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CFPB Temporarily Enjoined from Naming Company Under Investigation
On February 17, U.S. District Judge Rudolph Contreras issued an Order granting in part a motion filed by a unnamed "John Doe" recipient of a CFPB civil investigative demand (CID) for an injunction preventing the Bureau from disclosing its identity pending its petition to the Court of Appeals for a stay of the CID. Specifically, Judge Contreras ordered that: “Defendants are ENJOINED, until March 3, 2017” from “publicly disclosing the identify of Plaintiff John Doe Company, by taking actions including, but not limited to, the public filing of either the civil investigative demand . . . or the Director’s Decision and Order [denying] Plaintiff’s Petition" to set aside the CID.
As previously covered by InfoBytes, the John Doe company filed an action against the CFPB back in January seeking to enjoin the Bureau from, among other things, disclosing the existence of an investigation and taking any action against the company unless and until the CFPB is constitutionally structured. The company argued, among other things, that the agency should not be able to identify it as the target of an investigation as publication of the company’s name would bring “irreparable harm” as it tries to defend itself against any enforcement action. Immediately following the District Court's ruling against the company, it lawyers filed a Notice of Appeal with the U.S. Court of Appeals for the D.C. Circuit to try to stop the agency from moving forward.
CFPB to Explore “Alternative Data” as Means to Measure the “Credit Invisible”
On February 16, the CFPB published a Request for Information seeking information about the “use or potential use” of “alternative data” and/or modeling techniques that might help increase access to credit for consumers who otherwise lack sufficient credit history. As explained by the Bureau in a press release, and as previously covered by InfoBytes, millions of Americans have insufficient credit history to produce a credit score. Accordingly, the Bureau is seeking public feedback on the benefits and risks of utilizing alternative sources of information–such as bills for mobile phones and rent payments–that may be used to make lending decisions involving consumers whose lack of credit history might otherwise exclude them from lending opportunities.
In prepared remarks delivered at a field hearing on alternative data, CFPB Director Richard Cordray noted, among other things, that "equal access to credit means even more if overall access to credit is expanded and not constrained by lingering uncertainty about how regulators intend to apply fair lending laws. So we have crafted this Request for Information to help us better understand whether and how such uncertainty may be hindering credit access for disadvantaged populations. We also want to learn more about how the Consumer Bureau might reduce that uncertainty while holding fast to the anti-discrimination principles that are the cornerstones of federal law."
House Financial Services Committee Chairman Called for End of CFPB; Senate Banking Committee Ranking Member Responds
In a February 10 blog post, House Financial Services Committee Chairman Jeb Hensarling called for the abolition of the CFPB, and recommended that the President “immediately fire CFPB Director Richard Cordray.” Specifically, Rep. Hensarling expressed his belief that the CFPB is “arguably the most powerful, least accountable agency in U.S. history,” and his concern that the agency “defines its own powers and can launch investigations without cause, imposing virtually any fine or remedy, devoid of due process.” For these reasons, Rep. Hensarling stated he believes that “even with good policy, the CFPB would still be unconstitutional.” Ultimately, he argued that the CFPB “must be functionally terminated,” which he said could be achieved by ending the Bureau’s funding through a reconciliation bill.
The same day, Senate Banking Committee Ranking Member Sherrod Brown issued a statement responding to Rep. Hensarling’s proposal to abolish the Dodd-Frank Act. Senator Brown’s response noted, among other things, that “71 percent of Americans approve of the [CFPB]’s mission,” and that “[t]he Hensarling proposal would transform the Bureau from an effective watchdog into a toy poodle.”
District Court Upholds CFPB CID Targeting the Marketing of “Contracts for Deed”
On February 17, a U.S. District Court held that home sellers who use contracts for deed are required to comply with CFPB Civil Investigative Demands (CIDs) asking for information about possible illegalities in selling or collecting residential property purchase loans. CFPB v Harbour Portfolio Advisors, LLC et al., [Order] No. 16-14183 (E.D. Mich. Feb. 17, 2017). Specifically, the Court found that the Bureau is not “plainly lacking” in jurisdiction to look into contracts for deed, and the CIDs were not unduly burdensome.
Back in November, the CFPB had petitioned the court to enforce CIDs served on Respondents. At issue before the Court was whether the Bureau’s investigative authority extends to the selling, marketing, and servicing of a financial product called an Agreement for Deed (“AFD”), otherwise known as a “contract for deed” or a “land installment contract.” Respondents thereafter petitioned the Bureau to set aside the CIDs, offering three reasons why the CIDs should not be enforced: (i) the CFPB exceeded its authority in issuing the CIDs; (ii) the companies had not been given fair notice that contracts for deed could be covered by federal financial consumer protection laws; and (iii) the CIDs were unduly burdensome and should be modified.
Each of these three arguments was rejected by the court: (i) as to the Bureau’s authority, the court found that objection premature, noting that the Bureau need only establish a “plausible reason” to believe the companies might have information related to violations of the federal financial consumer protection laws; (ii) the court similarly held the “fair notice” argument to be premature at the investigation stage; and (iii) in rejecting Respondent’s arguments that the burden of compliance was excessive, the court noted that the CFPB was entitled to documents that “will help the Bureau develop a complete understanding of Respondents’ practices and operations” and that Respondents’ assertions about the cost of compliance and the burden on its few employees were not corroborated.
Legislation Introduced in Both Houses Seeking to Curb Authority of the CFPB and Other Financial Regulators
On February 14, Senator Mike Rounds, a member of the Senate Banking Committee, introduced S. 365, which seeks to amend the Consumer Financial Protection Act of 2010 to bar the transfer of funds from the Board of Governors of the Federal Reserve System to the CFPB. The bill also would require the CFPB to turn over all penalties it obtains to the United States Treasury. Sen. Rounds also reintroduced the “Taking Account of Institutions with Low Operation Risk (TAILOR) Act” (S. 366)–a bill intended to ease regulatory burden on local banks and credit unions. Specifically, the TAILOR Act would require financial regulators to take into consideration the risk profile and business models of individual financial institutions and tailor those regulations accordingly. The TAILOR Act also would require regulators–including the OCC, the Fed, the FDIC, the NCUA and the CFPB–to conduct a review of all regulations issued since the 2010 passage of the Dodd-Frank Act and revise any regulations that do not conform to the TAILOR Act’s requirements. In addition, the regulatory agencies would be required to provide an annual report to Congress outlining the steps they have taken to tailor their regulations.
On February 15, Senator David Perdue (R-Ga.), along with Sens. John Barrasso (R-Wyo.), John Boozman (R-Ark.), Ted Cruz (R-Tex.), Steve Daines (R-Mont.), Mike Enzi (R-Wyo.), Joni Ernst (R-Iowa), John Hoeven (R-N.D.), Johnny Isakson (R-Ga.), Ron Johnson (R-Wis.), John Kennedy (R-La.), Mike Lee (R-Utah), Rand Paul (R-Ky.), Marco Rubio (R-Fla.), and Thom Tillis (R-N.C.), have introduced legislation S. 387 to amend the Consumer Financial Protection Act so that the CFPB would be subject to the regular appropriations process.
Senator Ted Cruz and Representative John Ratcliffe also introduced legislation in their respective chambers that would abolish the CFPB. The pair of bills–S. 370 and H.R. 1031–would “eliminate the Consumer Financial Protection Bureau by repealing title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the Consumer Financial Protection Act of 2010.” As explained by Senator Cruz in a joint press release, the proposed legislation would give “Congress the opportunity to free consumers and small businesses from the CFPB’s regulatory blockades and financial activism, which stunt economic growth.”
Special Alert: D.C. Circuit Grants Petition For Rehearing in PHH v. CFPB; Vacates Judgment Based on Bureau’s Unconstitutionality
Buckley Sandler Special Alert
On February 16, the U.S. Court of Appeals for the D.C. Circuit granted the CFPB’s petition for rehearing en banc of the October 2015 panel decision in CFPB v. PHH Corporation. Among other things, the panel decision declared the Bureau’s single-Director structure unconstitutional and would have allowed the President to remove the CFPB’s Director at will rather than “for cause” as set forth in the Dodd-Frank Act. As a result of the petition for rehearing being granted, the panel’s judgment is vacated and the full D.C. Circuit will hear PHH’s appeal of the $109 million penalty imposed by the CFPB under the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA). Oral argument is scheduled for May 24, 2017.
As discussed in detail in our prior alert, the October panel decision unanimously concluded that the CFPB misinterpreted RESPA, violated due process by disregarding prior interpretations of the statute and applying its own interpretation retroactively, and failed to abide by RESPA’s three-year statute of limitations. However, only two of the three judges on the panel concluded that the CFPB’s status as an independent agency headed by a single Director violated the separation of powers under Article II of the U.S. Constitution. The third panel member, Judge Henderson, dissented from this portion of the opinion on the grounds that it was not necessary to reach the constitutional issue because the panel was already reversing the CFPB’s penalty on other grounds.
Click here to read full special alert
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If you have questions about the decision or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.
White House Issues Interim Guidance Concerning its "2-for-1" Regulatory Order
On February 2, the OMB Acting Administrator of the Office of Information and Regulatory Affairs (OIRA) released a memorandum providing interim guidance for implementing President Trump’s January 30 Executive Order entitled “Reducing Regulation and Controlling Regulatory Costs.” Among other things, the memorandum clarifies that the January 30 Order—which was covered previously by InfoBytes here—(i) does not apply to agencies defined as an “independent regulatory agency” by 44 U.S.C. § 3502(5), which include the CFPB; (ii) applies only to significant regulatory actions that have an annual effect on the economy of at least $100 million or result in other material effects as defined in Executive Order 12,866; and (iii) applies only to significant regulatory actions issued between noon on January 20 and September 30, 2017.
Court Rules that CFPB Must Prove Deceptive Practices at Trial in Mortgage Relief Case
On February 6, the U.S. District Court for the Northern District of California denied the CFPB’s motion for summary judgment and held that its “intrinsically factual” deception claims would have to be decided at trial. See CFPB v. Nationwide Biweekly, et. al., [Order Denying Motions for Summary J.] No. 15-cv-2106 (N.D. Cal. Feb. 6, 2017). The Bureau alleges that the defendant company—which helps homeowners restructure their mortgage payments to help them pay down their mortgages faster—misrepresented the savings that consumers would gain through its services. Lawyers for the defendants rejected those claims, saying in a court filing last month that consumers were told multiple times about the setup fee and that promises of interest savings are true. Ultimately, Judge Richard Seeborg sided with defendants, disagreeing with the CFPB’s assertion that it had presented “uncontroverted evidence” of deception and that “no reasonable fact finder” could find in defendants’ favor.
CFPB and New York Attorney General File Lawsuit Against Company that Lured 9/11 Heroes Out of Millions of Dollars
On February 7, the CFPB announced that it has—in partnership with the New York Attorney General (NYAG)—filed a complaint in federal district court against a finance company and two affiliates that offer lump-sum advances to consumers entitled to periodic payouts from victim compensation funds or lawsuit settlements. A press release from the NYAG’s Office can be accessed here.
The Bureau and the NYAG claim, among other things, that the defendants misled World Trade Center attack first responders and professional football players in selling expensive advances on benefits to which they were entitled and mischaracterized extensions of credit as assignments of future payment rights, thereby misleading their victims into repaying far more than they received. Specifically, according to the allegations in the complaint, the New Jersey-based companies: (i) used “confusing contracts” to prevent the individuals from understanding the terms and costs of the transactions; (ii) lied to the individuals by telling them the companies could secure their payouts more quickly; (iii) misrepresented how quickly they would receive payments from the companies, and (iv) collected interest at an illegal rate.
These actions, the two regulators argue, constitute violations of the Consumer Financial Protection Act ban on unfair, deceptive, or abusive practices, New York usury laws, and other state consumer financial protection laws. The lawsuit seeks to end the company’s illegal practices, obtain relief for the victims, and impose penalties.
Special Alert: President Signs Executive Order Calling For Review of Financial Regulations
On February 3, President Trump signed an executive order (the Executive Order) directing the Treasury Secretary and the heads of the member agencies of the Financial Stability Oversight Council (FSOC) to review financial laws and regulations—including the Dodd-Frank Act and regulations implementing that law—thereby setting into motion a process by which the 2010 financial law could be significantly scaled back.
Under the Executive Order, the Secretary of the Treasury – who has yet to be confirmed – has 120 days to review and report to the President which existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements promote the “core principles” listed below and those that do not. The core principles include:
- restoring public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework
- fostering economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry
- enabling American companies to be competitive with foreign firms in domestic and foreign markets
- advancing American interests in international financial regulatory negotiations and meetings
- preventing taxpayer-funded bailouts, and
- empowering Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth
Click here to read full special alert
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If you have questions about the order or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.