Consumer Finance Monitor

David Silberman, a senior advisor at the Financial Health Network and former CFPB leader, shares his valuable insights on the transitional periods of the CFPB during administration shifts. He discusses the impact of leadership changes on pending lawsuits, especially following the 2016 election. Silberman emphasizes the significance of the acting director's role and how it shaped the Bureau's trajectory under Trump. With anecdotal experiences from his tenure, he provides a compelling view on the future regulatory landscape for consumer finance.

  In today’s podcast episode, we’re joined by Alex Johnson, Founder of Fintech Takes, and Paige Paridon, Senior Vice President, Senior Associate General Counsel & Co-Head of Regulatory Affairs at Bank Policy Institute, to take a deep dive into the new Consumer Financial Protection Bureau Open Banking Rule. The CFPB has issued a groundbreaking final rule implementing Section 1033 of the Dodd-Frank Act, significantly expanding consumer access to their financial data. This new Open Banking Rule will have far-reaching implications for financial institutions, fintech companies, and consumers alike. In this episode, we’ll explore the key aspects of this landmark regulation, such as: 1. The scope, rule requirements, and compliance deadlines 2. Complexities of implementing new interfaces and data security measures 3. Potential pitfalls and best practices to mitigate risks, including a lawsuit challenging the legality of the rule 4. How the rule can foster innovation and enhanced consumer experiences 5. The impact of presidential election and presumed appointment of new Acting Director of CFPB Alan Kaplinsky, former Practice Leader and Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, moderates today’s episode, and is joined by Gregory Szewczyk and Hilary Lane, Partners in Ballard’s Privacy and Data Security Group.

Raj Date, managing partner at Fenway Summer and former CFPB leader, joins Joseph Schuster, a Ballard Spahr partner specializing in consumer finance law. They delve into the nuanced debate around bank regulation versus supervision. Date argues that banks are over-supervised, not over-regulated, citing privileges banks enjoy far outweighing their compliance burdens. The conversation tackles the detrimental effects of excessive oversight on innovation and decision-making. They highlight the urgent need for a balanced regulatory approach that adapts to technological advancements.

If you work for a bank or other consumer financial services provider, you will want to listen closely to how consumer advocates are reacting to Trump’s election insofar as the CFPB and FTC are concerned. In today’s podcast episode, we’re joined by Erin Witte and Adam Rust (the “CFA Reps”) from CFA. We focus first on CFPB and FTC regulations that might be finalized during the lame duck session of Congress. The CFA Reps express hope that the FTC would finalize its so-called “junk fee reg” which, as proposed, called for “all-in” pricing (I.e., disclosure of a dollar amount for goods and services that includes all fees that will be charged in connection with the transaction.) They also express hope that the CFPB will finalize its checking account overdraft fees reg, the larger participant rule pertaining to non-bank payment providers and the medical debt rule which, if finalized, would result in unpaid medical debt no longer appearing on credit bureau reports. Of course, there is a risk, with respect to each of these rules as well as any other CFPB and FTC rules finalized roughly after August 1 of this year, which they may be overruled by Congress under the Congressional Review Act. We then discuss final regs promulgated by the FTC and CFPB which have been challenged in the Circuit Courts of Appeal. For the FTC, this includes the so-called CARS Rule (which imposes restrictions on car dealers’ sales and financing of motor vehicles) and the recent “Click-to-Cancel” Rule which, among other things, requires sellers of goods and services on a subscription basis to be able to cancel subscriptions as easily as signing up for subscriptions. The latter rule has been challenged in four circuit courts of appeal.  We also discuss the status of many CFPB final regs and what a new CFPB’s strategy may be with respect to them. They include: the $8 credit card late fee rule which is currently enjoined by a Federal District Court in Texas; the data collection reg pertaining to small business loans promulgated under Section 1071 of Dodd-Frank, which is currently on appeal before the Fifth Circuit Court of Appeals after a Federal District Court denied a motion by the bank trade associations to grant a preliminary injunction pertaining to the reg; the open-banking reg under Section 1033 of Dodd-Frank (which pertains to consumers having the ability to share information in certain bank accounts with third parties which has been challenged in court; the Buy-Now, Pay-Later interpretive rule which has been challenged in court; and the Earned Wage Access interpretive rule. There is great uncertainty as to whether the new CFPB’s Director will seek to repeal or amend any of these regs or whether he or she will elect to change the CFPB’s position in the litigation to side with the plaintiffs. In order to repeal or change any of the regs (other than the two interpretive rules), the CFPB will need to jump through all the hoops required by the Administrative Procedure Act before effecting a repeal or change and the repeal or change might be challenged in court as being arbitrary or capricious. It would seem that it might be much easier to repeal or change the interpretive rules which would not require publishing them in the Federal Register for notice and comment. The CFS Reps also express hope that the CFPB issues its final report with respect to the voluminous information it received from auto finance companies in response to market monitoring orders it issued to them. An initial report recently issued by the CFPB and dealt with the incidence of financing negative equity in cars being traded in. While the final report is unlikely to result in new proposed CFPB regulations during the next four years, the report might instigate enforcement actions by state AGs. As was the case during the first Trump presidency, the CFA Reps believe that whatever consumer protection void is created at the CFPB will largely be filled by state AGs, state departments of banking and consumer protection agencies. They also expect there to be an increase in private civil litigation, including class actions. Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.

Today’s podcast features James Kohm, the Associate Director for the Enforcement Division of the Federal Trade Commission’s Bureau of Consumer Protection. We discuss the FTC’s “Click-to-Cancel” Rule (consisting of significant amendments to the longstanding “Negative Option Rule”) which was promulgated by the FTC on October 16, 2024 by a vote of 3-2 along party lines. Before discussing the specifics of the new rule, Mr. Kohm describes the FTC’s Negative Option Rule adopted in 1973. It required sellers to clearly disclose the terms of any such negative option plan for the sale of goods before consumers subscribe. In such plans, consumers are notified of upcoming merchandise shipments and have a set period to decline the shipment. Sellers interpret a customer’s silence, or failure to take an affirmative action, as acceptance of an offer. The Negative Option Rule was initially adopted to deal with mail order plans like the “book-of-the-month” club. With the proliferation of sales of goods and services over the Internet, the FTC concluded that it was necessary to update the Negative Option Rule to remedy what it considered to be widespread unfair and deceptive practices related to subscription plans sold over the Internet, particularly the difficulty consumers were often having in canceling subscriptions. There are several parts of the “Click-to-Cancel Rule. The first part of the Rule prohibits material misrepresentations related not only to the negative option feature, but also any other material feature of the transaction for the goods or services. Another part of the Rule are the disclosure requirements which relate to the cost of the goods or services, the fact that the charges will be assessed periodically, how often the consumer will be charged and how to cancel the subscription. The Rule also requires that the seller obtain the consumer’s express consent to the transaction which the seller must maintain in its records for a prescribed period of time. The centerpiece of the Rule is that the seller must make it as easy to cancel the subscription as it is to enter into the subscription. Mr. Kohm explains that because the Rule was adopted under the Magnusson Moss Act, the FTC will be able to recover monetary relief and civil money penalties for violations - something which the Supreme Court ruled that the FTC may not recover for enforcement actions brought under section 13 of the FTC Act alleging unfair and deceptive acts or practices. Mr. Kohm also explains that sellers are covered by the Rule to the full extent of the FTC’s jurisdiction. Therefore, the Rule covers business-to-business transactions as well as business-to-consumer transactions. Banks and other depository institutions are not covered by the Rule. There is also no private right of action under the Rule. Mr. Kohm then describes several petitions to invalidate the Rule which have been filed in four federal circuits courts of appeal. There have not yet been any substantive rulings in any of the cases. We then ask Mr. Kohm for his opinion as to whether the composition of the Commission would change as a result of the outcome of the Presidential election and whether that might result in the Rule being repealed or amended to satisfy industry concerns. The President has the right to nominate the new Chair who will undoubtedly be a Republican. At that point, the Commission will be controlled 3-2 by Republicans. Since two Republican Commissioners have already dissented from the Rule, there is some possibility that the Rule might be repealed or amended before it goes effective. Mr. Kohm observes that since the rulemaking was launched at a time when Republican Commissioners held a majority of the five seats, it was not a foregone conclusion that the Commission would vote to repeal or amend the Rule. Since the Rule does not prohibit the use of negative options subscription contracts and just about everyone has had difficulty in canceling such contracts, it could very well be that the Rule remains largely intact. Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.

Today’s podcast episode is a re-purposing of a webinar we recorded on November 12, 2024. Our special guests for that webinar were Colin Carr, Vice-President of Congressional affairs at the Consumer Bankers Association and Ian Katz, Managing Director at Capital Alpha Partners. John Culhane, a partner in the Consumer Financial Services Group at our firm. The webinar begins with Colin giving us an overview of President-Elect Trump’s victory and the Senate and House elections which resulted in the Republicans achieving close majorities in both chambers. As a result, the Republicans may not have too much difficulty in confirming Trump nominees for various positions and may also be able to override final rules published in the Federal Register by the CFPB and other agencies after August 1 of this year under the Congressional Review Act. (This includes the so-called “open banking” rule pertaining to consumer control of their records at banks under Section 133 of Dodd-Frank. Ian then addresses certain leadership changes at the CFPB, FDIC, OCC, FRB and FTC and the possibility of Trump using recess appointments to nominate the leaders of those agencies. John Culhane then takes a deep dive into the current status and expected outcome of agency regulations (both legislative and interpretive), proposed regulations and other written but less formal guidance and circulars. This includes the CFPB’s $8. credit card late fee rule, the small business data collection rule under Section 1071 of Dodd-Frank, the Buy-Now, Pay-Later interpretive rule, “open banking “ rule, and the changes to the UDAAP Exam Manual which described any form of discrimination as being an unfair trade practice, all of which are the subject of pending litigation. We also discuss the FTC’s “CARS” rule and the “Click to Cancel” rule, which are also subject to pending litigation. Finally, we discussed the FDIC’s “brokered deposits” rule. We explain how final legislative rules can only be overturned or modified through Congressional Review Act override (if they were adopted after August 1, 2024) or by proposing a repeal or modification under the Administrative Procedure Act (which is the same lengthy procedure utilized to promulgate the regulation) or by a final judgment of a court invalidating the rule. We also discuss whether the new CFPB Director may concede that the CFPB has been unlawfully funded under Dodd-Frank since the FRB may only fund the CFPB out of “combined earnings of the Federal Reserve Banks” and because there have been no such combined earnings since September, 2022. Alan Kaplinsky, Senior Counsel and former practice group leader for 25 years of the Consumer Financial Services Group at Ballard Spahr hosts the episode.  

On January 4 of this year, we released a podcast show entitled; “A look at a new approach to consumer contracts”. Our special guest at that time was Professor Andrea Boyack, a Professor at the University of Missouri School of Law. That podcast was based on a then recent law review article published by Professor Boyack entitled “The Shape of Consumer Contracts, 101 Denv L. Rev. 1 (2023). Today, we are joined again by Professor Boyack who has written a follow-up article entitled: “Abuse of Contract: Boilerplate Erasure of Consumer Counterparty Rights,” University of Missouri School of Law Legal Studies Research Paper No. 2024-03, which is the subject of our new show. The abstract of her article accurately describes the points that Professor Boyack made during the podcast show: Contract law and the new Restatement of the Law of Consumer Contracts generally treats the entirety of the company’s boilerplate as presumptively binding. Entrusting the content of consumer contracts to companies creates a fertile legal habitat for abuse through boilerplate design. There is no consensus on how widespread or severe abuse of contract is. Some consumer law scholars have warned of dangers inherent in granting companies unrestrained power to sneak waivers into their online terms, but others contend that market forces adequately constrain potential abuse. On the other hand, in the absence of adequate consumer knowledge and power, market competition might instead fuel the spread of abusive boilerplate provisions as companies compete to insulate themselves from costs. The new Restatement and several prominent scholars claim that existing protective judicial doctrines siphon off the worst abuses among adhesive contracts. They are willing to accept those abuses that slip through the cracks as the unavoidable cost of a functioning, modern economy. The raging debate over how to best constrain contractual abuse relies mainly on speculation regarding the proliferation and extent of sneak-in waivers. This article provides some necessary missing data by examining the author’s study of 100 companies’ online terms and conditions (the T&C Study). The T&C Study tracked the extent to which the surveyed companies’ boilerplate purported to erase consumer default rights within four different categories, thereby helping to assess the effectiveness of existing market and judicial constraints on company overreach. Evidence from the T&C Study shows that the overwhelming majority of consumer contracts contain multiple categories of abusive terms. The existing uniformity of boilerplate waivers undermines the theory that competition and reputation currently act as effective bulwarks against abuse. After explaining and discussing the T&C Study and its results, this article suggests how such data can assist scholars and advocates in more effectively protecting and empowering consumers. We also discuss two separate CFPB initiatives pertaining to consumer contracts. On June 4 of this year, the CFPB issued Circular 2024-03 (“Circular”) warning that the use of unlawful or unenforceable terms and conditions in contracts for consumer financial products or services may violate the prohibition on deceptive acts or practices in the Consumer Financial Protection Act. We previously drafted a blog post and Law360 article about this circular. The CFPB has also issued a proposed rule to establish a system for the registration of nonbanks subject to CFPB supervision that use “certain terms or conditions that seek to waive consumer rights or other legal protections or limit the ability of consumers to enforce their rights.” Arbitration provisions are among the terms that would trigger registration. The CFPB has not yet finalized this proposed rule and it seems likely that it will never be finalized in light of its very controversial nature and the fact that Director Chopra will be replaced on January 20 with a new Acting Director. Alan Kaplinsky, the former Chair of Ballard Spahr’s Consumer Financial Services Group for 25 years and now Senior Counsel, hosts this episode.

In this podcast show, we explore with our repeat guest, Professor Dan Awrey of Cornell University Law School, his working paper “Money and Federalism” in which he advocates for the enactment of Federal legislation creating a Federal charter for non-banks engaged in the payments business, like PayPal and Venmo. The article may be accessed online at SSRN and will likely be published in a law review at some time in the future. The abstract of Professor Awrey’s article describes in general terms what we discussed: The United States is the only country in the world in which both federal and state governments possess independent and yet overlapping authority for bank chartering, regulation and supervision. The roots of this unique dual banking system can be traced back to the Constitution, written almost a century before banks rose to the apex of the financial system and became the dominant source of money. Beginning with the landmark Supreme Court decision in Maryland v. McCulloch, the system has been a wellspring of jurisdictional conflict. Yet over time, this highly contested and highly fragmented system has also produced strong federal oversight and a financial safety net that protects bank depositors, prevents destabilizing runs, and promotes monetary stability. This system is now under stress. The source of the stress is a new breed of technology-driven financial institutions licensed and regulated almost entirely at the state level that provide money and payments outside the perimeter of both conventional bank regulation and the financial safety net. This article examines the rise of these new monetary institutions, the state-level regulatory frameworks that govern them and the nature of the threats they may one day pose to monetary stability. It also examines the legal and policy cases for federal supremacy over the regulation of these new institutions and advances two potential models, one based on complete federal preemption, the other more tailored to reflect the narrow yet critical objective of promoting public confidence and trust in our monetary system. Professor Awrey explained why existing state money transmitter statutes under which non-bank payments firms are generally licensed provide insufficient protection for consumers who use these firms. State money transfer statutes were created many years ago to protect consumers that were using Western Union. These laws were not designed to protect consumers that deploy non-bank Fintech companies using new technologies to transfer funds. These companies don’t have access to the Federal Reserve’s central payments system that banks have access to. These non-bank companies, unlike banks, are subject to federal bankruptcy law.  That increases the likelihood that consumers can lose their funds deposited in one of these non-bank companies in the event of its failure. Professor Awrey concludes that the answer to this problem is the enactment of federal legislation which would create a federal charter for non-bank companies engaged in transmitting payments. A company that is granted such a charter would have access to the Fed’s payment rails and would be exempt from the federal Bankruptcy Code. Such a company would be very restricted in the types of investments it may hold. The federal charter would ideally preempt many state laws, including state money transmitter laws. We also spent some time at the beginning of the show discussing the status of FedNow, the instant payments system launched by the Federal Reserve System in July 2023. Professor Awrey was previously a guest on our podcast show on September 14, 2023 entitled “What is FedNow and its Role in the U.S. Payments System.” At that time, Professor Awrey predicted that FedNow was too little, too late and too expensive for small banks. Professor Awrey’s opinion is unchanged. He noted that the Fed has so far refused to share any data about FedNow usage. Alan Kaplinsky, Senior Counsel and former practice group leader for 25 years of the Consumer Financial Services Group, hosted the podcast show.

This summer, the CFPB issued its long-awaited proposed rule amending the mortgage servicing rules under Regulation X, with a focus on loss mitigation procedures, foreclosure protections, and language access. These changes were previewed by the CFPB as a means to streamline, and add flexibility to, the loss mitigation process, in light of the industry’s successful efforts during the COVID-19 pandemic. However, the CFPB’s proposal also significantly expands borrower protections during the loss mitigation process, creates extensive new operational challenges for servicers, and leaves many concerning questions based on the proposed language. The mortgage servicing industry responded by submitting numerous comment letters, appropriately voicing a range of concerns with the proposed changes. We now await further action from the CFPB. On this episode, Ballard Spahr lawyers discuss the regulatory and litigation impacts of the proposed rule, including: 1.         Detailed analysis of the proposed changes 2.         Potential approaches to loss mitigation, under the revised scheme 3.         Practical impacts on loss mitigation and foreclosure from an operational, cost, and liability standpoint 4.         Specific pain points under the proposed language, and topics requiring clarification, refinement, or pushback 5.         Language access requirements, and the impact from an operational, cost, and liability standpoint 6.         Implications of the rulemaking in a post-Chevron world Rich Andreano, a Partner and Leader of Ballard Spahr’s Mortgage Banking group, moderates today’s episode, and he is joined by Reid Herlihy and Matt Morr, Partners in the Group.

Our podcast listeners are very familiar with federal fair lending and anti-discrimination laws that apply in the consumer lending area: the Equal Credit Opportunity Act (ECOA) and Fair Housing Act (FHA). Those statutes prohibit discriminating against certain protected classes of consumer credit applicants. For example, the ECOA makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract); the applicant's use of a public assistance program to receive all or part of their income; or the applicant's previous good-faith exercise of any right under the Consumer Credit Protection Act. The FHA prohibits discrimination concerning the sale, rental, or financing of housing based on race, religion, national origin, sex, disability, pregnancy or having children. The FTC sometimes relies on the “unfairness” prong of its UDAP (Unfair or Deceptive Acts and Practices) authority to bring other types of discrimination claims against companies subject to the FTC’s jurisdiction. The CFPB has tried to use the unfairness prong of its UDAAP (Unfair, Deceptive, or Abusive Acts or Practices) authority in a similar manner with respect to companies and banks subject to its jurisdiction. A Federal District Court has invalidated the portion of the CFPB’s UDAAP Exam Manual provision upon which such authority was previously predicated and the case is now being considered by the Fifth Circuit. Our focus during this podcast show is not on these Federal anti-discrimination statutes, but rather on the fact that an increasing number of states have either enacted or are considering enacting legislation requiring financial institutions to provide persons (both existing customers and prospective customers) who are not ordinarily protected by the federal anti-discrimination statutes with fair access to financial services. The first broad fair access requirements appeared in a Florida statute enacted in 2023, which generally prohibits financial institutions from denying or canceling services to a person or otherwise discriminating against a person in making available services on the basis of enumerated factors, commonly including factors such as political opinions, or any other factor that is not quantitative, impartial, and risk-based. Because this topic is very controversial, I invited individuals who support and oppose these new types of state statutes: Brian Knight, Senior Research Fellow at Mercatus Center of George Mason University, Professor Peter Conti-Brown of the Wharton School of the University of Pennsylvania, and Peter Hardy who co-leads our Anti-Money Laundering (AML) team at Ballard Spahr. (Brain was previously a guest on our May 23, 2024 podcast which focused on the related topic of Operation Chokepoint.) Brian is generally supportive of these state fair access laws. Professor Conti-Brown and Peter Hardy generally oppose these types of laws. We cover the following sub-topics, among others: 1.              Why were these laws enacted? 2.              What financial institutions are subject to these laws? Do they cover only depository institutions or do they also cover non-banks? Do they cover only consumer transactions or do they cover business transactions as well? Do they cover out-of-state financial institutions doing business with residents of the states that have enacted these statutes? Are there exemptions based on small size? 3.              Since banks are not public utilities, and have shareholders and employees to whom they owe duties, why should they be forced to do business with people or companies who generate fossil fuel or who manufacture or sell firearms, to take just two examples of industries protected by these statutes? 4.              What are the private and public remedies for violating these statutes? 5.              Does the National Bank Act, the Home Owners’ Loan Act and the Federal Credit Union Act preempt these state laws? 6.              Do these laws run afoul of AML laws as the Treasury suggests? Brian believes that these state statutes don’t force any financial institution to do business with a particular person or company. The statutes simply say that you must give a good reason for a declination. A good reason would be one based on risk to the institution such as a lack of experience in evaluating the company’s business. Another good reason would be that the company is engaged in an unlawful business. A bad reason for a declination would be that the bank doesn’t like the political or cultural positions of the company. Peter Conti-Brown believes that banks should be able to decide with whom they desire to do business as long as they don’t violate existing federal laws that prohibit discrimination, like ECOA and the FHA. Peter expresses skepticism that there was or is a need for these statutes. The “bottom line” is that the state statutes are bad public policy. Peter also believes that these state statutes are preempted by the National Bank Act. Peter Hardy believes that these state statutes throw a monkey wrench into banks’ efforts to comply with AML requirements and the Bank Secrecy Act. He explains how these statutes could help bad actors evade the BSA. We have previously blogged about these statutes. Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.