Today, by a vote of 69-28, the full Senate confirmed Lina Khan to serve as FTC Commissioner.

Ms. Khan will fill the FTC seat vacated by former FTC Chairman Joseph Simons.  His remaining term runs through September 2024.   Ms. Khan’s confirmation means the Democrats now hold a 3-2 Democratic majority, with the Democratic Commissioners consisting of Ms. Khan, Rohit Chopra, and Rebecca Slaughter (who current serves as Acting Chairwoman.)

With Ms. Khan confirmed, the White House will presumably seek to move Mr. Chopra’s nomination as CFPB Director forward for a full Senate vote.  Mr. Chopra’s confirmation as CFPB Director would, however, end the Democrats’ 3-2 majority until another Democratic nominee is confirmed to replace Mr. Chopra as FTC Commissioner.


The CFPB has published its Spring 2021 rulemaking agenda as part of the Spring 2021 Unified Agenda of Federal Regulatory and Deregulatory Actions.  It represents the “new CFPB’s” first rulemaking agenda during the Biden Administration.  The agenda’s preamble indicates that the information in the agenda is current as of April 26, 2021 and identifies the regulatory matters that the Bureau “reasonably anticipates having under consideration during the period from May 1, 2021 to April 30, 2021.”

Three significant items that were listed as “long-term actions” in the Bureau’s Fall 2020 rulemaking agenda, the last agenda issued under former Director Kraninger, no longer appear in the Spring 2021 agenda.  First, there is no longer any reference to possible rulemaking to define the meaning of “abusive” under Dodd-Frank.  Second, there is no longer any reference to possible rulemaking on payday loan disclosures.  Third, the new agenda contains no reference to a possible rulemaking to address concerns that the Bureau’s current rule on loan originator compensation may be unduly restrictive.

The new agenda lists the following two items as in the “final rule stage”:

  • Debt collection.  In April 2021, the CFPB issued a proposal that would extend by 60 days the effective date of Part I and Part II of its final debt collection rule issued in, respectively, October 2020 and December 2020.  The comment period closed on May 19, 2021.  The debt collection rule (Parts I and II) is scheduled to take effect on November 30, 2021.  The CFPB’s proposal would extend the effective date to January 29, 2022. The Bureau indicates in the agenda that its next action will be a final rule as to the effective date.
  • LIBOR.  In June 2020, the CFPB proposed amendments to Regulation Z to address the discontinuation of the London Inter-Bank Offered Rate (LIBOR) that is currently used by many creditors as the index for calculating the interest rate on credit cards and other variable-rate consumer credit products.  In 2017, the United Kingdom’s Financial Conduct Authority, the regulator that oversees the panel of banks on whose submissions LIBOR is based, announced that it would discontinue LIBOR sometime after 2021.  The comment period closed on August 4, 2020. In the agenda, the Bureau indicates that it expects to issue a final rule in January 2022.

The items identified in the agenda as in the “proposed rule stage” are:

  • Business Lending Data (Regulation B).  Section 1071 of Dodd-Frank amended the ECOA, subject to rules adopted by the Bureau, to require financial institutions to collect and report certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  The Bureau issued a SBREFA outline in September 2020 and convened a SBREFA panel in October 2020.  In December 2020, the Bureau released the final report of the SBREFA panel.  The Bureau’s next step will be the issuance of a Notice of Proposed Rulemaking (NPRM) for which the agenda gives a September 2021 estimated date.
  • Amendments to FIRREA Concerning Appraisals (Automated Valuation Models).  The Bureau is participating in interagency rulemaking with the Federal Reserve, OCC, FDIC, NCUA and FHFA to develop regulations to implement the amendments made by the Dodd-Frank Act to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) concerning appraisals.  The FIRREA amendments require implementing regulations for quality control standards for automated valuation models.  The Bureau estimates in the agenda that the agencies will issue an NPRM in December 2021.
  • Mortgage Servicing COVID-19 Relief.  In April 2021, the Bureau issued an NRPM to amend Regulation X in various ways to address the COVID-19 national emergency.  The proposal would amend aspects of the early intervention requirements, loss mitigation procedures, and foreclosure protections.  The comment period on the NPRM closed on May 10, 2021 and the Bureau estimates in the agenda that it will issue a final rule in July 2021.

The items identified in the agenda as in the “pre-rule stage are:

  • Consumer Access to Financial Information.  Section 1033 of Dodd-Frank addresses consumers’ rights to access information about their own financial accounts, and permits the CFPB to prescribe rules concerning how a provider of consumer financial products or services must make a consumer’s account information available to him or her, “including information related to any transaction, or series of transactions, to the account including costs, charges, and usage data.”  In November 2016, the Bureau issued a request for information (RFI) about market practices related to consumer access to financial information and, after holding a symposium in February 2020, the Bureau issued an Advance Notice of Proposed Rulemaking in connection with its Section 1033 rulemaking in November 2021.  In the agenda, the Bureau gives an estimated April 2022 date for its next pre-rule steps.
  • Property Assessed Clean Energy Financing.  In March 2019, the CFPB issued an Advance Notice of Proposed Rulemaking to extend Truth in Lending Act ability-to-repay requirements to PACE transactions.  The Bureau gives an October 2021 estimate in the agenda for pre-rule activity.

The items identified in the agenda as “long-term actions” for which no estimated dates for further action are given are:

  • Mortgage Servicing Rules.  The Bureau is considering whether to propose additional amendments to the servicing rules, including, for example, loss mitigation-related provisions.
  • Artificial Intelligence.  In February 2017, the CFPB issued an RFI concerning the use of alternative data and modeling techniques in the credit process.  The Bureau states that it recognizes the importance of continuing to monitor the use of AI and machine learning and is evaluating “whether rulemaking, a policy statement, or other Bureau action may become appropriate.”

Pursuant to Dodd-Frank Section 1022(d), the Bureau is required to conduct an assessment of each significant rule or order it adopts under a Federal consumer financial law and publish a report of each assessment not later than 5 years after the rule’s or order’s effective date.   In connection with the release of the Spring 2021 agenda,  the CFPB announced that it will assess the October 2015 significant amendments to Regulation C under the Home Mortgage Disclosure Act.

In connection with the release of its latest semi-annual regulatory agenda, the CFPB announced that it will assess the October 2015 significant amendments to Regulation C under the Home Mortgage Disclosure Act (HMDA), and that it will not pursue other HMDA rulemakings.

The Dodd-Frank Act requires that the CFPB conduct an assessment of each significant rule or order it has adopted under federal consumer financial law and publish a report of each assessment no later than five years after the effective date of the rule or order. The CFPB advises that it recently decided to assess the October 2015 amendments, most of which became effective on January 1, 2018. Significantly, the CFPB also announced that “in light of our other rulemaking priorities, we are no longer pursuing two HMDA rulemakings that were listed in the proposed rule stage in previous agendas – one that concerns the data points that lenders must report and another related to the public disclosure of HMDA data.” As a result, for the meantime, the CFPB will no longer pursue the advance notice of proposed rulemaking issued in May 2019 regarding HMDA data points, or its consideration of replacing its guidance on the public issuance of HMDA data with a formal rule.

In a recent guest post, Professor Mark Budnitz voiced support for Professor Jeff Sovern’s recent proposal that the CFPB issue a rule barring the use of pre-dispute arbitration agreements unless consumers opt in to them.  He claims it is the “only fair method” for contracting with consumers because “consumers cannot know, pre-dispute, which forum is better.”  In paragraph after paragraph, Professor Budnitz recites a litany of considerations that consumers should consider in choosing a forum to resolve disputes.  For example: will discovery be needed, and what types? will the consumer be the plaintiff or the defendant?  can the dispute be resolved in small claims court?  which route will be more or less expensive?  will the arbitration forum be fair?  will confidentiality be required?  Without knowing the answers to such questions, he concludes, “there’s no way for consumers to intelligently and knowledgeably decide, pre-dispute, if they should agree to arbitration.”

Professor Budnitz ignores, however, that companies also cannot know, pre-dispute, the answers to these questions because the disputes have not yet occurred.  But that is the beauty of the pre-dispute arbitration system: the playing field is leveled, and the potential pro’s and con’s of arbitration versus litigation are the same for each side.  By contrast, after a dispute has erupted, one party or the other, or both, will act based upon perceived advantages or disadvantages of a particular forum, and the dispute will expand to envelop the dispute resolution process itself.  Pre-dispute arbitration agreements are the great equalizer!

According to Professor Budnitz, pre-dispute arbitration really does not level the playing field because the company always knows in advance that it will have the use of a lawyer, whereas most consumers won’t be able to retain a lawyer unless “the dispute involves a substantial amount of money” or the lawyer “can get into court and file a class action.”  That argument is fundamentally flawed for three reasons.  First, most consumer protection statutes permit a successful plaintiff to recover his or her attorneys’ fees and costs, which can be substantial even if the actual recovery is small.  Therefore, there is an incentive for an attorney to represent a consumer even in small dollar cases.  Second, the reality is that consumers with small claims receive little if any benefit from class actions.  The CFPB’s 728-page empirical study of consumer arbitration showed that in 87% of the 562 class actions the CFPB studied, the putative class members received no benefits whatsoever.  In the remaining 13%, the average class member’s recovery was a mere $32.35 (while class counsel recovered $424 million).  By contrast, in arbitrations where consumers obtained relief on affirmative claims, the consumer’s average recovery was $5,389.  Presumably, most of those arbitrations were held pursuant to pre-dispute arbitration agreements of the type that Professor Budnitz criticizes.  Third, if, as Professor Budnitz argues, plaintiffs’ lawyers won’t handle small-dollar non-classable claims (i.e., claims that are not amenable to class action disposition because they do not implicate systemic conduct), arbitration is one of the only remaining dispute resolution options left to the consumer if informal negotiations have failed and a lawyer can’t be found.  If a pre-dispute arbitration agreement with procedures spelled out is already in place, that makes it all the easier for the consumer to resolve the dispute rather than giving up on it.

Professor Budnitz asks, “if [arbitration] is so wonderful, companies could easily convince consumers, post-dispute, to agree to arbitration.”  Well, arbitration is wonderful, and even the CFPB has recommended it to its employees as a means of resolving workplace disputes.  Nevertheless, trying to get consumers to agree to arbitration post-dispute is not so “easy”—not just because positions have hardened or because of any inherent flaws in the arbitral process—but because class action lawyers and consumer advocates such as Professors Budnitz and Sovern have for years poisoned the well by denigrating consumer arbitration in order to promote class action litigation, and because the CFPB has failed to set the record straight by educating consumers on the numerous benefits of arbitration that its own research has confirmed.

In any event, as a practical matter, the CFPB is likely to shy away from promulgating another arbitration rule—one that would have to be substantially different than its prior rule which was overridden by Congress.  The earlier arbitration rulemaking took about five years, including a three-year empirical study as well as numerous hearings and regulatory proceedings, and it generated vast industry opposition.   Starting again from square one would require another multi-year commitment of time and an enormous expenditure of valuable resources at a time when the CFPB already has a full plate of near- and long-term rulemaking activities, judging by the semi-annual regulatory agenda it released last week.

Two leaders of the CFPB’s Fair Lending Office – Patrice Ficklin, Fair Lending Director, and Charles Nier, Senior Fair Lending Counsel – recently published an article advocating for broader use of special purpose credit programs (“SPCPs”) by creditors.  The article, entitled “The Use of Special Purpose Credit Programs to Promote Racial and Economic Equity” and framed as an essay, can be found in the Poverty & Race Research Action Council’s (“PRRAC”) May 2021 edition of its series on new directions in racial justice in housing finance and is available here.  PRRAC is a civil rights law and policy organization based in Washington, D.C.

The authors explain that in the aftermath of George Floyd’s death, which resulted in greater calls for racial equity and social justice as well as historic financial commitments by the banking industry to address those issues, there has been renewed interest in SPCPs.  Although SPCPs have been available under ECOA for 45 years, financial institutions have been reluctant to use them because of regulatory uncertainty concerning compliance and the potential for examination criticism.  The authors view SPCPs as a “significant and unheralded tool” to address “historical injustices,…systemic racism in the credit markets and, more broadly,…racial wealth inequity.”

The article traces the historical underpinnings of racial wealth inequity, noting great disparities between wealth accumulation and homeownership between African American and non-Hispanic white households.  The authors point out that since few people have the financial resources to purchase a home without obtaining financing, a critical step in achieving home ownership (and thus building wealth) is fair and equitable access to credit.  By providing access to credit on favorable terms and conditions, the authors argue that SPCPs represent “one potentially powerful restorative tool in the struggle to redress credit discrimination and racial inequity.”

The article goes on to describe SPCP requirements under ECOA and Regulation B, and clarify the different requirements for SPCPs non-profit and for-profit organizations, as described in Regulation B.  The CFPB leaders note that one of the most frequent SPCP questions the CFPB receives is how a creditor can determine that an SPCP “will benefit a class of persons who would otherwise be denied credit or would receive it on less favorable terms” under Regulation B.  Regulation B indicates that the determination can be based on a broad analysis using the creditor’s own research or data from outside sources, including governmental reports and studies.  As we previously reported, in December 2020, the CFPB issued an advisory opinion, which is an interpretive rule (“IR”), clarifying that for-profit organizations may rely on a wide range of research or data already in the public domain, such as HMDA data and other governmental or academic reports/studies exploring historical and societal causes and effects of discrimination to establish compliant SPCPs.

The article concludes by stating that SPCPS are a “central priority” for the CFPB’s efforts to address racial equity.  The authors state that “[c]reditors implementing special purpose credit programs are encouraged to discuss this essay, the IR, or any aspect of these programs with the CFPB or other regulators.”  The authors further state that the CFPB looks forward to advancing the use of SPCPs on behalf of economically disadvantaged groups and to address racial wealth inequity.

In our view, the article does not plow new ground, but its publication demonstrates that the CFPB is actively encouraging broader use of SPCPs, which are specifically authorized by ECOA and Regulation B.  However, the article does not address the fact that the Fair Housing Act does not explicitly permit SPCPs, which creates regulatory uncertainty about whether such programs can be offered under the Fair Housing Act. (However, the authors’ reference to creditors potentially consulting “other regulators” about SPCPs seems to be a nod to HUD, which primarily administers and enforces the Fair Housing Act, or the prudential regulators.)  As a result, any lender that wishes to develop and offer a mortgage product as an SPCP must carefully analyze the legal issues presented under the Fair Housing Act before doing so.  Although it is our understanding that the federal regulators are beginning to look at this issue, there is certainly no regulatory resolution yet concerning whether SPCPs may be offered under the Fair Housing Act.

Afterpay, a buy-now, pay-later company, is facing a putative class action lawsuit in a California federal district court. The complaint alleges that Afterpay misled customers in representing that its services allowed customers to “pay for purchases at a later date, with no interest, no fees, and no hassle” when “there are huge, undisclosed fees and interest associated with using the service.” Afterpay’s service allows its customers to make a purchase on credit and repay the balance by making four payments over the course of six weeks.

The plaintiff claims that Afterpay did not disclose to its customers “that overdraft and NSF fees are a likely and devastating consequence of the use of its service.” She alleges that she “had no idea small, automatic Afterpay repayments could cause $35 bank fees from [her] bank” or that “Afterpay would process transactions when [her] accounts had insufficient funds.” While acknowledging that banks, not Afterpay, assess these fees, the plaintiff contends that “Afterpay misrepresents (and omits facts about) the true nature, benefits, and risks of its service … [including] that users are at extreme and undisclosed risk of expensive bank fees when using Afterpay.”

The complaint alleges that Afterpay’s failure to warn consumers about the potential risk of banks assessing overdraft and NSF fees is an unfair and fraudulent act and practice in violation of California’s Unfair Competition Law. The plaintiff seeks to represent a class of all Afterpay customers who incurred an overdraft or NSF fee because of a payment to Afterpay. The relief sought in the complaint includes injunctive relief, restitution of fees, disgorgement of allegedly ill-gotten gains, compensatory and punitive damages, interest, attorney fees, and litigation costs.

In March 2021, Illinois Governor Pritzker signed into law SB 1792, which contains the Predatory Loan Prevention Act (the “Act”).  The new law became effective immediately upon signing notwithstanding the authority it gives the Illinois Department  of Financial and Professional Regulation (“IDFPR”) to adopt rules “consistent with [the] Act.”

The Act extends the 36% “all-in” Military Annual Percentage Rate (MAPR) finance charge cap of the federal Military Lending Act (MLA) to “any person or entity that offers or makes a loan to a consumer in Illinois” unless made by a statutorily exempt entity.  The Act provides that any loan made in excess of a 36% MAPR is considered null and void, and no entity has the “right to collect, attempt to collect, receive, or retain any principal, fee, interest, or charges related to the loan.”  Each violation of the Act is subject to a fine of up to $10,000.

Proposed Regulations.  The IDFPR has proposed regulations to implement the Act.  In addition to section containing definitions (Section 215.10), the proposal contains a section regarding loan terms (Section 215.20).  The loan terms addressed by Section 215.20 include:

  • Calculation of the APR for purposes of the Act (i.e. what charges must be include in the APR)
  • Bona fide fees charged on credit card accounts that may be excluded from the APR, including standards for assessing whether a bona fide fee is reasonable, a reasonable bona fide fee safe harbor, and indicia of reasonableness for participation fees
  • The effect of finance charges on bona fide fees

In addition to these proposed regulations implementing the Act, the IDFPR has simultaneous proposed amendments to the implementing regulations of the Illinois Consumer Installment Loan Act and the Payday Loan Reform Act.  These amendments propose extending substantive and disclosure limitations previously aimed at high-APR payday and auto title lending programs to loans with an MAPR of 36% or less without modification.   For example, a prime loan secured by a consumer’s vehicle with an MAPR of 1% would be subject to, among other things, a principal amount ceiling of $4,000, refinance limitations, “ability to repay” limitations in the form of a gross monthly income check and various pamphlets and disclosure requirements that make little sense in the context of a loan with an MAPR of 36% or less.

Lawsuit to block the Act’s data base reporting requirement.  Prior to the Act’s enactment, only lenders making certain higher-cost loans with annualized rates above 36% were required to report loan information to a state database administered by Veritec.  The Act amended the Illinois Consumer Installment Loan Act (“CILA”) to require all licensed lenders, regardless of the rate charged, to pay Veritec fees for each loan and report information about the loan to the database.  Because the Act became effective immediately and Veritec onboarding typically takes several months, Illinois lenders initially faced the Catch-22 of either violating the amended law or ceasing all lending operations.  To address this dilemma, the IDFPR issued a Notice in April 2021 stating that it did “not intend to take adverse supervisory or enforcement action for violations of reporting requirements” under applicable Illinois law until further notice.

The American Financial Services Association and the Illinois Financial Services Association have filed a lawsuit against the IDFPR seeking to enjoin implementation of the Act’s reporting requirement retroactive to March 23, 2021 and asking for a declaration that the requirement is unconstitutionally vague and impossible to comply with.  In its complaint, the IFSA alleges that despite the impossibility of complying, licensed lenders may be subject to civil actions under the CILA, and that the Act’s implementation will expose consumer finance lenders to substantial risk of loss.

Lawsuit to declare the Act does not cover pawn transactions.  Two trade groups and two companies engaged in the pawn industry have filed a lawsuit against the IDFPR seeking a declaration that the Act cannot apply to pawn transactions unless and until the IDFPR amends or rescinds its regulations implementing the Illinois Pawnbroker Regulation Act (“PRA”) that are inconsistent with the Act.   The PRA requires pawnbrokers to be licensed by the IDFPR to lawfully operate in Illinois and sets forth the permissible terms and finance charges for pawn transactions.

In April 2021, the IDFPR issued a series of FAQs on the Act that listed “pawn loans” as an example of loans covered by the Act.  In their complaint [link], the plaintiffs allege that that the Act does not amend the PRA, and makes no reference to pawn transactions.  They also allege that the Act’s legislative history indicates that the Act was never intended to impact the pawn industry.  According to the plaintiffs, the IDFPR has not given any guidance to the pawn industry about key issues such as how the Act and the PRA interact and what, if anything, should change from a compliance standpoint in terms of how pawn transactions are conducted.

The plaintiffs claim that as a result of its FAQs, “the IDFPR has not only created a myriad of questions in terms of how the pawn industry in Illinois is supposed to operate, but it has done so while placing a target on the industry’s back and opening it up to consumer-facing litigation.”  The plaintiffs also claim that if the Act’s 36% APR cap were to apply to pawn transactions, “it would have a devastating effect on the industry and likely lead to the closure of most if not all pawn shops in Illinois because the pawn segment is the main revenue source of the business.”


On June 11, the American Bankers Association and the Consumer Bankers Association, represented by Ballard Spahr, filed an amicus brief in support of a petition for certiorari asking the Supreme Court to review the Ninth Circuit’s ruling in HRB Tax Group, Inc. v. Snarr that the Federal Arbitration Act (FAA) does not preempt California’s McGill rule.  The amicus brief argues that review should be granted to preserve consumer-friendly procedures for resolving disputes and to ensure that courts uniformly apply the FAA as interpreted by the Court in decisions such as Epic Systems Corp. v. Lewis, AT&T Mobility, LLC v. Concepcion and Lamps Plus, Inc. v. Varela.

The petition for certiorari, filed on May 10, argues that the McGill rule is inconsistent with fundamental precepts of the FAA and that a conflict has emerged in the federal courts on whether the FAA preempts the McGill rule.  The respondent’s brief is due July 12.

We will keep you updated.

The U.S. Court of Appeals for the Second Circuit has ruled that a debt collector did not violate the Fair Debt Collection Practices Act by sending the plaintiff a settlement offer that did not disclose that his balance could increase due to interest and fees. 

In Cortez v. Forster & Garbus, LLP, the debt collector sent a collection notice to the plaintiff offering various options for settling his account for less than the full balance owed if he made the payments indicated by the dates specified in the notice. The plaintiff alleged that the debt collector violated the FDCPA by failing to disclose that interest was continuing to accrue on his balance.

In its 2016 decision in Avila v. Riexinger & Associates, LLC, the Second Circuit held that a collection letter that states a debtor’s current balance but does not disclose whether interest and fees are accruing is misleading in violation of FDCPA Section 1692e.  However, the Second Circuit also provided two safe harbors from liability under Section 1692e for failing to make such a disclosure.  A debt collector would not be liable if the letter either (1) accurately informs the consumer that that the amount of the debt stated in the letter will increase over time, or (2) clearly states that the holder of the debt will accept payment in the amount set forth in the letter in full satisfaction of the debt if payment is made by the specified date.

In reversing the district court and directing it to enter summary judgment in favor of the debt collector, the Second Circuit disagreed with district court’s reasoning that a settlement offer could be misleading if it contained a payment deadline but did not disclose whether interest or fees would accrue if payment were tendered after the deadline.  According to the district court, the least sophisticated consumer could interpret such an offer to imply either that interest and/or fees would accrue after the deadline or that the balance would remain the same after the deadline.

However, in the Second Circuit’s view:

Section 1692e does not require that a collection notice anticipate every potential collateral consequence that could arise in connection with the payment of a debt.  Instead, the FDCPA merely requires that a collection notice, by its terms, not be susceptible of a reasonable but inaccurate interpretation.  Therefore, a settlement offer need not enumerate the consequences of failing to meet its deadline or rejecting it outright so long as it clearly and accurately informs a debtor that payment of a specified sum by a specified date will satisfy the debt. (citations omitted, emphasis included).

Applying these principles, the Second Circuit held that the debt collector’s notice did not violate Section 1692e because “even when viewed from the perspective of the least sophisticated consumer, the [collector’s] notice could only reasonably be read one way: as extending an offer to clear the outstanding debt upon payment of the specified amount(s) by the specified date(s).”  Since the only reasonable interpretation was accurate, there was no FDCPA violation.




Mr. Dougherty recently authored an article calling for the OCC’s abolishment and merger into the Federal Deposit Insurance Corp.  After reviewing the history of the creation of the OCC and Federal Reserve Banks, we examine and debate Mr. Dougherty’s arguments in support of his position.  We also discuss and respond to Mr. Dougherty’s criticism of the OCC’s “true lender,” Community Reinvestment Act, and fair access rules.

Ballard Spahr Senior Counsel Alan Kaplinsky hosts the conversation, joined by Scott Coleman, a partner in the firm’s Business and Transactions Department.

Click here to listen to the podcast.