Last month, the Federal Reserve Board announced its plans to develop a real-time payments (RTP) service to be offered by the Federal Reserve Banks to directly support faster payments.

Three members of Ballard Spahr’s Consumer Financial Services Group with extensive experience negotiating complex payments transactions for some of the world’s largest retailers and financial institutions have authored an article in which they discuss the expanding adoption of RTP as a standard for payments transactions, including the commercial and contractual issues that may arise as a result.

Click here to read the article.


Nicholas Smyth, Assistant Director of the Pennsylvania Attorney General’s Bureau of Consumer Protection, was our guest speaker for a webinar yesterday.  Formerly a CFPB enforcement attorney, Nick was appointed by PA Attorney General Josh Shapiro about two years ago to lead the new unit.  Chris Willis, Practice Leader of Ballard Spahr’s Consumer Financial Services Litigation Group, joined Nick as a speaker.  Alan Kaplinsky, who leads the firm’s Consumer Financial Services Group, moderated the webinar.

As Nick explained during the webinar, his appointment reflected AG Shapiro’s designation of consumer financial protection as a priority area and desire to expand the AG Office’s capacity to bring complex cases against financial companies.  Nick reported that his unit currently has 20 attorneys and 32 investigators.  Among the investigators’ responsibilities is the handling of the approximately 23,000 to 25,000 consumer complaints received each year by the AG’s Office.  Nick also reported that since joining the unit, it has entered into nine Assurances of Voluntary Compliance, Pennsylvania consumers have received approximately $34 million in restitution, and companies have paid approximately $24 million in civil money penalties and payments to the PA Treasury.  

Nick discussed the unit’s cooperation with federal regulators and other state regulators and its handling of various enforcement matters.  He made clear that despite policy disagreements with the CFPB, there is ongoing, close cooperation between his unit and the CFPB on enforcement matters.  He identified mortgage redlining, student loan servicing, and data security as priority areas for his unit.

Nick also discussed his unit’s position on the application of PA usury law when a PA resident travels to another state to obtain an auto title loan.  He indicated that his unit is currently working on several matters involving claims that the interest rates charged on title loans made to PA residents who had traveled to Delaware to obtain the loans violated PA usury law.  Nick explained that the grounds on which his unit is relying for its claim that PA usury law applies to such loans is that the loans are secured by liens on vehicles located in PA and the lenders repossess and resell such vehicles in PA.  (Alan observed that this position is inconsistent with the Seventh Circuit’s 2010 decision in Midwest Title Loans, Inc. v. Mills, in which the court handed a major victory to Ballard’s client by holding that the Commerce Clause of the U.S. Constitution precluded Indiana from applying its usury law to auto title loans made in person in Illinois to Indiana residents.  Ballard’s client also obtained a $440,000 payment from the State of Indiana to resolve its claim for attorneys’ fees as a “prevailing party” in a federal Civil Rights Act lawsuit that it brought.)



The CFPB recently updated two prior Home Mortgage Disclosure Act (HMDA) webinars to reflect amendments to HMDA made by the Economic Growth, Regulatory Relief, and Consumer Protection Act, and the interpretive and procedural rule issued by the CFPB last year. We previously reported on the amendments and the interpretive and procedural rule.

The CFPB also issued a new HMDA Webinar that provides an overview of the data points not covered in the first two webinars.

The webinars, as well as slides and transcripts of the webinars, may be viewed here.

Last week, the CFPB announced that that it had entered into a consent order with an Illinois-based debt collection company. According to the settlement, the company’s business consists primarily of purchasing and then collecting on defaulted debt from banks and retail credit card companies. As part of the consent order, the company was ordered to pay approximately $36,800 in restitution to consumers and another $200,000 as a civil monetary penalty to the Bureau.

The conduct alleged by the Bureau relates to statements and representations made by the company during the course of its collections activities (i.e., sending collection letters and making collection calls). Specifically, the CFPB alleged that the company had “regularly and falsely”:

(1) Threatened consumers with arrest, lawsuits, liens on homes, and garnishment of consumers’ bank accounts or wages;

(2) Represented that non-attorney company employees were attorneys, even though the company does not employ attorneys to collect debts or take legal action against debtors; and

(3) Represented that consumers’ credit reports would be negatively affected if they did not pay, even though the company does not furnish any information to consumer reporting agencies.

The Bureau claimed that this conduct constituted deceptive acts and practices under Dodd-Frank’s UDAAP provisions, as well as misleading representations in violation of the Fair Debt Collection Practices Act.

In addition to calling for restitution and a civil monetary penalty, the consent order stipulates that the company must refrain from engaging in the alleged activity, as well as record all incoming and outgoing calls and retain the recordings for the duration of the consent order. The company must also submit a “comprehensive compliance plan” for a determination of non-objection.

The CFPB has lifted a nearly two-year hiring freeze and accelerated its recruitment efforts. Mick Mulvaney imposed the freeze when he replaced Richard Cordray, an appointee of President Barack Obama, and became interim Director of the CFPB in November 2017. In an August 15 email to staff, CFPB Director, Kathy Kraninger explained; “Broadly speaking, the completion of the staffing planning process means: The ‘hiring freeze’ is lifted.” Divisions will receive new staffing allocations to cover current and new positions. The Bureau’s headcount is expected to rise closer to its employment totals from previous years. In March the agency had 1,452 employees, down 15 percent from its peak of 1,712 employees in June 2017. Director Kraninger explained that the decision to start hiring is in line with the goal to move the Bureau towards a more sustainable and disciplined practice of identifying and hiring the staff needed to execute the Bureaus’ policy priorities for the next fiscal year starting October 1, 2019.

The Subcommittee on Oversight and Investigations of the House Committee on Financial Services has scheduled a hearing in Houston, Texas for tomorrow entitled “Examining Discrimination and Other Barriers to Consumer Credit, Homeownership, and Financial Inclusion in Texas.” The memo from the Committee’s Majority Staff to Committee Members states that the hearing “will examine access to affordable housing, credit, and banking services in low and moderate-income (“LMI”) neighborhoods.”

The hearing will consist of two panels. The following witnesses will testify:

Panel One

  • Belinda Everette, Director, Housing Initiative, NAACP Houston Branch
  • Judson Robinson III, CEO and Chair, Houston Area Urban League
  • Hua Sun, Professor, University of Iowa
  • John Wong, Founding Chair, Asian Real Estate Association of America
  • Dedrick Asante-Muhammad, Chief, Race, Wealth, and Community, National Community Reinvestment Coalition

Panel Two

  • Noel Poyo, Executive Director, National Association of Latino Community Asset Builders
  • Gary Lindner, President and CEO, PeopleFund
  • Jeff Smith, President and CEO, Unity National Bank
  • Raymond Ardoin, President, Board of Directors, Brentwood Baptist Church Federal Credit Union
  • Jeungho “JP” Park, President and Chairman, Relationship BancShares, Inc.

Additional information on the hearing can be found here.

The CFPB announced on August 14, 2019 that, subject to the approval of the Federal District Court for the Eastern District of Arkansas, the Bureau and the Arkansas Attorney General have entered into a proposed settlement with Andrew Gamber, Voyager Financial Group, LLC, BAIC, Inc., and SoBell Corp. to resolve the Bureau’s allegations that the defendants violated the Consumer Financial Protection Act and the Arkansas Deceptive Trade Practices Act while brokering contracts that offered high-interest credit to veterans and other consumers, through which these consumers received lump-sum payments in exchange for assigning their monthly pension or disability payments to investors. In its press release, the Bureau announced that under the proposed settlement, Gamber and his companies will be “permanently banned from brokering, offering, or arranging agreements between pension recipients and third parties under which the consumer purports to sell a future right to an income stream from the consumer’s pension.”

The proposed order alleges that the defendants violated the CFPA and ADTPA based upon the following conduct:

  • Misrepresenting to consumers that the contracts were valid and enforceable when, in fact, the contracts were void from inception because federal law prohibits agreements under which another person acquires the right to receive a veteran’s pension payments, 38 U.S.C. §5301(a)(3)(c), and because South Carolina law, which governs the contracts in question, prohibits sales of unpaid earnings and prohibits assignments of pensions as security on payment of a debt. S.C. Code § 37-3-403(2). “Unpaid earnings” are defined to include pension benefits. S.C. Code § 37-1-301(15).
  • Misrepresenting to consumers that the offered product was “a sale of payments and not a high-interest credit offer”.
  • Misrepresenting to consumers that they would receive funds from Gamber and his companies “within a specified period when, in fact, many consumers would not receive funds by the specified date”.
  • “Failing to inform consumers of the applicable interest rate on the credit offer”.

Under the proposed agreement, Gamber and his companies agreed to pay a judgment of $2.7 million in redress to the affected consumers. However, due to Gamber’s inability to pay, full payment of the judgment would be suspended upon satisfaction of Gamber and his companies paying $200,000 for consumer redress, a civil money penalty of $1 to the Bureau, and a payment of $75,000 to the Arkansas Attorney General’s Consumer Education and Enforcement Fund.

While there might very well be a violation of federal law to purchase veterans’ pension benefits, that does not necessarily give the CFPB and the Arkansas Attorney General’s office jurisdiction to enforce the federal statute which prohibits the acquisition of veterans’ pension benefits. Similarly, while there might well be a violation of South Carolina law to purchase any type of pension benefits, that does not necessarily give the CFPB the jurisdiction to enforce the Arkansas statute which prohibits the sale of “unpaid earnings”. The CFPB characterizes the purchase of veterans’ and other persons’ pensions as loans under Arkansas law, because the CFPB would not have jurisdiction if these transactions were considered sales of pension benefits. Under Arkansas law, a transaction is a consumer loan, as distinguished from a sale, only when there is a personal legal obligation of the consumer to repay the amount advanced to him or her. See e.g., Haley v. Greenhaw, 235 Ark. 481, 481, 360 S.W.2d 753, 754 (1962) (stating that to constitute usury in Arkansas, it is essential that there be a loan of money or a forbearance of an existing indebtedness, requiring the borrower to pay and entitling the lender to receive a higher rate of interest than that allowed by statute).

While the CFPB and the Arkansas Attorney General have stated in the complaint that the transactions brokered by the defendants were loans, this unsupported conclusion does not establish that they were in fact loans because the consumers were obligated to repay.

This is not the first time that the CFPB has pushed the envelope and has sought to characterize pension advances and other types of sales transactions as loans. See here, here and here as to other pension advance cases. The CFPB asserted that structured settlements are loans. See here, here, here. The CFPB has asserted that litigation funding transactions are loans. See here, here. While these are all examples of former Director Cordray pushing the envelope, it is surprising to see that Director Kraninger is doing the same thing, especially since the Federal Trade Commission and state AGs have UDAP enforcement authority over these products without asserting—much less establishing—that they are extensions of credit.

The Federal Financial Institutions Examination Counsel (FFIEC) recently announced the release of 2018 Home Mortgage Disclosure Act (HMDA) data. Calendar year 2018 is the first year that financial institutions reported mortgage loan information based on the significantly expanded HMDA data categories.

In addition to the data, two articles were released. One article addresses the new and revised data points in the 2018 HMDA data, and provides initial observations about the nation’s mortgage market in 2018 based on the new or revised data points. The other article is the second in an annual series of CFPB data point articles describing mortgage market activity over time based on data reported under HMDA. The article summarizes the historical data points in the 2018 HMDA data, as well as recent trends in mortgage and housing markets.

As previously reported, the CFPB extended to October 15, 2019 the comment period for a proposal to modify the HMDA reporting thresholds for closed-end loans and open-end lines of credit, based on comments from stakeholders that they would like to provide comments on the proposal after reviewing the 2018 HMDA data. In agreeing to extend the comment deadline, the CFPB stated it “believes that it would be useful to have public comment on the 2018 HMDA Data in considering where to set the permanent coverage thresholds for closed-end mortgage loans and open-end lines of credit. For example, the new data may shed light on the number of institutions and percentage of market activity covered at different potential coverage thresholds and the value of the data that would not be reported if the thresholds were increased.”

On August 21, 2019 the Conference of State Bank Supervisors (“CSBS”) launched three new online tools designed to help non-bank financial services companies navigate state regulations and protect against cyber security risks: a State Regulatory Guidance Portal, a State Survey Map of Money Transmission Laws, and Cybersecurity 101: A Resource Guide for Financial Sector Executives. Each of these initiatives provides valuable new resources for both banks and non-banks to stay apprised of changing state regulatory systems and technological advances that impact the financial services industry.

State Regulatory Guidance Portal

The first of these tools, the State Regulatory Guidance Portal, provides a vault of state regulatory guidance documents, including opinion letters, orders, advisory notices and FAQs that have been issued by various state regulatory entities. These documents are categorized by state, license, and topic, including: virtual currency; correspondence to mortgage broker; lender and originator licensees; money transmission; mortgage underwriting and processing; third-party payment processing; mobile home lending; and mortgage servicing. The creation of this portal allows financial service industry regulators across the country to compile regulatory guidance in one centralized location, making it easier for both regulators and the industry to identify and maintain best practices in their businesses. State regulators are encouraged to provide copies of pertinent guidance documents they issue for inclusion in this repository. A link to the State Regulatory Guidance Portal is available here.

State Survey Map of Money Transmission Laws

The second tool is a virtual map of the United States that identifies which states do not require a money transmitter license for receiving a payment on behalf of a third party. Color-coding identifies which states’ money transmission laws include an agent of the payee exemption, and whether the exemption is available always, or case-by-case. A “yes” state is colored green, “case-by-case” states are colored blue, and the remaining states are colored gray. The map allows users to click on each state that provides for the exemption, which opens a new window that lists the source of the exemption, a link to the legislative reference for the exemption, a description of the standard to qualify for the exemption, and whether predetermination is required for the exemption. States continue to modify their money transmission licensing requirements as technology continues to expand the possibilities for money transfer. This map provides a catalogue to help the financial services industry navigate these changing laws. A link to the State Survey Map of Money Transmission Laws is available here.

Cybersecurity 101: A Resource Guide for Financial Sector Executives

The third tool is a printable guide created to help executives and board members of financial institutions understand and prepare for cyber risks faced by their companies. The document is non-technical and provides a broad overview of the tools and resources available to help financial institutions identify the threats and vulnerabilities they face, and employ best practices to reduce cyber risk. A link to Cybersecurity 101: A Resource Guide for Financial Sector Executives is available here.

We applaud CSBS for making these valuable resources available to the public. They should be particularly helpful to non-bank FinTech start-up companies that are seeking an overview of potential licensing issues. However, they are not a substitute for doing thorough research and seeking advice from a consumer financial services lawyer.

On August 21, 2019, President Trump signed a Presidential Memorandum that streamlines the process by which totally and permanently disabled veterans can discharge their Federal student loans (Federal Family Education Loan Program loans, William D. Ford Federal Direct Loan Program loans, and Federal Perkins Loans).  Through the revamped process, veterans will be able to have their Federal student loan debt discharged more quickly and with less burden.

Under federal law, borrowers who have been determined by the Secretary of Veterans Affairs to be unemployable due to a service-connected condition and who provide documentation of that determination to the Secretary of Education are entitled to the discharge of such debt.  For the last decade, veterans seeking loan discharges have been required to submit an application to the Secretary of Education with proof of their disabilities obtained from the Department of Veterans Affairs.  Only half of the approximately 50,000 totally and permanently disabled veterans who qualify for the discharge of their Federal student loan debt have availed themselves of the benefits provided to them.

The Memorandum directs the Secretary of Education to develop as soon as practicable a process, consistent with applicable law, to facilitate the swift and effective discharge of applicable debt.  In response, the Department of Education has said that it will be reaching out to more than 25,000 eligible veterans.  Veterans will still have the right to weigh their options and to decline Federal student loan discharge within 60 days of notification of their eligibility.  Veterans may elect to decline loan relief either because of potential tax liability in some states, or because receiving loan relief could make it more difficult to take future student loans.  Eligible veterans who do not opt out will have their remaining Federal student loan debt discharged.