For our webinar last week, “What a Blue Wave in the November 2020 Elections Could Mean for the Consumer Financial Services Industry,” we were joined by special guest Isaac Boltansky, Director of Policy Research at Compass Point Research & Trading.  The webinar examined the potential implications for the consumer financial services industry should Joe Biden win the Presidency and Democrats win control of the Senate while retaining control of the House.

Alan Kaplinsky, Practice Leader of the firm’s Consumer Financial Services Group, moderated the webinar.  Chris Willis, Practice Leader of Consumer Financial Services Litigation at Ballard Spahr, and Tim Jenkins, Leader of the firm’s Government Relations practice in the firm’s Washington, D.C. office, discussed, respectively, how a blue wave could impact the regulatory agendas of the CFPB and other agencies and the legislative agenda of the next Congress.

Key takeaways regarding the implications of a blue wave scenario include the following:

  • Chris Willis commented that the CFPB’s approach to the exercise of its authorities is likely to reflect criticism by Democrats that the CFPB has been lax in its approach to industry under Director Kraninger’s leadership.  (In Chris’s view, such criticism is unfounded.)  More specifically, in contrast to the CFPB’s current approach of handling more matters in supervision, there will likely be more enforcement cases involving larger dollar amounts and a more aggressive focus on fair lending.
  • Chris also raised the possibility that the Madden-fix rules adopted by the OCC and FDIC and the OCC’s proposed true lender rule could be reversed or eroded and that there could be less interest in moving forward with special purpose national bank charters for fintechs or payments companies.
  • Chris indicated that state attorneys general and regulators, many of whom have taken on a more active role during the Trump Administration to fill a perceived gap in enforcement by the CFPB, will likely remain very active and receive significant support from the CFPB.
  • Tim Jenkins commented that in addition to legislation targeted at providing COVID-related relief, a Democratic-controlled Congress is likely to advance legislation dealing with FCRA reform (e.g. reporting of medical debts and servicemember debts, credit reports used for employment purposes, dispute resolution, free credit scores), interest rate limits, and debt collection.  Other possible areas of legislative activity identified by Tim were arbitration and student loans.
  • Isaac Boltansky commented that the CFPB will likely renew its focus on overdrafts and payday lending, including by reopening a rulemaking on small-dollar loans with the goal of restoring an ability-to-repay standard.
  • Isaac indicated that he also expects to see more regulatory or legislative focus on bank-non-bank partnerships.  While he also expects there will be many “headlines” about efforts to enact a federal interest rate cap, he believes such efforts are unlikely to prevail.  He also believes such efforts will fuel efforts on the state level to enact interest rate caps.
  • In Isaac’s view, Senator Elizabeth Warren is likely to play a key role in selecting the leadership of the CFPB and other financial regulatory agencies and that the individuals she selects will take aggressive and innovative approaches, resulting in immediate change at the agencies.  He also noted that while a blue wave will result in an immediate change in the CFPB’s and OCC’s leadership, there will be staggered changes in the leadership of the FDIC, FTC, and Federal Reserve Board because commissioners and board members have staggered terms.



Topics discussed include: CFPB plans to conduct a new study on credit reporting accuracy; FTC efforts to address unlawful practices by credit repair companies and abuse of identity theft reports; FTC focus on FCRA Red Flags Rule enforcement and how companies can avoid FTC scrutiny; considerations for companies in approaching CARES Act compliance through suppression or reporting accounts in accommodation; and assessment of rationales for creating a public credit bureau.

Click here to listen to the podcast.

A Maine federal district court ruled that that two 2019 amendments to Maine’s credit reporting law are preempted by the federal Fair Credit Reporting Act and granted the motion for judgment filed by the plaintiff, the Consumer Data Industry Association (CDIA).

One of the amendments prohibited a consumer reporting agency (CRA) from reporting medical debt on a consumer’s credit report until a delinquency was at least 180 days old.  Once a CRA received “reasonable evidence” that a medical debt had been settled or paid in full, the CRA could not report the debt and had to “remove or suppress” it from the consumer report.

The second amendment required a CRA to reinvestigate a debt if the consumer provided documentation that the debt was the result of “economic abuse.”  If the CRA found that the debt was the result of such abuse, it had to remove any reference to the debt from the consumer report.  “Economic abuse” was defined to mean “causing or attempting to cause an individual to be financially dependent by maintaining control over the individual’s financial resources” and included “unauthorized or coerced use of credit or property” and “stealing from or defrauding of money or assets.”

The district court concluded that the Maine amendments were preempted under the FCRA’s express preemption provision (15 U.S.C. 1681t(b)(1)(E)) which preempts state law “with respect to any subject matter regulated under…[15 U.S.C. 1681c], relating to information contained in consumer reports.”  15 U.S.C. 1681c, which is titled “Requirements relating to information contained in consumer reports,” includes a list of information that must be excluded from consumer reports (i.e. obsolete information) and also requires certain information to be included in consumer reports.  The district court agreed with the CDIA that the phrase “relating to information contained in consumer reports” should be read broadly to encompass any state law that regulates what information must or may not be included in a consumer report.



Come January 1, 2021, senior citizens in California will be afforded additional cancellation rights when entering into contracts negotiated or executed away from typical business establishments. AB-2471, which Governor Newsom signed into law at the end of September 2020, provides greater protections to senior citizens by extending from three to five business days the right of persons 65 years of age and older to cancel certain consumer contracts. In doing so, California joins other states who have expanded protections beyond those offered under the FTC’s Cooling Off Rule to those aged 65 or older.

The bill applies to home solicitation contracts, home improvement contracts, PACE assessment contracts, service or repair contracts, and seminar sales contracts and amends existing California law that requires cancellation notices for these transactions. Sponsors of the bill reported that some senior citizens may have difficulty understanding complex financial transactions or may be vulnerable to high-pressure sales tactics, particularly if they occur in the senior’s home, and may need more time to consult with family members or others about the implications of their financial decisions. Sponsors further noted that these transactions often occur in non-traditional business environments, such as at the consumer’s home or during a seminar, where there is an increased risk of unfair or predatory business practices such as high-pressure or intimidating sales tactics or intentional miscommunications regarding the terms of the written contract. The bill seeks to protect senior citizens from entering into a contract they misinterpret, do not fully understand, or would simply not choose to enter into in a traditional setting by providing an additional two days for seniors to review a contract before the right to cancel terminates.

Companies doing business in California and engaging in transactions for which they must currently provide consumers with a right to cancel under California law should carefully review their cancellation notices and related practices to confirm they comply with the new law. Likewise, we note that the Department of Financial Protection and Innovation may give priority to protection of senior citizens when exercising its expanded UDAAP authority under newly-enacted AB-1864.

We recently published a blog about the OCC’s proposed rule “National Banks and Federal Savings Associations as Lenders” (the “Proposed Rule”), which would clarify that a bank (or savings association) is properly regarded as the “true lender” when, as of the date of origination, it is named as the lender in a loan agreement or funds the loan.  We also published a separate blog discussing a comment submitted to the OCC by Ballard Spahr in support of the Proposed Rule.

We have now reviewed a sampling of the numerous comments filed with respect to the Proposed Rule.  Many strongly support the bright-line approach of the Proposed Rule; others are supportive but provide suggestions and request adjustments, others request added elements, and still others adamantly oppose the Proposed Rule, and in some cases, oppose any form of “true lender” rule.

The comment period for the Proposed Rule closed on September 3, 2020.  The comments can be viewed on the website, which is reporting the filing of over 700 comments on the Proposed Rule (with 548 having been posted as of the date of this blog).  In contrast, “only” 63 comments were received last year on the OCC’s now final Valid-When-Made (“Madden-fix”) rule.  The high number of comments on the new Proposed Rule likely is attributable in part to the submission of hundreds of identical or similar form comments and e-mails disparaging the Proposed Rule and in part, we think, to the greater importance of the “true lender” issue than the Madden issue, which is relatively easier to address through careful loan program structuring.

Comments supporting the Proposed Rule recognize that, coupled with the OCC’s recently adopted Madden-fix rule, it would eliminate confusion, uncertainty and legal risk for banks and their counterparties and increase financial inclusion and nationwide availability of credit on reasonable terms.  They note the importance of access to credit at this time, particularly in the face of the economic crisis caused by COVID-19.  Supporters point out the Proposed Rule would result in strong and consistent supervision of bank-fintech partnerships across the country, ensuring fairness and compliance with applicable laws, and note the Proposed Rule would keep the costs of credit down and encourage innovation.

The Independent Community Bankers of America, a trade association representing community banks, endorses the clear, unambiguous standard set forth in the Proposed Rule.  Other supporters explained that the Proposed Rule would make better borrowing alternatives available to more consumers.  For example, the Marketplace Lending Association, a trade association for banks and companies that cap rates at 36% per annum on their loans, wrote: “without access to affordable credit, consumers will be in danger of being ensnared in high cost or predatory debt traps.”

Supporting comments cite the OCC’s clear authority to adopt the Proposed Rule and the alignment of the Proposed Rule with the OCC’s congressionally established responsibilities to assure the safety and soundness of banks, compliance with laws and regulations, fair access to financial services, and fair treatment of customers by the institutions and other persons subject to its jurisdiction.  The Receivables Management Association observed that the OCC is ideally situated to understand the nuances of the credit industry, and the importance of efficiency on the industry’s ability to provide affordable credit to fuel economic and job growth.

An academician at the Mercatus Center at George Mason University said “The OCC’s proposal is fair, is economically sound, and protects consumers, and the OCC should finalize it.  In doing so, the OCC can help restore clarity and certainty to credit markets, strengthen banks’ ability to enter into partnerships, and improve access to credit to the benefit of banks, their nonbank partners, consumers, and society more broadly.”

While many comments supported the Proposed Rule without revision, other generally supportive comments suggested that elements should be added to the final rule or should be addressed in Supplementary Information.  For example, the Marketplace Lending Association (“MLA”) “strongly supports” the proposal, believes it is an important compliment to the Madden-fix regulation and recognizes that Federal law does not give the OCC the authority to establish interest caps for particular types of loans.  Still, the MLA proposes that the OCC should provide guidance to the effect that APRs above 36% constitute a “red flag” triggering scrutiny.

Avant, LLC, a fintech that recently settled the State of Colorado’s challenge to its lending program, expressed strong support for the “simple and straightforward” bright-line test proposed by the OCC.  It noted that the Proposed Rule would eliminate the need for the fact-intensive multi-factor analyses that many courts have used to determine the true lender when applying a “predominant economic interest” test.  According to Avant, this test can lead to myriad outcomes and continues to create uncertainty, thereby making credit unavailable to consumers who need it the most.  However, Avant noted the recent settlement of the Colorado litigation and suggested it would be beneficial for the OCC to consider the “safe harbor” included in the Colorado settlement as it looks to further define bank partnership standards.  According to Avant, this would promote credit availability while deterring abusive lending programs.

Cross River Bank, another settling party in the Colorado true lender litigation, also expressed the belief that the settlement’s framework can serve as a nationwide model to promote responsible access to affordable credit for those families most in need.  While the Bank supports the OCC’s proposed criteria, it urges the OCC to develop a system that effectively weeds out predatory and abusive lending practices and proffers recommendations for criteria that should be added either in the rule or through supervisory standards.

Other comments, while generally supportive, express concerns about coverage or other issues.

We would characterize the reaction of some of the leading trade groups as lukewarm.  The American Bankers Association supports the idea of the OCC making a “true lender” rule but thinks the Proposed Rule is too broad.  It offers to work with the OCC and other agencies to create a better rule.  The U.S. Chamber of Commerce supports the OCC’s efforts to remove ambiguity in the definition of a “true lender” but also thinks the suggested two-pronged test is too broad.  It specifically asks the OCC to clarify that a “loan” does not include a retail installment contract and “funding” does not refer to warehouse funding.  The Consumer Bankers Association supports the Proposed Rule but suggests additional considerations to add strength, and, like the Chamber, advocates carve-outs for indirect auto lending and mortgage warehouse lending.  Likewise, the Mortgage Bankers Association generally supports the Proposed Rule but asks the OCC to add language to ensure warehouse lenders are not “true lenders.”  By the same token, the American Financial Services Association said the OCC should clarify that “funding a loan” under the Proposed Rule excludes banks purchasing retail installment contracts (RICs) from automobile dealerships.

Many comments opposing the Proposed Rule were filed by banks, state authorities, special interest groups, academics and others.  These comments reflected common themes, including assertions that: (1) the OCC lacks authority to adopt the Proposed Rule; (2) the Proposed Rule would deprive states of authority to regulate non-bank lenders; (3) the Proposed Rule would go beyond the preemption authority granted by the NBA; (4) the Proposed Rule is “arbitrary and capricious”; (5) the Proposed Rule’s adoption process violates the APA; (6) the Proposed Rule would support predatory lending and “rent-a-bank” schemes and therefore would be harmful to consumers and small businesses; and (7) the Proposed Rule might have an anti-competitive effect on other state-licensed non-bank lenders.  Many comments advocated for positions beyond the scope of the Proposed Rule, proposing that the OCC adopt national consumer lending rate caps at 21% or 36%, or asking the OCC to reconsider the previously adopted Madden-fix rule.

A 78-page comment opposing the rule jointly submitted by the Center for Responsible Lending, the National Consumer Law Center and several others makes many of the same points these groups originally made in opposing the OCC’s Madden-fix rule.  Likewise, an opposing comment submitted by Professor Adam Levitin restates many of the same arguments made in his earlier comment on the OCC’s Madden-fix Rule.

Unsurprisingly, the New York Department of Financial Services, which is participating in lawsuits attacking the OCC and FDIC Madden-fix rules, also submitted a comment opposing the Proposed Rule, saying the rule would sanction “rent-a-charter” schemes and would allow unregulated nonbank lenders to “exploit the bank’s ability to issue loans without regard to state usury caps” and “launder loans through banks as an end-run around consumer-protective state usury limits.”  The comment includes a not-so-veiled litigation threat: “If the OCC acts outside the scope of its authority and finalizes this rule, NYDFS will take all appropriate steps necessary to protect consumers and small businesses in New York.”

Comments on the Proposed Rule submitted by members of Congress and State AGs predictably followed party lines.  A letter highly critical of the Proposed Rule was signed by 24 of the 25 Democratic State AGs (all except the Delaware AG) – and no Republican AGs.  The letter expressed the opinion that the OCC’s proposed bright-line true lender rule would enable increased predatory lending, payday lending and “rent-a-bank schemes.”  The Democratic AGs also opine that the proposed two-pronged standard will produce contradictory results and that the OCC failed to comply with Dodd-Frank and the APA.  These AGs ask that the Proposed Rule be withdrawn in its entirety.

Also, a letter opposing the Proposed Rule was sent two weeks after the close of the comment period by eight Democratic Senators (including Elizabeth Warren and six other members of the Senate Banking, Housing and Urban Affairs Committee).  The letter criticizes the OCC for a “pre-financial crisis approach” in “broadly applying federal preemption to undermine state consumer protection laws.”  It claims that the Proposed Rule does not meet the preemption requirements of Dodd-Frank and questions why the OCC has abandoned its Bush-era opposition to “rent-a-bank schemes”.

By contrast, all 26 House Financial Services Committee Republicans wrote the OCC and the FDIC in support of the rulemaking.  This letter expresses concerns that “the uncertainty surrounding this issue … casts doubt on loans made under the bank-fintech partnership model and could reduce the availability of credit in affected areas, as was the case in states impacted by the Madden decision which deviated from valid when made.”  The letter further states:

As you well know, third-party loan originations are subject to the same supervisory scrutiny as a bank-originated loan when there is a bank-fintech relationship…. [W]e believe the OCC and FDIC have the obligation and the necessary statutory authority to promulgate rules to clarify which entity is the “true lender” under the National Bank Act and the Federal Deposit Insurance Act, respectively.  Clarity on this issue would be timely now that the valid when made question has been settled and would foster a robust, competitive, nationwide lending marketplace.  The need for consumers and small businesses to have access to these lines of credit is only exacerbated by the COVID-19 pandemic and the associated economic slowdown.

We hope that the OCC will sift through the multitude of comments, identify constructive and helpful input, and move forward to finalize its Proposed Rule in a form that will enhance the ability of the industry to provide affordable credit to American consumers with appropriate protections and guidelines under the supervision of the OCC.  Ultimately, however, the fate of the OCC true lender rule, like much in our lives, will probably depend on the outcome of the upcoming elections.




Last week, the U.S. Court of Appeals for the Second Circuit heard oral argument in RD Legal Funding.  The three judge panel consisted of two members of the Second Circuit, Judge Denny Chin and Senior Judge Barrington Parker, and a Senior Judge on the U.S. Court of International Trade, Judge Jane Restani.  Judge Chin was appointed to the Second Circuit by President Obama.  Judge Parker was appointed to the district court by President Bill Clinton and to the Second Circuit by President George W. Bush.  Judge Restani was appointed to the Court of International Trade by President Ronald Reagan.

RD Legal Funding (RD) purchased at a discount, for immediate cash payments, benefits to which consumers were ultimately entitled under the NFL Concussion Litigation Settlement Agreement (the “NFLSA”) and the September 11th Victim Compensation Fund of 2001 (the “VCF”).  The CFPB and NYAG sued RD in federal district court, asserting federal UDAAP claims under the CFPA and state law claims.  The CFPB appealed from Judge Preska’s June 21, 2018 decision, as amended by her September 12 order, in which she ruled that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional, struck the CFPA (Title X of Dodd-Frank) in its entirety, and dismissed the CFPB from the case.  The NYAG appealed from Judge Preska’s dismissal on September 12, 2018 of all of the NYAG’s federal and state law claims, and her subsequent September 18 order amending the September 12 order to provide that the NYAG’s UDAAP claims under Dodd-Frank Section 1042 were dismissed “with prejudice.”  (Section 1042 authorizes state attorneys general to initiate lawsuits based on UDAAP violations.)

Despite dismissing the NYAG’s federal and state claims, Judge Preska determined in her June 21 decision that the purchase agreements effected assignments of the benefits that, as to the NFLSA benefits, were void under the terms of the underlying settlement agreement and, as to the VCF benefits, were void under the federal Anti-Assignment Act.  After determining that the assignments were void, Judge Preska concluded that, as a result, the transactions were necessarily disguised usurious loans.  (For the reasons discussed in a prior blog post, we believe the court’s conclusion is flawed.)  RD filed a cross-appeal from the district court’s conclusion that the transactions were disguised loans and stated UDAAP claims under the CFPA and claims for usury and misleading conduct under New York law.

The CFPB had filed a notice of ratification by former Acting Director Mulvaney with the district court.  In its June 2018 decision, the district court stated that the CFPB’s ratification “does not address accurately the constitutional issue raised in this case, which concerns the structure and authority of the CFPB itself, not the authority of an agent to make decisions on the CFPB’s behalf.”  On July 10, 2020, the CFPB filed a declaration with the Second Circuit in which Director Kraninger stated that she had ratified the Bureau’s decisions to file the enforcement action against RD and to appeal from the district court’s dismissal of the action.

In the oral argument before the Second Circuit, both the CFPB and NYAG argued that, in light of the Supreme Court’s Seila Law decision, the Second Circuit should reverse the district court’s dismissal of the lawsuit and allow the case to go forward.  The CFPB challenged RD’s argument that Director Kraninger could not ratify the enforcement action or the CFPB’s appeal because the action would be time-barred and the time to appeal had lapsed.  It asserted that, for purposes of whether the enforcement action was timely, the only relevant date is the date on which the action was originally filed which was within the 3-year SOL.

The NYAG focused its arguments to the Second Circuit panel on its position that the complaint plausibly asserted a claim that the transactions were disguised usurious loans and that, as a result of Seila Law, all of the NYAG’s claims should be reinstated. 

RD Legal argued to the panel that the ratification of the CFPB’s lawsuit by both Acting Director Mulvaney and Director Kraninger was ineffective because, as agents of the CFPB, they could not ratify an act that the CFPB, as principal, could not do at the time such act was done.  RD also pressed its argument that in any event, Director Kraninger could not ratify the enforcement action or appeal because the action would be time-barred and the time to appeal had lapsed.  In response to the panel’s suggestion that the district court might have reached a different conclusion if it were considering Director Kraninger’s ratification rather than Acting Director Mulvaney’s ratification, RD asserted that the district court’s rationale—that an agent cannot ratify an action that the principal could not validly take—would apply equally to Director Kraninger’s ratification.

With regard to RD’s cross-appeal, RD argued that there was no need for further factual development because the district court’s ruling that the transactions were void as between the parties was incorrect as a matter of law.  However, one panel member commented that the facts in the case were “troublesome” and at least two panel members expressed strong reservations about ruling on how the transactions should legally be characterized in the context of a motion to dismiss without the benefit of a more developed record.

Despite the panel’s questions as to whether the district court might now reach a different conclusion on ratification, given that there are no relevant disputed facts, it seems unlikely that the Second Circuit would remand a purely legal issue to the district court rather than issue a ruling on ratification.  At the same time, it also seems unlikely that the Second Circuit, without discovery and further factual development, would reverse the district court’s conclusion in the context of a motion to dismiss that RD’s transactions were disguised usurious loans.  Accordingly, even if the Second Circuit were to rule that the CFPB’s claims should be dismissed because its enforcement action could not be ratified or was untimely, it seem likely that it would reinstate the NYAG’s federal and state claims.  (Ratification would not be relevant to the NYAG’s federal UDAAP claims.)  

The question of whether Director Kraninger can ratify actions taken by the CFPB while its Director was unconstitutionally insulated from removal is now before the Ninth Circuit on remand from the Supreme Court in Seila Law.  It is also before the Fifth Circuit in All American Check Cashing.  In March 2020, the Fifth Circuit, on its own motion, entered an order vacating the panel’s ruling that the CFPB’s structure was constitutional and granting rehearing en banc.  On June 30, the Fifth Circuit tentatively calendared the case for en banc oral argument during the week of September 21, 2020 and ordered the parties to file supplemental briefs.  However, on September 9, after the parties filed their supplemental briefs, the Fifth Circuit issued a directive putting the case on hold until the U.S. Supreme Court issues its decision in Collins v Mnuchin.

In Collins, the en banc Fifth Circuit held the FHFA’s structure is unconstitutional because the Housing and Economic Recovery Act of 2008 only allows the President to remove the FHFA’s Director “for cause.”  Presumably the Fifth Circuit issued the directive because of the possibility Collins could result in a decision by the Supreme Court on whether the proper remedy for a constitutional violation in an agency’s structure is to set aside action taken by the agency when it was operating unconstitutionally.  Specifically, in addition to the question of the FHA’s constitutionality, the Supreme Court also agreed to decide whether an amendment to a stock agreement entered into by the FHA while unconstitutionally structured should be invalidated as sought by the plaintiff shareholders in the case.


Ballard Spahr’s Consumer Financial Services Group is pleased to announce that it will hold a special live CLE webcast series, “Consumer Financial Services in Turbulent Times,” through the end of this year.

The webcasts will feature discussions among members of Ballard Spahr and esteemed guest speakers about timely and relevant topics in the wake of the Presidential election and the continuance of the pandemic.  Topics will include credit card and payments regulation, fair lending, Fintech developments, enforcement developments, student and mortgage lending and servicing issues, debt collection, Community Reinvestment Act rules, and anti-money laundering.

More information, including how to register, will be available in the coming weeks.  The series is complimentary and CLE credit will be available in jurisdictions other than Pennsylvania, New Jersey, and Nevada.



Last week, the New Jersey Department of Banking and Insurance (DOBI) announced that it was designating Raghu Kakumanu as the state’s Student Loan Ombudsman. The DOBI opted to fill the role internally, as Kakumanu currently leads the Office of Consumer Finance—the same unit through which student loan inquiries and complaints will be processed.

Kakumanu is the first person to occupy this role, which was created under New Jersey’s student loan servicer licensing law enacted last year.  Under this law (SB 1149, P.L. 2019, c. 200, codified at NJ Stat. §§ 17:16ZZ-1 et seq.), the Ombudsman’s duties include:

  • Receiving and reviewing complaints from student loan borrowers and compiling related data;
  • Assisting student loan borrowers in understanding their rights and responsibilities under the terms of student education loans;
  • Analyzing the development and implementation of federal, state, and local laws and regulations and recommending necessary changes; and
  • Submitting an annual report containing specified information to the Commissioner and Secretary of Higher Education

This is the latest step that the DOBI has taken recently to implement SB 1149. On September 1, the DOBI published a bulletin describing license application procedures for student loan servicers, and on September 15 it began accepting applications via NMLS. The law also calls for the DOBI to promulgate implementing regulations, though it has not as yet unveiled any proposed rules.

We have recently focused on the DFPI’s expanded authorities under California Consumer Protection Law, the Debt Collection Licensing Act, and the Student Borrower Bill of Rights. In addition to these blockbuster bills, this legislative session included a short bill impacting the DFPI’s enforcement authority under the California Financing Law (“CFL”), which has also been signed into law by Governor Newsom.

Under existing law, as part of its enforcement efforts, the DFPI is permitted to require attendance of witnesses and examine under oath all persons whose testimony it requires relative to loans, assessment contracts, or business regulated by the CFL. Beginning January 1, 2021, this authority is expanded so that the DFPI may require attendance of witnesses and examine under oath any person whose testimony relates to activities and businesses regulated by the CFL. The bill notes that this amendment “expands the crime of perjury.”

The new law will also expand the DFPI’s authority when seeking relief on behalf of consumers from persons engaging in unlicensed finance lender, broker, PACE program administrator or mortgage loan originator activities. Under existing law, the DFPI may order unlicensed persons to desist and refrain from engaging in the business requiring a license or from otherwise violating the CFL. Currently, the DFPI can only obtain ancillary relief for consumers stemming from this type of violation if it files a civil action or if it enters into a consent order. Under the new law, the DFPI will gain the authority to include a claim for ancillary remedies with the order to desist and refrain. The ancillary remedies may include, without limitation, refunds, restitution or disgorgement, or damages on behalf of persons injured.

Also, currently, when issuing a citation for a violation of the CFL in lieu of other administrative discipline, the DFPI may issue an order to desist and refrain and assess an administrative fine of $2,500. Such a citation is not to be reported as disciplinary action by the DFPI. Under the new law, the DFPI will gain the authority to seek the same ancillary remedies noted above when it issues such a citation. Additionally, the DFPI will no longer be prohibited from reporting the citation as a disciplinary action.

We will continue to track developments relating to the DFPI as it exercises its increased authorities under the various laws passed this year.

Last week, Seila Law filed its supplemental brief with the Ninth Circuit.  The CFPB filed its supplemental brief last month.

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

In its supplemental brief, Seila Law makes the following principal arguments:

  • The appropriate remedy is to deny the CFPB’s petition to enforce the CID.  As a result of the CFPB’s structural constitutional defect, the CFPB lacked the authority to issue and enforce the CID and its actions in doing so are void.
  • The CFPB’s purported ratifications of the CID by former Acting Director Mulvaney and Director Kraninger are invalid.  Under U.S. Supreme Court precedent, 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.  The CFPB cannot satisfy either requirement because:
    • As principal, the CFPB did not have the authority to issue the CID at the time it was issued.  As a result, ratification is unavailable to its agent, the CFPB Director.
    • The CFPB could not issue the CID at the time of Director Kraninger’s ratification.  Since the applicable three-year statute of limitations for bringing any action against Seila Law for the alleged violations to which the CID relates had expired by the date of Director Kraninger’s ratification, the CID serves no valid purpose and the ratification is ineffective.

Briefing now appears to be complete and the case docket indicates that the court will notify the parties if it wishes to schedule oral argument.