The CFPB’s Office of Minority and Women Inclusion (OMWI) has issued its annual report to Congress covering the OMWI’s activities in FY 2016.  The Dodd-Frank Act required the CFPB and various other federal agencies, including the Fed, OCC, FDIC, NCUA, and SEC, to establish an OMWI, and also requires each OMWI to submit an annual report to Congress.

From industry’s perspective, the most noteworthy task Dodd-Frank assigned to each OMWI was the development of standards to assess the diversity policies and practices relating to employment and third party contracting of the institutions regulated by the OMWI’s agency.  As the report notes, in June 2015, the CFPB and the agencies listed above jointly issued a final policy statement establishing such standards (Final Standards).  The Final Standards became effective on June 10, 2015 and envision that an entity will conduct an annual “self-assessment” of its diversity policies and practices.  Last July, the CFPB and other agencies required to establish an OMWI published a notice in the Federal Register that informed regulated entities that they could begin to submit self-assessments of their diversity policies and practices to the Director of the OMWI of their primary federal financial regulator.

In its report, the OMWI states that in 2016, it “continued the planning needed for initiatives related to the new standards.”  The planning work included creating a self-assessment tool that will be offered to entities to assess their diversity and inclusion policy and practices.  The report indicates that the CFPB hosted “an initial roundtable listening session” in November 2016 with mortgage industry members to learn more about their experiences, practices and challenges with diversity and inclusion management practices.

Another task of an OMWI is to develop standards for creating diversity in an agency’s own workforce and increasing participation of minority-owned and women-owned businesses in the agency’s programs and contracts.  According to the report, the CFPB had a workforce of 1633 employees in 2016 (representing an increase of 124 employees from 2015), of whom almost 49% were female and 51% were male.  (The percentage of women represents about a 1% increase from 2015’s percentage.)  In addition, of those employees, approximately 62.3% self-identified as White, 19.8% as Black/African-American, 5.8% as Hispanic, 8.7% as Asian American, and 3.2% as another racial group or belonging to two or more racial groups.  The report indicates that this represents a slight increase of 1.81% in the percentage of minority employees in 2016 from 2015, with a corresponding slight decrease in white employees.

With regard to procurement, the report indicates that in FY 2016, the CFPB entered into “contract actions” totaling approximately $190.0 million.  Of the total contract dollars awarded in FY 2016, the report states that 8.75% went to women-owned businesses and 17.50% went to minority-owned businesses (consisting of businesses owned by Hispanic Americans, African-Americans, Asian/Pacific Islander Americans and American Indians/Alaskan Natives and “Others”).

As noted above, the Final Standards cover not only a regulated entity’s diversity policies and practices relating to employment, but also cover its procurement and business practices.  Thus, banks and other regulated entities may want to take note of the section of the report describing the CFPB’s efforts to increase vendor diversity.  Such efforts include participating in procurement events and conducting other outreach targeted at establishing connections and recruiting diverse suppliers.

In addition to its annual OMWI report, the CFPB also issued its Equal Employment Opportunity (EEO) program status report for FY 2016 and its Notification and Federal Employee Antidiscrimination and Retaliation Act of 2002 (No FEAR Act) Annual Report for FY 2016 

Pursuant to a directive of the Equal Employment Opportunity Commission, a federal agency must submit an annual report that evaluates whether the agency is establishing and maintaining effective programs of equal employment opportunity under Title VII of the Civil Rights Act of 1964 and the Rehabilitation Act of 1973.  The CFPB’s EEO program status report includes a description of the CFPB’s EEO program activities, a description of  internal assessments conducted by the CFPB to identify and prevent barriers to employment in the workplace, a plan regarding future steps to correct deficiencies or improve the EEO program, and data regarding the race, national origin, gender, and disability status of the CFPB’s workforce.

The CFPB’s No FEAR Act annual report includes data regarding complaints filed against the CFPB involving federal laws covered by the No Fear Act, which include Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, and the Equal Pay Act of 1963.

Ballard Spahr’s Diversity Team advises clients on the design and implementation of diversity and inclusion programs and counsels regulated entities on developing and implementing diversity programs.



On April 25 2017, the CFPB will hold a meeting of its Community Bank Advisory Council in Washington, D.C. at which Acting Deputy Director David Silberman will give remarks.

The meeting topics are the CFPB’s requests for information on the use of alternative data in the credit process and consumer access to financial information issued in, respectively, February 2017 and November 2016.


The second presentation of the 22nd Annual Consumer Financial Services Institute, sponsored by the Practising Law Institute, will take place in Chicago on May 4-5, 2017.  I am co-chairing the event, as I have for the past 21 years.  Hundreds of people attended the first presentation in NYC, live and on the web, on April 27-28, 2017.  The upcoming Chicago presentation is nearly sold out.

As it did in New York, the Institute will feature a 2-hour program at the beginning of the first day titled “The CFPB Speaks: Recent and Upcoming Initiatives.”  (Read our blog post recapping the NYC presentation here.)  I will moderate a panel discussion of three senior CFPB lawyers and two industry lawyers (one of whom will be my partner Chris Willis) who have extensive experience in dealing with the CFPB.

The CFPB panelists in Chicago will be:

  • Kristen Donoghue, Principal Deputy for Enforcement
  • Kelly T. Cochran, Assistant Director, Office of Regulations
  • Peggy L. Twohig, Assistant Director for Supervision Policy

The Institute will focus on a variety of cutting-edge issues and developments, including:

  • Impact of the election on the CFPB, other federal and state agencies
  • Privacy and data security
  • Fair lending
  • Mortgages
  • Emerging payments
  • State regulatory initiatives and developments
  • Class action developments and settlements
  • Debt collection
  • TCPA and FCRA

We hope you can join us for this informative and valuable program.  PLI has made a special 25 percent discounted registration fee available to those who register using the link that follows.  To register and view a complete description of PLI’s 22nd Annual Consumer Financial Services Institute, click here.

For more information, contact Danielle Cohen at 212.824.5857 or

At the program held on April 7 entitled “The State of Consumer Protection Initiatives” at the American Bar Association Business Law Section Consumer Financial Services Committee 2017 Spring Meeting, Peggy Twohig, the CFPB’s Assistant Director for Supervision Policy, announced that the CFPB has begun to examine service providers on a regular, systematic basis, particularly those supporting the mortgage industry.  Since its inception, the CFPB has had the authority to supervise service providers.  However, in the past, the CFPB has only examined some service providers on an ad hoc basis.  The change represents a significant expansion of the CFPB’s use of its supervisory authority and will substantially increase the number and types of entities facing CFPB examinations.  We will conduct a webinar on this important subject on June 13, 2017.  Click here to register.

A “service provider” is generally defined in Section 1002(26)(A) of Dodd-Frank as “any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service, including a person that:

(i)   Participates in designing, operating, or maintaining the consumer financial product or service; or
(ii)  Processes transactions relating to the consumer financial product or service….”

Sections 1024(e) and 1025(d) of Dodd-Frank authorize the CFPB to supervise a service provider to a bank or non-bank already supervised by the CFPB – namely, depository institutions with more than $10 billion in assets and the following types of non-banks:

  1. Mortgage originators, brokers or servicers;
  2. Payday lenders;
  3. Private student lenders; and
  4. A “larger participant of a market for other consumer financial products or services” as defined by a CFPB rule. The CFPB so far has issued rules covering larger participants in the following industries:  auto finance, debt collection, student loan servicing, consumer reporting, and international money transfers.  (At an earlier program held at the ABA meeting, Ms. Twohig stated that CFPB’s next larger participant rule will deal with consumer installment lending and auto title loans.)

Not only is this expansion of the CFPB’s supervision program important to service providers, it is important for banks and non-banks already supervised by the CFPB because the CFPB’s position is that they can be vicariously liable for violations of law committed by their service providers.

A New York lender licensing proposal that threatened to create new regulatory burdens for financial service providers and to potentially adversely affect credit availability to New York residents and businesses, has been removed from a New York State budget bill.  The amended budget bill, S. 2008-C/A. 3008-C, has passed both houses of the New York State Legislature and been delivered to Governor Cuomo for executive action.  The controversial lender licensing proposal, which appeared in Part EE of the initial proposal, has been “intentionally omitted” from the amended budget bill passed by the Legislature.

The proposal would have revised the New York Licensed Lender Law to significantly expand the scope of its licensing requirements.  The proposal would have extended the lender licensing requirement for the first time to: (1) lenders making consumer-purpose loans of $25,000 or less to individuals at interest rates of 16 percent per annum or less; (2) lenders making business-purpose loans of $50,000 or less to corporations, limited liability companies, and certain other business entities (regardless of interest rate); (3) lenders making business-purpose loans of $50,000 or less to individuals and sole proprietorships at interest rates of 16 percent per annum or less; and (4) persons that solicit loans in those amounts and also purchase or otherwise acquire such loans or other “forms of financing”, or arrange or otherwise facilitate the funding of such loans.

The current licensing requirement under the New York Licensed Lender Law is limited to certain loans made at rates of interest that the lender is not otherwise authorized by law to charge without a license.  This interest rate trigger means, for example, that the licensing requirement does not apply to loans made at interest rates of up to 16 percent per annum because a lender is permitted to make such loans pursuant to the New York General Obligations Law.  It also means that loans made by out-of-state state-chartered banks, whose interest rate authority is derived from federal law, do not trigger the lender licensing requirement.  The proposal would have removed the licensing rate trigger from the Licensed Lender Law, thereby significantly expanding its scope.

The Superintendent of the New York Department of Financial Services (NYDFS) recently argued that the OCC proposal to grant special purpose national bank charters to financial technology (fintech) companies would have significant negative effects, including on existing state regulatory regimens applicable to nonbanks, and would encourage fintech companies to engage in regulatory arbitrage to avoid state consumer protection and usury laws.  Although there had been proposals in prior years to repeal the interest rate trigger from the New York Licensed Lender Law and to raise the dollar limits on covered loans, the New York budget bill proposal was viewed as a direct response to the perceived threat of the OCC proposal.  Thus, this may not be the last attempt by the New York authorities to enact legislation to broaden the scope and reach of their licensing and related requirements, should the OCC continue to implement its special purpose charter proposal.

The budget bill also initially contained a proposal that would have empowered the NYDFS to license servicers of student loans made to New York residents.  The proposed student loan servicer licensing requirement, which appeared in Part Z of the initial proposal, also has been “intentionally omitted” from the amended budget bill passed by the Legislature.

PHH filed its reply brief with the D.C. Circuit on April 10 in the en banc rehearing of the PHH case. We have blogged extensively about the case since its inception. Central to the case is whether the CFPB’s single-director-removable-only-for-cause structure is constitutional. Of course, the CFPB fiercely defends its structure, while PHH, the DOJ, and others argue that the CFPB’s structure epitomizes Congressional usurpation of executive power in violation of the constitution’s separation of powers principles.

If the CFPB’s structure is constitutional then there is no reason why Congress can’t divest the President of all executive power, PHH argues. “[I]f Congress can divest the President of power to execute the consumer financial laws, then it may do so for the environmental laws, the criminal laws, or any other law affecting millions of Americans.” “The absence of any discernible limiting principle is a telling indication that the CFPB’s view of the separation of powers is wrong.”

Even if existing Supreme Court precedent authorizes Congress to assign some executive power to independent agencies, PHH argued that the CFPB’s structure goes too far. “No Supreme Court case condones the CFPB’s historically anomalous combination of power and lack of democratic accountability, and the Constitution forbids it.” The fact that the CFPB has the power of a cabinet-level agency while lacking any democratic accountability or structural safeguards is a sure sign that its structure is unconstitutional.

The only remedy to the CFPB’s unconstitutional structure, PHH argues, is to dismantle the agency entirely. “The CFPB’s primary constitutional defect, the Director’s unaccountability [], is not a wart to be surgically removed. Congress placed it right at the agency’s heart, and it cannot be removed without changing the nature of what Congress adopted.”

* * *

PHH’s reply completes the briefing in this appeal. Oral arguments are scheduled to take place on May 24, with each side being given 30 minutes to argue. On April 11, the D.C. Circuit granted the DOJ’s request for 10 minutes to present its views during oral argument.

The CFPB may seek to rely on a recent Seventh Circuit employment discrimination case to support its view that the Equal Credit Opportunity Act’s (ECOA’s) prohibition against discrimination on the basis of “sex” includes discrimination based on sexual orientation.

In Hively v. Ivy Tech Community College of Indiana, the court held that Title VII of the Civil Rights Act of 1964 prohibits employment discrimination against individuals because of their sexual orientation. The court also concluded there was no difference between discrimination based on gender nonconformity—which the U.S. Supreme Court held in Price Waterhouse v. Hopkins nearly thirty years ago was actionable under Title VII—and sexual orientation. In addition, the court drew parallels to associational discrimination, which was held to be unlawful in Loving v. Virginia, and which is likewise considered to violate the ECOA and Regulation B.

Since at least last year, the CFPB has signaled that discrimination on the basis of gender identity and sexual orientation might be a focus of fair lending supervision and enforcement. Director Cordray indicated as much in a 2016 letter to the organization SAGE (Services & Advocacy for GLBT Elders). The letter, which we wrote about here, discussed Price Waterhouse and other Title VII cases and noted that Title VII precedents traditionally guide judicial interpretation of ECOA and Regulation B.

With Hively, the Seventh Circuit becomes the first circuit court of appeals to conclude that an employment discrimination claim may be brought on the basis of sexual orientation, although that position has not been endorsed in other circuits. In March, the Eleventh Circuit held in Evans v. Georgia Regional Hospital that gender non-conformity claims are distinct from claims based on sexual orientation and that sexual orientation claims are not actionable under Title VII.

Also in March, a three-member panel of the Second Circuit issued an opinion in Christiansen v. Omnicom Group, Inc., in which it declined to hold that Title VII encompasses discrimination based on sexual orientation, citing its lack of authority to reconsider an en banc decision to the contrary handed down in 2000, Simonton v. Runyan. The plaintiff in the Christiansen case has until April 28 to file a petition for rehearing en banc.

Notwithstanding this circuit split, in light of the SAGE letter and Hively, we would encourage supervised entities to consult with their counsel and to consider revising their policies, procedures and fair lending analyses to incorporate discrimination based on sexual orientation. In doing so, supervised institutions should also be mindful of the fact that numerous state laws already prohibit discrimination in credit transactions on the basis of sexual orientation and gender identity.

Since the CFPB issued its final rule for general purpose prepaid accounts on October 5, 2016, it has faced attacks from Congress and criticism from industry participants

On April 5, in a letter to Congressional leaders, attorneys general (AGs) from 17 states (Iowa, California, Maine, Hawaii, Maryland, Massachusetts, Illinois, Minnesota, Mississippi, Vermont, New York, Virginia, North Carolina, Washington, Oregon, Pennsylvania, and Rhode Island) and the District of Columbia urged Congress to cease its efforts to nullify the rule under the Congressional Review Act (CRA).

The CRA establishes a special set of procedures through which Congress can nullify final regulations issued by a federal agency.  Multiple joint resolutions have been introduced to disapprove of the final rule under the CRA – Representatives Tom Graves (R-Ga) and Roger Williams (R-Tx) introduced House Joint Resolution 62 and House Joint Resolution 73, respectively, and Senator David Perdue (R-Ga) introduced Senate Joint Resolution 19.  The Senate Joint Resolution was recently brought out of Committee and to the floor for consideration by way of a discharge petition filed by Senate Banking Chairman Mike Crapo.

In their letter, the AGs urge Congressional leadership of both parties to oppose these joint resolutions in order not to “eradicate important protections that have been proposed for consumers who use prepaid cards.”  The AGs assert that there are numerous issues related to prepaid cards, which are increasingly used to receive payroll funds, Federal financial aid, and payday loans.  The letter focuses on the use of prepaid cards in the payday loan context, specifically criticizing hybrid cards that enable a payday lender to “take consumers’ wages, which have been loaded onto a prepaid card, before consumers can even use them to cover their basic living expenses.”  The AGs also criticize overdraft protection features on prepaid accounts, citing the statistic that consumers using those features incur an average of 7 overdraft fees per year.

In order to protect consumers from these “predatory” practices, the AGs emphasize the need for additional regulation of the prepaid industry.  They note that the final rule covers a broad range of prepaid accounts, including certain mobile wallets and person-to-person payment products. The AGs commend the CFPB’s “careful approach to implementation demonstrat[ing] its dedication to crafting a rule that protects consumers and encourages a thriving, responsible industry.”  The AGs suggest that the rule, as crafted, will not only protect the unbanked but also promote the popularity of prepaid accounts.  The letter further defends the CFPB, noting that the agency has indicated that it is amenable to making substantive changes to the rule, and has proposed to delay the rule’s implementation date in response to feedback from the prepaid industry.

The AGs stress that if the rule is nullified by a CRA vote, “the agency is forever barred from enacting a substantially similar rule unless Congress authorizes it.”  It remains to be seen whether Congress will heed the AGs’ concerns, but this is a clear signal that the AGs are paying close attention to prepaid accounts and will step up oversight if the rule fails.

Two state-chartered banks recently filed complaints for declaratory judgment and injunctive relief against the Administrator of the Uniform Consumer Credit Code for the State of Colorado, Julie Ann Meade.  The complaints were filed in Colorado federal court and seek to permanently enjoin enforcement actions brought by Meade against the banks’ non-bank partners who, according to the complaints, market and service loans originated by the two banks and which the banks sometimes sells to their partners.

In her enforcement actions, Meade took the position that the two banks are not the “true lenders” of the loans, and that, pursuant to the Second Circuit’s decision in Madden v. Midland Funding, LLC, the banks could not validly assign their ability to export interest rates as state banks under federal law.  Accordingly, the enforcement actions assert that the loans sold to the banks’ partners are subject to Colorado usury law despite the fact that state interest rate limits on state bank loans are preempted by Section 27 of the Federal Deposit Insurance Act (Section 27).

In their complaints, the banks allege that Meade’s enforcement actions disregard their right under Section 27 to export their respective home state’s interest rates to borrowers in other states and the “valid-when-made” doctrine which provides that a loan that is non-usurious when made cannot later become usurious after assignment. The banks contend that the doctrine is incorporated into Section 27.  Accordingly, the banks argue that Meade’s enforcement actions against their partners for alleged violations of Colorado law are preempted by federal law.

For a fuller discussion of and links to the complaints, see our legal alert.

Despite its long duration (over five hours including a recess for a vote), the House Financial Services Committee’s hearing on April 5 at which Director Cordray was the sole witness provided a strong dose of political theater but little in the way of new information or substance.   Although there were many important questions that Committee members could have asked Director Cordray (we suggested several in a prior blog post), members mostly returned to familiar themes in their questions and remarks.  For Republican members, those themes included CFPB overreach and unaccountability to Congressional oversight, damage to credit availability and community banks resulting from CFPB guidance and regulations, excessive spending, and mistreatment of CFPB employees.  Familiar themes of Democratic members included how the financial crisis gave rise to the CFPB and how the CFPB serves consumers by protecting them from discrimination, fraud, and other unlawful practices.

The hearing’s battle lines were drawn during the opening remarks of Chairman Hensarling and Ranking Member Waters.  Chairman Hensarling began his remarks by referencing press reports that Director Cordray intends to run for Ohio governor, expressing surprise that he had not returned to Ohio to do so, and was still serving as CFPB director given that President Trump had the right to dismiss him at will.  He then called on the President to immediately dismiss Director Corday, claiming that the PHH decision allowed the President to do so without the need to show cause.   He also asserted that even if the President needs cause to dismiss Director Cordray, there are numerous grounds on which President Trump could rely.  According to Chairman Hensarling, such grounds include the harm inflicted on consumers by the CFPB’s auto lending guidance (as well as the illegality of the CFPB’s attempt to regulate auto dealers through such guidance) and Director Cordray’s unilateral reversal of well-settled RESPA guidance in the PHH case.

In her opening remarks, Ranking Member Waters praised Director Corday for fighting for “hard working Americans” and thanked him for his continued leadership of the CFPB.  She referenced how much money the CFPB has recovered for consumers and assessed in civil money penalties and mentioned her efforts and those of other Democrats to defend the CFPB’s constitutionality in the PHH litigation.

In addition to Chairman Hensarling’s comments, several other committee members, in their questioning of Director Cordray, raised the issue of his resignation.  Rep. Duffy asserted that because Director Cordray had served as a recess appointee from January 2012 until his Senate confirmation in July 2013, he has already effectively served a five-year term as director and  “consistent with the spirit” of Dodd-Frank, should step down voluntarily now.  In response to Rep. Zeldin’s question whether Director Cordray intended to serve the remainder of his term, Director Cordray stated that he had “no insights to provide.”  When asked by Rep. Hollingworth if he would resign if requested to do so by President Trump, Director Cordray responded that he would follow the law.

While its substantive content was slim, the hearing did produce the following noteworthy information:

  • Somewhat surprisingly, Chairman Hensarling criticized the CFPB for not proceeding more quickly to issue a regulation to implement Section 1071 of Dodd-Frank (which 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 as the race, sex, and ethnicity of the principal owners of the business).  He commented that the CFPB had engaged in discretionary rulemaking but had not completed the Section 1071 rulemaking mandated by Dodd-Frank.
  • Rep. Lukemeyer criticized the provision in the CFPB’s proposed rule concerning the disclosure of confidential supervisory information (CSI) that would restrict a company’s disclosure of either the receipt or the content of a CID or NORA letter.  Director Cordray indicated that, after considering comments received on the proposal, the CFPB is “going back to the drawing board,” and that Rep. Lukemeyer would  be “happy” with the outcome.   (The proposal would also expand the CFPB’s discretion to share CSI with state attorneys general and other agencies that do not have supervisory authority over an entity.)
  • In response to Rep. Maloney’s question whether the CFPB plans to propose an overdraft rule, Director Cordray noted the CFPB’s long-standing interest in overdrafts, stated that overdrafts continued to be  “on our minds very much,” and said he could not speak to the timing of any rulemaking.  With regard to the timing of other pending rulemakings, when asked about the timing of a final payday/small dollar loan rule and clarifications to the TILA/RESPA integrated disclosure rule, Director Cordray was unwilling to give an estimated date for either item, noting the unprecedented number of comments received on the payday/small dollar loan proposed rule.  Although the CFPB’s arbitration rule is the furthest along in the rulemaking process, Director Cordray was not asked about the timing of a final rule and was only asked about the rule’s application to insurance premium financing agreements.
  • Director Cordray was unwilling to respond directly to Rep. Posey’s question as to how many no-action letters the CFPB has issued.  (None have been published on the CFPB’s website.)  However, he stated that the CFPB’s no-action policy has “not yet generated a lot of demand” which could indicate the policy is not working properly.
  • Several Republican committee members criticized CFPB press releases about consent orders for containing conclusory statements that a company had violated the law despite language in the consent order stating that the company neither admits nor denies the order’s findings of fact and conclusions of law.  In an exchange with Rep. Huizenga, Director Cordray defended the press releases, stating that “the facts are the facts.”   He commented that a consent order’s “neither admit nor deny” language does not matter for the truth of the facts recited in the consent order but matters for whether the facts have been established for follow-on lawsuits by private attorneys.  He was also unwilling to concede that a company might enter into a consent order because it is intimidated by the CFPB’s authority and instead insisted that the main reason a company enters into a consent order is because the CFPB has completed a thorough investigation, “we know the facts,” “they know the facts,” and “they don’t have a leg to stand on.”
  • Director Cordray indicated that the CFPB is looking at possible changes to the prepaid card final rule dealing with the linking of credit cards to digital wallets and error resolution procedures for unregistered cards.