Last Thursday, on remand from the U.S. Supreme Court, the U.S. Court of Appeals for the Ninth Circuit heard oral argument in Seila Law.   The members of the three judge panel were Judge Susan Graber and Judge Paul Watford from the Ninth Circuit and Judge Jack Zouhary from the U.S. District Court for the Northern District of Ohio.  Judge Graber was appointed by President Clinton, Judge Watford was appointed by President Obama, and Judge Zouhary was appointed by President George W. Bush.

After ruling that the CFPB’s structure was unconstitutional because its Director could only be removed by the President “for cause,” the Supreme Court remanded the case to the Ninth Circuit to consider the CFPB’s argument that former Acting Director Mulvaney’s ratification of the CID issued to Seila Law cured any constitutional deficiency.  Because it had ruled that the CFPB’s leadership structure was constitutional, the Ninth Circuit had not previously considered the CFPB’s ratification argument.  Following the Supreme Court’s decision, the CFPB filed a declaration with the Ninth Circuit in which Director Kraninger stated that she had ratified the Bureau’s decisions to: issue the CID to Seila Law, deny Seila Law’s request to modify or set aside the CID, and file a petition in federal district court to enforce the CID.

On remand, Seila Law argued that the appropriate remedy is for the Ninth Circuit to reverse the district court and deny the CFPB’s petition to enforce the CID.  Seila Law urged the Ninth Circuit to conclude that because of its structural constitutional defect, the CFPB lacked the authority to issue and enforce the CID, its actions in doing so were void, and the ratifications of the CID by former Acting Director Mulvaney and Director Kraninger were invalid.  Relying on U.S. Supreme Court precedent, Seila Law argued that for a valid ratification to occur, the party ratifying must be able to do the act ratified both at the time the act was done and at the time of ratification.  According to Seila Law, the CFPB could not satisfy either requirement because, as principal, the CFPB did not have the authority to issue the CID at the time it was issued and as a result, ratification was unavailable to its agent, the CFPB Director.  Seila Law also asserted that the CID was invalid because the applicable three-year statute of limitations for bringing an enforcement action against Seila Law for the alleged violations to which the CID relates had expired by the date of Director Kraninger’s ratification.

Seila Law’s arguments encountered considerable skepticism from all three panel members.  With regard to Seila Law’s argument that denying enforcement of the CID was necessary to provide it with meaningful relief, Judge Graber observed that a constitutional violation will not entitle a defendant to reversal of a criminal conviction where no harm or prejudice is found to have resulted from the violation.

With regard to Seila Law’s argument that there could not be a valid ratification of the CID, the questions asked by both Judge Watford and Judge Zouhary suggested that they were not persuaded that the cited Supreme Court precedent necessarily supported Seila Law.  Judge Zouhary commented that the Supreme Court had implicitly rejected Seila Law’s argument, citing to the following language in Chief Justice Robert’s opinion:  “If [Seila Law] is correct [that the removal provision cannot be severed], and the offending removal provision means that the agency is unconstitutional and powerless to act, then a remand would be pointless.”

With regard to Seila Law’s argument that the three-year SOL for bringing an enforcement action barred the CFPB from ratifying the CID, Judges Graber and Watford both pressed Seila Law’s to explain the SOL’s relevancy in the context of a petition to enforce a CID and why it would make the CID invalid.  Seila Law’s counsel asserted that because the potential violations sought to be investigated through the CID related to Seila Law’s involvement with Morgan Drexen in 2015 and earlier, an enforcement action based on that activity would have been time-barred as of the date the CID was ratified.  The judges highlighted the investigatory purpose of CIDs and suggested that the CID might reveal other violations as to which the CFPB could still bring an enforcement action.  

The CFPB’s counsel did not face as rigorous questioning as did Seila Law’s counsel.  In countering Seila Law’s argument that the CFPB did not have the authority to issue the CID due to the constitutional violation, the CFPB’s counsel highlighted language in Chief Justice Robert’s opinion stating that “[t]he provisions of the Dodd-Frank Act bearing on the CFPB’s structure and duties remain fully operative without the offending tenure restriction.”  According to the CFPB’s counsel, because the CFPB, as principal, had the authority to conduct investigations at the time the CID was issued despite the constitutional violation and Director Kraninger was removable at will by the President when she ratified the CID, the CID was validly ratified and remains enforceable.

In responding to Seila Law’s SOL argument, the CFPB’s counsel contended that the SOL had no application outside of an enforcement action, the CFPB had not alleged any specific violations by Seila Law, and it would be premature to adjudicate the application of the SOL.  He asserted that even if the CFPB could not bring an enforcement action now for Seila Law’s 2015 conduct, it would still be entitled to gather information about Seila Law’s conduct going back to that time, which might shed light on subsequent developments and still could be relevant to the CFPB’s investigation.

The CFPB’s counsel also argued that the Ninth Circuit should follow its decision in CFPB v. Gordon that involved former Director Cordray’s ratification of the CFPB’s enforcement action against Gordon.  Director Cordray ratified the action after his recess appointment was called into question by the U.S. Supreme Court’s Canning decision and he was reappointed and confirmed by the Senate.  In that case, the Ninth Circuit ruled that the enforcement action was validly ratified by Director Cordray.   Seila Law’s counsel argued that Gordon was not controlling because it did not involve a “structural” constitutional violation and instead only involved the authority of an agent to act on behalf of the principal.

In response, the CFPB’s counsel asserted that Seila Law’s emphasis on the “structural” nature of the violation in Gordon was merely a label and missed that the Supreme Court’s problem with the removal provision was that it put the Director outside the President’s ability to supervise.  According to the CFPB’s counsel, both Seila Law and Gordon called into question the authority of an agent who first authorized a CFPB action because of an Article II problem—insufficient accountability to the President in Seila Law and an improper appointment in Gordon.  As a result, both constitutional defects could be cured through ratification of the challenged action by a Director not subject to the original Article II problem.

Given the strong headwinds faced by Seila Law’s counsel during the oral argument, we would be surprised if Seila Law prevails in its efforts to invalidate the CID.



We are joined by Bret Ladine, the DFPI’s General Counsel.  We discuss the DFPI’s plans for adding new staff, promoting innovation through the new Financial Technology Innovation Office, providing guidance on CFPL exemptions, and handling complaints.  Other topics include the DFPI’s approach to its new authority regarding UDAAPs (which covers small business financing), registration of covered persons, and civil penalties.

Click here to listen to the podcast.

The CFPB recently announced that it, along with the Comptroller of the Currency and Federal Reserve Board, issued a final rule that will maintain the current exemption threshold to the appraisal requirement for higher priced mortgage loans (HPML). The initial exemption threshold was $25,000, and the threshold is subject to annual adjustment based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers. Currently transactions of $27,200 or less are exempt from the HPML appraisal requirement, and based on the final rule that dollar exemption threshold also will apply for calendar year 2021.

The U.S. Department of Housing Urban Development (HUD) announced a proposed rule to permit the use of private flood insurance policies with FHA mortgage loans. As previously reported, in February 2019 federal regulators issued a joint final rule (the “Joint Final Rule”) to implement provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (the “Act”) that require regulated financial institutions to accept private flood insurance policies. The regulators are the Farm Credit Administration, Federal Deposit Insurance Corporation, Federal Reserve Board, National Credit Union Administration, and Comptroller of the Currency. Although the Joint Final Rule took effect on July 1, 2019, it does not apply to FHA loans because HUD currently accepts only flood insurance policies issued under the National Flood Insurance Program (NFIP). HUD notes in the preamble to the proposal that, except when FHA acts as a direct lender, the Act does not require the acceptance of private flood insurance policies with FHA loans.

The proposed rule would apply to Title I manufactured home loans, Title II single-family home loans, and home equity conversion mortgage loans (i.e., reverse mortgage loans). Consistent with the Joint Final Rule, to qualify as private flood insurance under the proposal a policy must be issued by an insurance company that meets certain conditions, and the policy must provide flood insurance coverage that is at least as broad as the coverage provided under a standard flood insurance policy (SFIP) issued under the NFIP for the same type of property, including when considering deductibles, exclusions, and conditions offered by the insurer. The proposed rule sets forth specific requirements that a policy must meet to be considered to provide coverage at least as broad as a SFIP.

HUD expressly seeks comment on whether the rule that it adopts should permit, or should require, a lender to accept a qualifying private flood insurance policy with an FHA loan. The Joint Final Rule requires an institution subject to the rule to accept a qualifying private flood insurance policy.

The proposed rule would permit a lender to determine that a private flood insurance policy is a qualifying policy, without further review of the policy, if the following statement is included within the policy or as an endorsement to the policy: “This policy meets the definition of private flood insurance contained in 24 CFR 203.16a(e) for FHA-insured mortgages.” HUD explains that a lender could elect not to rely on the statement, and make its own determination if the policy is a qualifying policy. HUD also advises that a lender could not reject a policy solely because it is not accompanied by the statement.

The proposed rule also differs from the Joint Final Rule in that it would not permit lenders to exercise discretion to accept flood insurance policies, provided by private insurers or mutual aid societies, that do not meet the definition and requirements for a private flood insurance policy.

Coming on the heels of the Presidential election results, the CFPB circulated an internal e-mail suspending a reorganization that would have stripped the Office of Enforcement’s autonomy to open investigations and issue civil investigative demands.

Bloomberg Law reported the suspension after obtaining a copy of the internal e-mail. According to the Bloomberg article, Bryan Schneider, who leads the Bureau’s Division housing its supervision, enforcement, and fair-lending (SEFL) functions, reversed his earlier decision to reorganize the SEFL Division:

I continue to believe that SEFL should make changes to its organization, processes, and procedures to remain effective and efficient in protecting consumers in light of experience and new circumstances. However, the feedback I received raised important concerns that warrant more considered thought and analysis.

As we previously blogged, the reorganization would have created a new Office of SEFL Policy and Strategy, headed by Peggy Twohig, that would decide when to open enforcement investigations and whether potential violations uncovered during examinations would be transferred to enforcement attorneys.

On November 5, 2020, the CFPB named Driver Loan, LLC (“Driver Loan”) and its Chief Executive Officer as defendants in a two-count complaint filed in a Florida federal district court that alleges they engaged in deceptive acts and practices in violation of the Dodd-Frank Act’s UDAAP prohibition in connection with taking deposits from and making loans to consumers.

The Complaint alleges that since 2017, Driver Loan has been offering small-dollar, short- term, high-interest rate loans to consumers. It also alleges that in 2020, Driver Loan began taking deposits from consumers to fund its loans.

The Complaint alleges that the defendants engaged in deceptive practices by:

  • Falsely representing that consumers’ deposits were held at FDIC-insured institutions, the deposits would have a guaranteed rate of return, and a new consumer was depositing funds with the company about every minute; and by
  • Marketing its loans as having an APR of 440% when the actual APRs are about 975%.

An act or practice is deemed deceptive in violation of the UDAAP prohibition if there is a material representation or omission of information that is likely to mislead consumers acting reasonably under the circumstances. In support of its claim that that the defendants’ false representations regarding the deposit accounts were deceptive, the Bureau alleges that a consumer acting reasonably under the circumstances would believe that Driver Loan was offering a safe product. According to the Bureau, because the interest rates that Driver Loan charged were usurious under Florida criminal law, the defendants created a substantial risk that Driver Loan would not be able to collect delinquent loans or meet its obligations to consumers who sought to withdraw deposited funds.

The Bureau seeks injunctive and monetary relief, disgorgement, and the imposition of civil money penalties.

On November 16, 2020, the California Department of Financial Protection and Innovation (DFPI) held a “listening session” relating to the implementation of the California Consumer Financial Protection Law (CCFPL). The DFPI’s intent of the session was to gather feedback on the CCFPL to help inform and prioritize its rulemaking and implementation efforts. Also during the session, the DFPI provided an update on its rulemaking and licensing efforts under the Debt Collection Licensing Act. The call was led by DFPI Commissioner Manuel Alvarez, who was recently appointed to President-elect Biden’s CFPB review team.

As we’ve noted before, the CCFPL provides the DFPI with broad rulemaking authority. During the call, the DFPI announced its rulemaking priorities under the law and indicated that its rulemaking will take place in distinct packages. The first two packages to be prioritized will relate to registration and enforcement. These final rules are expected to be issued by the end of 2021. Notwithstanding, the DFPI stated that classes of newly covered persons who are ultimately required to register should not anticipate being required to submit a registration before January 1, 2023. The DFPI stated that it anticipates issuing an invitation for comments in mid-2021.

The DFPI also provided guidance relating to the Debt Collection Licensing Act. The Department reiterated that debt collectors will be required to submit a license application before the end of 2021 to continue engaging in business in California as a debt collector in 2022. The DFPI anticipates that the application window for licensure will open late summer or fall 2021 and reiterated that licensed debt collectors should not need to separately register under the CCFPL.

The DFPI did not answer questions during the listening session.

The CFPB announced that it has entered into a settlement with Afni, Inc. to address its alleged FCRA violations in furnishing consumer information to consumer reporting agencies (CRAs).  Afni is a debt collector specializing in the collection of debts on behalf of telecommunications companies.  The consent order imposes a $500,000 civil money penalty.

The FCRA/Regulation V violations identified by the Bureau included the following:

  • FCRA Section 623(a)(1) provides that unless a furnisher clearly and conspicuously provides an address to which a consumer can send notice that information furnished to a CRA is inaccurate, a furnisher may not furnish any information relating to the consumer to any CRA if the furnisher knows or has reasonable cause to believe that the information is inaccurate.  The Bureau found that Afni did not specify such an address on any correspondence used generally with consumers and that the furnishing logic of the automated system used by Afni to furnish information to CRAs did not correctly input some account information into the format used for reporting, resulting in inaccurately reported information.  According to the Bureau, Afni violated Section 623(a)(1) because it (1) knew or had reasonable cause to believe the information it furnished to CRAs was inaccurate because it was different than the information in Afni’s files, and (2) did not clearly and conspicuously specify an address for notices that furnished information was inaccurate.
  • FCRA Section 623(a)(5) requires a furnisher of information regarding a delinquent account being placed for collection to notify the CRA of the date the delinquency began.  According to the Bureau, Afni violated Section 623(a)(5) because it failed to notify CRAs of the date of first delinquency on many accounts on which it furnished information.
  • FCRA Section 623(b)(1) provides than when a furnisher receives a notice of dispute regarding the completeness or accuracy of reported information from a CRA, the furnisher must conduct a reasonable investigation and review all relevant information provided by the CRA.  According to the Bureau, Afni violated Section 623(b)(1) because it did not conduct a reasonable investigation as required for reasons that included (1) not reaching out to the original creditor for information needed to reasonably investigate a dispute when the consumer’s allegations could not be reasonably investigated with the information in Afni’s files, and (2) using an automated program to handle certain disputes that only considered information in Afni’s database, did not access any creditor files, and did not refer disputes to creditors for further investigation.
  • Regulation V Section 1022.42 requires a furnisher to establish and implement reasonable written policies and procedures regarding the integrity and accuracy of information furnished to CRAs, consider and incorporate the appropriate guidelines in Appendix E to Regulation V in developing such policies and procedures, and periodically review such policies and procedures and update them as necessary to ensure their continued effectiveness.  The Bureau found that (1) Afni’s indirect dispute policy did not instruct its employees to access creditors’ systems or make requests to creditors to obtain information or source documentation as needed before attempting to resolve an indirect dispute, (2) Afni had no written policies explaining how its automated E-OSCAR program responds to indirect disputes or a policy that explained how to conduct a reasonable investigation of a FCRA dispute, (3) Afni’s direct dispute policy did not include procedures on how to determine whether a dispute was frivolous or irrelevant or require employees to send notices of such determinations, and (4) Afni’s policies and procedures were not reviewed or updated as necessary for continued effectiveness, with Afni having failed (a) to modify its automated furnishing code for at least 4 years prior to 2017 and (b) to review or update its dispute policies and procedures despite having knowledge that its employees were not complying with them.  According to the Bureau, based on these findings, Afni violated Section 1022.43 by not establishing or implementing reasonable policies and procedures regarding its furnishing of information to CRAs or handling disputes, not considering or incorporating Appendix E guidelines in developing its policies and procedures regarding the integrity and accuracy of information furnished to CRAs, and failing to review such policies and procedures and update them as necessary for continued effectiveness.

In addition to payment of the civil money penalty, the consent order requires Afni to take certain steps to improve and ensure the accuracy of the consumer information it furnishes to CRAs and its policies and procedures relating to credit reporting and dispute investigation.  These steps include conducting monthly reviews of account information to assess the accuracy and integrity of information it furnishes, conducting monthly reviews of consumer disputes and responses to assess whether its handling of consumer disputes complies with the FCRA/Regulation V and its own policies and procedures, and hiring an independent consultant to conduct a review of Afni’s activities, policies, and procedures relating to furnishing information and credit reporting.


The CFPB and the Colorado AG’s Office have announced they will hold joint virtual office hours as part of the American Consumer Financial Innovation Network (ACFIN).  The joint virtual office hours will be held on December 2, 2020.  CFPB Director Kraninger and Colorado AG Weiser will participate in this event. 

The CFPB announced ACFIN’ s creation last year, in conjunction with finalizing revisions to its trial disclosures and no-action letter policies and its proposal to create a new fintech sandbox policy.  ACFIN is a network of federal and state regulators that may include state attorneys general, state financial regulators, and federal financial regulators.

In addition to the CFPB, according to the CFPB’s press release, ACFIN members include the Office of the Comptroller of the Currency plus the attorneys general from Alabama, Arizona, Colorado, Georgia, Indiana, Ohio, South Carolina, Tennessee, and Utah; and state financial regulators from Alaska, Colorado, Florida, Georgia, Missouri, Ohio, Tennessee, Utah, and Wyoming.

These joint office hours are intended to give companies pursuing innovation in consumer financial services the opportunity to discuss new financial technology and ideas for innovation to benefit consumers with officials from the CFPB, state attorneys general, and state regulators.  The joint office hours with the CFPB and the Colorado AG’s Office are noteworthy in light of the Colorado AG’s true lender/Madden-based lawsuits against two fintechs, their partner banks, and other defendants, and the recent settlement resolving that litigation.

The CFPB’s announcement invites innovators to request a meeting and describe the topic(s) they would like to discuss during their virtual session.  Requests must be received by November 23, 2020.



The U.S. Court of Appeals for the Ninth Circuit, in Urbina v. National Business Factors Inc., ruled that a debt collector could not rely on the FDCPA’s bona fide error defense by contractually obligating its creditor clients to provide accurate information.

The collection services contract that National Business Factors (NBF) had entered into with a medical clinic contained a provision pursuant to which the clinic agreed that it would assign debts for collection “‘with only accurate data and that the balances reflect legitimate, enforceable obligations of the consumer.’”  NBF also had a routine practice of requesting its clients to notify NBF if they recognize errors in any accounts listed in the automatic response it generated when clients referred accounts for collection.

After the clinic referred the plaintiff’s account to NBF for collection, NBF sent a letter to the clinic requesting that it verify the amount due.  The following day, without receiving a response from the clinic, NBF sent a collection letter to the plaintiff seeking the balance owed plus interest.  The plaintiff filed a complaint alleging violations of the FDCPA and moved for summary judgment.  In opposing the motion, NBF admitted that it received an incorrect payment history from the clinic and had mistakenly calculated interest.  Because NBF had charged too much interest and attempted to collect more than the plaintiff owed, it was undisputed that NBF had violated the FDCPA.  However, NBF argued that it was entitled to the benefit of the FDCPA’s bona fide error defense and, as a result, summary judgment should be entered in its favor.   

The bona fide error defense requires a showing that the debt collector violated the FDCPA unintentionally, the violation resulted from a bona fide error, and the collector maintained procedures “reasonably adapted to avoid the violation.”  The district court agreed that NBF qualified for the bona fide error defense and entered summary judgment in NBF’s favor.

In reversing the district court, the Ninth Circuit observed that “[t]he procedures that have qualified for the bona fide error defense [in cases decided by the Ninth Circuit and other circuits] were consistently applied by collectors on a debt-by-debt basis; they do not include one-time agreements committing creditor-clients to provide accurate information that are later acted upon without question.”

As a fallback position, NBF argued that even if its collection service contract was insufficient to qualify for the bona fide error defense, it still qualified because it sends its clients follow up requests seeking verification of the accuracy of their information.   While calling this “closer to the mark,” the Ninth Circuit found that it still fell short because it was uncontested that NBF did not wait for a response from the clinic before attempting to collect from the plaintiff.  The Ninth Circuit stated that because NBF did not argue that it routinely waits for clients to respond before sending collection letters to debtors, NBF had failed to show that its practice of requesting account verification “was genuinely calculated to catch errors of the sort that occurred here.”