 2 fewer than the number of such events initiated during the period covered by the prior semi-annual report.  As compared with that period, however, it issued more matters requiring attention or memoranda of understanding.  In addition, the Bureau provided supervisory recommendations “pertaining to supervisory concerns related to weak or nonexistent fair lending policies and procedures, risk assessments, fair lending training, service provider oversight and/or consumer complaint response.”
  • During the period covered by the report, the Bureau filed one fair lending public enforcement action and referred four ECOA matters to the DOJ.  The referrals involved “redlining in mortgage origination based on race and/or national origin, discrimination in mortgage origination based on receipt of public assistance income, and discrimination in auto origination based on race and national origin.”  The report states that the Bureau “has a number of ongoing and newly opened fair lending investigations of institutions.”

With regard to the timing of a final debt collection rule, the report repeats the same information that was set forth in the Bureau’s Spring 2020 rulemaking agenda.  The report states that the Bureau expects to issue a final debt collection rule in October 2020.  In February 2020, the Bureau issued a supplemental proposal that would require debt collectors to make specified disclosures when collecting time-barred debts.  The proposal’s comment deadline was extended until August 4, 2020.  The report provides no information as to when the Bureau expects to finalize the supplemental proposal.


On July 29, 2020, the Senate Banking Committee will meet remotely to conduct a hearing entitled “The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress.”  CFPB Director Kraninger is the only scheduled witness.

The next day, July 30, the House Financial Services Committee has scheduled a hearing entitled, “Protecting Consumers During the Pandemic?  An Examination of the Consumer Financial Protection Bureau.”  That hearing will convene in a “hybrid” format, which allows Committee members to participate remotely or from the hearing room.


A group of 22 state attorneys general joined by the District of Columbia AG filed a lawsuit in a California federal district court against Secretary of Education Betsy DeVos and the U.S. Department of Education (ED) seeking to invalidate the ED’s final “Institutional Accountability Regulations” issued in 2019 (“2019 Rule”) which replaced the Obama administration’s “Borrower Defense” rule issued in 2016 (“2016 Rule”).  The 2019 Rule became effective on July 1, 2020 and applies to loans disbursed on or after that date.  A bi-partisan resolution under the Congressional Review Act to override the 2019 Rule was vetoed by President Trump.

Significant changes to the 2016 Rule made by the 2019 Rule include:

  • A school receiving Title IV assistance under the Higher Education Act (HEA) can require federal student loan borrowers to sign pre-dispute arbitration agreements or class action waivers as a condition of enrollment if it makes a “plain language disclosure” available to prospective and enrolled students and the public.
  • A new federal standard for a “borrower defense” asserted with respect to Direct Loans and loans repaid by Direct Consolidated Loans applies.  (A Direct Loan is a federal student loan made by the ED under the Direct Loan Program and a Direct Consolidated Loan is a federal student loan made by the ED under the Direct Loan Program that repays multiple Direct Loans or other specified loans.)
  • A defense to payment (which can also support a request to recover payments previously made) must be based on a misrepresentation of material fact on which the borrower reasonably relied in deciding to obtain a Direct Loan, or a loan repaid by a Direct Consolidation Loan.
    • The misrepresentation must directly and clearly relate to (a) (i) enrollment or continuing enrollment at the school or (ii) the provision of educational services for which the loan was made.
    • The borrower must have been financially harmed by the misrepresentation.
    • A “misrepresentation” is defined as a statement, act, or omission by a school to a borrower that is false, misleading, or deceptive, and made with knowledge of its false, misleading, or deceptive nature or with reckless disregard for the truth, and that directly and clearly relates to enrollment or continuing enrollment at the school or the provision of educational services for which the loan was made.

In their lawsuit, the AGs allege that ED’s action in replacing the 2016 Rule with the 2019 Rule violates the Administrative Procedure Act (APA) because:

  • ED’s decision to replace the 2016 Rule was arbitrary and capricious and not the product of reasoned decision making as required by the APA.  Among other provisions of the 2019 Rule, the AGs’ complaint highlights the 2019 Rule’s replacement of the 2016 Rule’s ban on the use of pre-dispute arbitration agreements and class action waivers for borrower defense claims with a disclosure requirement for such agreements and waivers.  The AGs allege that “ED’s conclusion that requiring schools to disclose their use of mandatory predispute arbitration agreements and class action waivers will adequately protect borrowers is also contrary to substantial evidence and ED’s own prior conclusions.”
  • The standards and claims process established by the 2019 Rule are not in accordance with law as required by the APA.  By establishing an illusory process that makes it almost impossible for students to qualify for borrower defense relief, the 2019 Rule does not comply with Congress’s requirement in the HEA that the ED “specify in regulations which acts or  omissions of an institution of higher education a borrower may assert as a defense to repayment of a loan made under [the Direct Loan Program].”


After reviewing the legal foundation for federal preemption of state law limits on interest, we discuss the final OCC/FDIC “Madden fix” rules, the “true lender” issue, potential Congressional or litigation challenges to OCC/FDIC “Madden fix” and “true lender” rules, and recent developments in litigation involving Madden or “true lender” challenges to bank/nonbank partnerships and securitizations.

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