The New York Department of Financial Services (NYDFS) has announced the creation of a Student Debt Advisory Board to advise on consumer protection, student financial products or services, and communities that have been significantly impacted by student debt.  The announcement was made on October 9 to coincide with the effective date of Banking Law Article 14-A, which requires licensing of servicers of student loans owed by New York residents and includes provisions pertaining to non-conforming payments, credit reporting, prohibited practices, and recordkeeping.

The announcement is part of the “Step Up for Students” initiative announced by the NYDFS last month to safeguard student loan borrowers from discriminatory or predatory practices by student loan servicers.

The advisory board will meet quarterly, and will be charged with identifying and assessing the impact of emerging practices on consumers and other market participants related to student debt.  The board will also provide formal input on consumer engagement, policy development and research.

The following individuals were appointed by NYDFS Secretary Lacewell to serve on the advisory board for a three-year term beginning in 2019:

  • Seth Frotman, Executive Director, Student Borrower Protection Center (Mr. Frotman formerly served as the CFPB’s Student Loan Ombudsman and has been a vocal critic of the CFPB since his departure.)
  • Yan Cao, Fellow, The Century Foundation
  • Evan Denerstein, Senior Staff Attorney, Consumer Rights Project, Mobilization for Justice
  • Pam Lanich, Staff Attorney, Western New York Law Center
  • Haris Khan, Chairperson of the City University of New York’s University Student Senate (to serve Ex Officio

The CFPB announced this past Friday that it will establish a taskforce, the Taskforce on Federal Consumer Financial Law, to examine ways to harmonize and modernize federal consumer financial laws.

The taskforce will examine the existing legal and regulatory environment facing consumers and financial services providers and make recommendations to the Bureau’s leadership for improving consumer financial laws and regulations.  The taskforce will produce new research and legal analysis of U.S. consumer financial laws, with a focus on harmonizing, modernizing, and updating the enumerated consumer credit laws, and their implementing regulations, and identifying gaps in knowledge that should be addressed through research, ways to improve consumer understanding of markets and products, and potential conflicts or inconsistencies in existing regulations and guidance.

The taskforce is in part inspired by an earlier commission established by the Consumer Credit Protection Act in 1968. In addition to various changes to consumer law generally, the Act established a national commission to conduct original research and provide Congress with recommendations relating to the regulation of consumer credit.  The commission’s report led to significant legislative and regulatory developments in consumer finance.

The taskforce will have a Chair and approximately six members.  It will also bring on individuals detailed from across the Bureau and federal government.  The Bureau is now accepting applications for members.  Members must have demonstrated records of senior public service and expertise in consumer finance, including:

  • Expertise in consumer protection and consumer financial products or services
  • Significant experience researching and analyzing consumer financial markets, laws, and regulations
  • Past record of senior public or academic service
  • Recognition for professional achievements and objectivity in economics, econometrics, or law

We applaud the Bureau for this very welcome announcement, which demonstrates the commitment of current Bureau leadership to improving the current consumer finance legal and regulatory environment for the benefit of both consumers and industry.


CFPB recently issued its Spring 2019 Semi-Annual Report to Congress covering the period October 1, 2018 through March 31, 2019.

The report represents the CFPB’s second semi-annual report under Director Kraninger’s leadership.  Like the first semi-annual report issued under her leadership, and in contrast to those issued under Mr. Cordray’s leadership, the new report does not contain any 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 1,452 employees as of March 31, 2019, representing a decrease of 58 employees from the number of employees as of September 31, 2018 (which was 1,510 employees).  As compared with the number of employees as of March 31, 2017 (which was 1,689 employees), the number of employees as of March 31, 2019 represents a reduction of 237 employees (14 percent decrease) over the two-year period.

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

  • As it did in its Spring 2019 rulemaking agenda issued in May 2019, the CFPB states that it plans to resume pre-rulemaking activities to implement Section 1071 of the Dodd- Frank Act “within the next year.”  Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data includes the race, sex, and ethnicity of the principal owners of the business.  The Bureau also states that it plans to conduct a symposium on small business data collection in November 2019.
  • The Bureau’s Fair Lending Supervision program initiated 10 supervisory events during the period covered by the report, 3 less than the number of such events initiated during the period covered by the prior semi-annual report.  The most frequently cited violations involved HMDA data collection and reporting requirements and ECOA record retention requirements.  As compared with that period, it also issued fewer matters requiring attention or memoranda of understanding. In addition, the Bureau provided supervisory recommendations “relating to supervisory concerns related to weak or nonexistent fair lending risk assessments and/or fair lending training.”
  • During the period covered by the report, the Bureau did not initiate or complete any fair lending enforcement actions and did not refer any ECOA matters to the DOJ. (In the prior annual report, the CFPB indicated that from October 1, 2017 through September 30, 2018, it did not initiate any fair lending public enforcement actions and did not refer any ECOA matters to the DOJ.)

Director Kraninger is scheduled to testify twice this week regarding the new semi-annual report.   As we reported, on Thursday, October 17, the Senate Banking Committee will hold a hearing on the semi-annual report.

In addition, on Wednesday, October 16, the House Financial Services Committee will hold a hearing, “Who Is Standing Up for Consumers? A Semi-Annual Review of the Consumer Financial Protection Bureau.”  According to the Committee Memorandum, the hearing will also consider the following bills:

  • The Fair Lending for All Act, H.R. 166.  The bill would create an Office of Fair Lending Testing within the Bureau and amend the ECOA to cover discrimination based on sexual orientation and gender identity, add criminal penalties for ECOA violations, and provide for personal liability of executive officers and directors.
  • Empowering States to Protect Seniors from Bad Actors Act.  The bill would amend the CFPA to address funding for senior investor protection.


Democratic Senators Sherrod Brown and Patty Murray have sent a letter to Robert Cameron, the CFPB’s new Private Education Loan Ombudsman, in which they set forth their expectations for the Ombudsman’s Office.  The Bureau announced Mr. Cameron’s appointment as Ombudsman in August 2019.  He replaced Seth Frotman, who has been a vocal critic of the Bureau since his departure from the Bureau in August 2018.  The letter follows up on a September 18 meeting between Mr. Cameron and members of the Senators’ staffs.

In their letter, the Senators set forth their expectations that the Ombudsman’s Office:

  • Serve as an advocate for student loan borrowers by engaging in activities such as
    • Participating in Bureau policymaking
    • Gathering evidence for and referring cases to CFPB supervision and enforcement staff, other federal law enforcement officials and regulators, and state attorneys general or state banking regulators
    • Recommending legislative changes to the CFPB Director, Secretary of the Treasury, Secretary of Education, and Congress
    • Providing direct assistance to consumers
    • Requesting data from student loan industry participants and analyzing such data
    • Monitoring the marketplace for risks to young consumers
  • Continue oversight of private and federal student loans
  • Ensure adequate staffing of the Ombudsman’s Office
  • Carry out oversight and monitoring duties “even if the [ED] attempts to interfere with the Bureau’s jurisdiction”
  • Reestablish the MOU between the Ombudsman’s Office and the ED as soon as possible (ED terminated the MOU effective October 1, 2017.)
  • Promptly resume examinations of federal student loan servicers

The Senators’ letter references an April 2019 letter sent by the Bureau to Senator Brown in which the Bureau stated that since December 2017, student loan servicers had declined, based on ED direction, to produce information requested by the Bureau’s examiners in connection with exams related to Direct Loans and Federal Family Loan Program loans held by the ED.  (The direction required servicers to obtain the ED’s permission to produce the information requested by the Bureau’s examiners.)  In their letter, the Senators ask Mr. Cameron to respond to questions regarding the Bureau’s supervisory examinations related to Direct Loans and FFLEP since December 2017 (and since January 2017 regarding Public Student Loan Forgiveness) and for information on staffing.

A group of small businesses and their individual owners have filed a putative class action lawsuit in a New York federal district court against online lender Kabbage, Inc. that alleges Kabbage engaged in a “rent-a-charter” scheme to make loans at interest rates that were usurious under state law.

According to the complaint, Kabbage entered into the scheme with Celtic Bank, a foreign state-chartered bank in Utah, which has no maximum rate limit for commercial loans.  More specifically, the named plaintiffs allege:

  • Celtic acts as lender in name only—it owns the receivables for just two days and “does not lift a finger to service the loan”
  • Kabbage is contractually obligated to buy 100% of all of the loans it originates from Celtic
  • Kabbage “in economic reality” markets, underwrites, prices, approves, funds, and collects upon 100% of the loans and bears 100% risk of loss.
  • Because Celtic retains no ownership or monetary interest in the loans, it bears no economic risk of loss due to a borrower’s non-payment (In June 2015, Kabbage’s “Program Management Agreement” with Celtic was amended to eliminate the 5% participation interest retained by Celtic.)
  • Celtic could not make and keep the loans on its balance sheet because they would create an unacceptable risk under FDIC regulations

The complaint includes claims for violations of state usury laws (California, Massachusetts, Colorado, New York) and racketeering and conspiracy under federal RICO statutes.  It also includes claims for violations of various state laws other than usury laws, including the California Financing Law Code (CFLC).  In connection with the CFLC claims, the plaintiffs allege that the unlawful practices in which Kabbage engaged included acting as an unlicensed broker for commercial loans and “obtaining an arbitration provision through an unlicensed broker, which renders the arbitration provision void.”  They also make a UDAP claim under Massachusetts law in which they allege that Kabbage’s loan agreements were “contracts of adhesion” that included “unconscionable and unfair provisions” such as provisions that required the plaintiffs to waive the right to a jury trial, waive the right to participate in a class action, and waive the right to seek legal redress in their home state.

In view of these allegations, it appears that Kabbage’s loan agreements included a mandatory arbitration provision with a class action waiver that the plaintiffs are seeking to invalidate.  One of the exhibits to the complaint, a report issued by a rating agency in connection with a securitization offered by Kabbage, indicates that a similar lawsuit was filed against Kabbage in November 2017 and that Kabbage intended “to seek to resolve the matter in arbitration.”  This suggests that Kabbage will move to compel arbitration in this new lawsuit.

We believe that Kabbage will prevail if the only basis for opposing the motion to compel arbitration is that Kabbage acted as a non-licensed broker.  Under the Federal Arbitration Act (FAA) and the U.S. Supreme Court’s “Prima Paint” doctrine, a challenge to the validity of the contract as a whole is for the arbitrator to decide, while a challenge to the arbitration provision specifically is for the court to decide.  For example, the Supreme Court has enforced an arbitration clause even though it was contained in a payday loan agreement alleged to be usurious, illegal and void ab initio under state law because those defenses challenged the loan agreement as a whole, not just the arbitration clause.

In addition, the Supreme Court has held that jury trial and class action waivers within an arbitration provision are valid and enforceable under the FAA, which preempts inconsistent state law.  See, e.g., Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1427 (2017) (states may not “adopt a legal rule hinging on the primary characteristic of an arbitration agreement—namely, a waiver of the right to go to court and receive a jury trial”); AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (FAA preempted California state law prohibiting class action waivers in consumer arbitration provisions).




The Senate Banking Committee will hold a hearing on October 17, 2019 entitled “The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress” at which the witness will be Director Kraninger.

The CFPB’s most recent semi-annual report covers the period October 1, 2018 through March 31, 2019.  The hearing will be webcast live.

The CFPB recently issued in final form two elements of a May 2019 Home Mortgage Disclosure Act (HMDA) proposed rule.

As previously reported, the May 2019 proposal would:

  • Increase the volume threshold that triggers reporting of closed-end mortgage loans from at least 25 originated loans in each of the prior two calendar years to at least 50 originated loans in each of the prior two calendar years. (The CFPB also requested comment on a 100 loan threshold.)
  • Increase the volume threshold that triggers reporting of open-end, dwelling-secured lines of credit to at least 200 originated lines of credit in each of the prior two calendar years.
  • Continue until January 1, 2022 the temporary volume threshold that triggers reporting of open-end, dwelling-secured lines of credit of at least 500 originated lines of credit in each of the prior two calendar years.
  • Incorporate into Regulation C the interpretative and procedural rule previously issued by the CFPB to implement the partial exemption from HMDA reporting for smaller volume bank and credit union lenders adopted in the Economic Recovery, Regulatory Relief, and Consumer Protection Act (Growth Act).

The final rule includes the last two elements of the May 2019 proposal. As reported previously, during the summer the CFPB extended the comment period for the first two elements of the proposal until October 15, 2019 in order to allow interested parties to examine the 2018 HMDA data before submitting comments. The 2018 HMDA data was released at the end of August 2019. The CFPB advises that it intends to issue a separate final rule in 2020 to address the threshold for closed-end loans and permanent threshold for open-end lines of credit.

In this podcast, we look at the current state of consumer arbitration law, discuss recent CA state and federal court decisions involving the enforceability of arbitration agreements with respect to requests for public injunctive relief, whether similar issues may arise in other states, the prospects for SCOTUS review, and the need to revisit arbitration agreements in light of those decisions, and review the status of federal legislative activity to restrict arbitration.

Click here to listen to the podcast.

On October 4, California Governor Gavin Newsom signed into law Assembly Bill 1313, which prohibits postsecondary schools from withholding transcripts as a debt collection tool.  The law is effective January 1, 2020.

The bill adds new Title 1.6C.7, the “Educational Debt Collection Practices Act,” to Part 4 of Division 3 of the California Civil Code.  It provides that a school shall not do any of the following:

  • Refuse to provide a transcript for a current  or former student on the grounds that the student owes a debt
  • Condition the provision of a transcript on the payment of a debt, other than a fee charged to provide the transcript
  • Charge a higher fee for obtaining a transcript, or provide less favorable treatment of a transcript request, because a student owes a debt
  • Use transcript issuance as a tool for debt collection

For purposes of these prohibitions, a “school” is defined as “any public or private postsecondary school, or any public or private entity, responsible for providing transcripts to current or former students of a school.”  A “debt” is defined as “any money, obligation, claim, or sum, due or owing, or alleged to be due or owing, from a student, but does not include the fee, if any, charged to all students for the actual costs of providing the transcripts.”


The National Credit Union Administration has published a final rule in the Federal Register that amend the NCUA’s general lending rule to provide federal credit unions (FCU) with a second option for offering “payday alternative loans” (PALs).  The final rule is effective December 2, 2019.

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.

In 2018, the NCUA issued a proposal to give FCUs the ability to offer PALs with more flexible terms and that would potentially be more profitable (PALs II). [link to blog] The PALs II authorized by the final rule do not replace PALs I but are an additional option for FCUs.  PALs II incorporate many of the features of PALs I while making three changes:

  • The loan can have a maximum principal amount of $2,000 and there is no minimum amount
  • The maximum loan term is 12 months
  • No minimum length of credit union membership is required

An FCU cannot make more than one of any type of PALs loan to a single borrower at a time.

In its proposal, the NCUA stated that it was considering creating an additional kind of PALs (PALs III) that would have even more flexibility than PALs II and sought comment on whether there is demand for such a product as well as what features and loan structures could be included in PALs III.  In the final rule’s Supplementary Information, the NCUA states that is has taken the comments regarding PALs III under advisement and will determine whether future action is necessary.