Consumer Finance Monitor

Ballard Spahr LLP
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Consumer Finance Monitor

The Consumer Financial Services industry is changing quickly. This weekly podcast from national law firm Ballard Spahr focuses on the consumer finance issues that matter most, from new product development and emerging technologies to regulatory compliance and enforcement and the ramifications of private litigation. Our legal team—recognized as one of the industry's finest— will help you make sense of breaking developments, avoid risk, and make the most of opportunity.

  1. 5D AGO

    A Deep Dive Into Judge Jackson’s Preliminary Injunction Order Against CFPB Acting Director Vought

    Our special podcast show today deals primarily with a 112-page opinion and 3-page order issued on March 28 by Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia in a lawsuit brought, among others, by two labor unions representing CFPB employees against Acting Director Russell Vought. The complaint alleged that Acting Director Vought and others were in the process of dismantling the CFPB through various actions taken since Rohit Chopra was fired and replaced by Acting Director Scott Bessent and then Acting Director Russell Vought. This process included, among other things, the termination of probationary and term employees and possibly another 1,300 or so employees through a reduction-in-force , the issuance of a stop work order, the closure of the CFPB’s main office in DC and branch offices throughout the country, the termination of most third-party contracts, the decision not to request any additional funding from the Federal Reserve Board for the balance of the fiscal year and the voluntary dismissal of several enforcement lawsuits. Alan Kaplinsky, Senior Counsel and former chair of Ballard Spahr’s Consumer Financial Services Group, and Joseph Schuster, a Partner in the Consumer Financial Services Group, discuss each part of the preliminary injunction issued by Judge Jackson which, among other things, required the CFPB to re-hire all probationary and term employees who had been terminated, prohibited the CFPB from terminating any CFPB employee except for just cause (which apparently does not include lack of work because of the change in focus and direction of the CFPB), required the CFPB not to enforce a previous “stop work” order or reduction-in-force.  We observed that Judge Jackson’s order has required the CFPB to maintain for now a work force that is not needed for the “new” CFPB. We also discuss that the preliminary injunction order does not require the CFPB to maintain any of the regulations promulgated or proposed by Rohit Chopra or to continue to prosecute any of the enforcement lawsuits brought by Director Chopra. DOJ filed a notice of appeal on March 29 and on March 31 filed a motion in the DC Court of Appeals to stay Judge Jackson’s order. (After the recording of this podcast, the DOJ filed in the Court of Appeals a motion seeking a stay of Judge Jackson’s order. Pending a hearing on April 9th, the Court issued an administrative stay of Judge Jackson’s order. The 3-Judge panel is composed of two Trump appointees and one Obama appointee.) A copy of the blog co-authored by Alan and Joseph is linked here. We also discuss another lawsuit initiated by the City of Baltimore and one other plaintiff against Acting Director Vought in Federal District Court for the District of Maryland seeking to enjoin him from returning to the Federal Reserve Board or the Treasury funds held by the CFPB. The Court denied the motion for preliminary injunction on the basis that it was not ripe for adjudication under the Administrative Procedure Act because the CFPB never actually returned any funds. Finally, Alan expresses surprise that the Acting Director has not relied on the argument that all funds received by the CFPB after September, 2022 were unlawfully obtained because the Dodd-Frank Act stipulates that the CFPB can be funded only out of “combined earnings of the Federal Reserve Banks” and the fact that there have only been huge combined losses of the Federal Reserve Banks since Sept 2022 which continue through today and are likely to continue through the foreseeable future.

    56 min
  2. Prominent Journalist, David Dayen, Describes his Reporting on the Efforts of Trump 2.0 to Curb CFPB

    6D AGO

    Prominent Journalist, David Dayen, Describes his Reporting on the Efforts of Trump 2.0 to Curb CFPB

    Today’s podcast show features a discussion with David Dayen, executive editor of the American Prospect, which is an online magazine about ideas, politics, and power. He's the author of “Chain of Title: How Three Ordinary Americans Uncovered Wall Street's Great Foreclosure Fraud,” which was published in 2016. David has written and published about 10 or so articles in which he chronicles in great detail the apparent effort by the Trump Administration, acting through Scott Bessent and Russell Vought, to dismantle the CFPB by abruptly ordering a cessation of all activities and layoffs of probationary and term employees and a plan to layoff 1,300 or so additional employees. Because this plan would have crippled the CFPB, two lawsuits were initiated in rapid fashion against Acting Director Vought seeking to enjoin him from pursuing this strategy. One lawsuit was brought by the two labor unions representing CFPB employees and others in the U.S. District Court for the District of Columbia and got assigned to Judge Amy Berman Jackson. The second lawsuit was brought by the City of Baltimore and others in the U.S. District Court for the District of Maryland. David describes in detail the case pending before Judge Jackson, including the hearings at which several CFPB employees testified. Those employees painted a very grim picture of the effort to shut down the agency. The DOJ lawyer stated that there was never an intent to shut down the CFPB and that the steps taken by the Acting Directors to “freeze” the CFPB were similar to steps taken by any new Administration in order to provide time to evaluate the situation and decide what changes should be made to reflect the new Administration’s policy objectives. Shortly after the recording of this podcast, Judge Jackson issued on March 28 a 112-page opinion and 3-page order in which she required the reinstatement with back pay of all CFPB employees that had been terminated, enjoined the CFPB from terminating any employees except for good cause related to the individual employee, fully maintain the consumer complaint portal, ordered the defendants to reinstate all third-party contracts which had been earlier terminated, ordered the defendants to not enforce a February 10 stop-work order and required that the CFPB not destroy any records. The defendants have filed a notice of appeal to the D.C. Circuit Court of Appeals. On March 29. On March 31, the defendants filed a motion in the Court of Appeals to stay Judge Jackson’s order. See  this blog for more detail about Judge Jackson’s opinion. Because of the importance of Judge Jackson’s opinion, Alan Kaplinsky and Joseph Schuster have recorded a special (additional) podcast show, where we dissected Judge Jackson’s opinion and order and the other lawsuit brought by the City of Baltimore against Acting Director, Russell Vought, challenging his consideration of returning operating finds to the Federal Reserve Board or Treasury. That podcast will be released tomorrow, Friday, April 4. The Judge in the City of Baltimore case, in which the plaintiffs had not established nearly as complete a record as the case before Judge Jackson, denied the motion for a preliminary injunction based on the Court’s belief that there was no final order which could be challenged under the Administrative Procedure Act. We also discussed the possibility that Congress could subject the CFPB to funding through Congressional appropriations by putting such language in the Budget Reconciliation bill which can be enacted by a simple majority and not 60 votes in the Senate. Alan Kaplinsky, former Chair for 25 years and now Senior Counsel of the Consumer Financial Services Group, hosts the discussion.

    1 hr
  3. A Debate About The Need, If Any, For a Federal Charter for Non-Banks Engaged in the Payments Business

    MAR 27

    A Debate About The Need, If Any, For a Federal Charter for Non-Banks Engaged in the Payments Business

    Our podcast show today features Professor Dan Awrey of Cornell Law School, and Matt Lambert, Deputy General Counsel of the Conference of State Bank Supervisors (“CSBS”) who discuss the pros and cons of Congress enacting a statute which would require federal charter for non-banks engaged in the payments business. At present, such non-banks are generally required to be licensed by state departments of banking under money transmitter laws. On November 14 of last year, on our podcast show, Professor Awrey discussed 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 states, in relevant part: The dual banking 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. The CSBS on Nov. 12 of last year published an article on its website entitled “The Reality of Money Transmission: Secure, Convenient, and Trusted under State Supervision” in which it purported to dispel several myths about state money transmitter and money services statutes. CSBS stated: Recent statements about money transmission in the United States have perpetuated myths about consumer protections and the safety and soundness of this vibrant, secure, and trusted part of our country’s payments ecosystem. It is time that we dispel some of these myths by explaining the realities of the state-developed, nationwide framework for regulation, licensing, and supervision of money transmission. While targeted reforms made through cooperation between the states and federal government may be appropriate, a complete overhaul of an established, secure, convenient, and stable money transmission ecosystem is an unwarranted federal overreach. Because of these sharp differences of opinion between Professor Awrey and CSBS, we decided to invite Professor Awrey and Matt Lambert to be our guests on this show and to discuss the following issues: The historical background to and rationale for state money transmitter laws How the National Multistate Licensing System (“NMLS”) and state supervision work today The emergence of new business models: e.g. PayPal, Stripe, Crypto A brief history of recent federal proposals: from the OCC fintech charter to the current stablecoin bills How state legislatures and regulators have responded to the emergence of new business models (e.g. model act amendments and adoption, new chartering frameworks) Where the federal government can meaningfully improve on these state level responses (standardization, bankruptcy protection, payment network access, systemic risk regulation, international coordination) Where state regulators have a comparative advantage (novel chartering, supervision) Where we think the nonbank payment industry and regulation are heading in 2025 and beyond Alan Kaplinsky, Senior Counsel and former practice group leader of the Consumer Financial Services Group, hosts the podcast show.

    1h 4m
  4. How to use the Restatement of Consumer Contracts: A Guide for Judges

    MAR 20

    How to use the Restatement of Consumer Contracts: A Guide for Judges

    Today’s podcast show features a discussion with Professor Gregory Klass of Georgetown University Law School about an article he co-authored with Professor Ian Ayres, entitled “How to Use the Restatement of Consumer Contracts: A Guide for Judges.” The article will be published this year in the Harvard Business Law Review (vol 15), and is available here. The abstract of the article states: “In the absence of major legislation or regulatory action, U.S. consumers will continue to look to courts and the common law for protection when businesses engage in unfair and deceptive contracting practices. In May 2022, the American Law Institute approved the Restatement of the Law, Consumer Contracts. This new Restatement provides a valuable resource for courts tasked with deciding the legal effects of standard terms that businesses draft and consumers do not read. This essay identifies six pieces of the new Restatement we believe courts should pay special attention to and discusses the importance of each. It also charts several ways courts might go beyond the new Restatement to protect consumers against abusive contracting practices. Unless and until legislators and regulators step in, U.S. courts should continue to reshape the common law to address risks that new technologies of contracting create.” We discuss the following questions related to this Restatement: The history and scope of the Restatement of Consumer Contracts project Why was there perceived to be a need for a separate restatement for consumer contract law when there has been a Restatement of Contracts for many decades? Was it wise to publish a Restatement of Consumer Contracts as opposed to a Statement of Principles since the document to a large extent focuses on what the law should be, rather than on what the law is? The identification of several parts of the Restatement to which Professor Klass believes the courts should pay special attention: a.      The “reasonable expectations” rule in Section 4; b.     The unconscionability defense in Section 6; c.      The deception defense in Section 7; and, d.      The Parol Evidence rule Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.

    56 min

  5. MAR 13

    Prof. Hal Scott Doubles Down on His Argument That CFPB is Unlawfully Funded Because of Combined Losses at Federal Reserve Banks

    On June 6 of last year, Prof. Hal Scott of Harvard Law School was our podcast guest. On that occasion he delved into the thought-provoking question of whether the Supreme Court’s decision on May 16 in the landmark case of CFSA v. CFPB really hands the CFPB a winning outcome, or does the Court’s validation of the agency’s statutory funding structure simply open up another question - namely, whether the CFPB is legally permitted under Dodd-Frank to receive funds from the Federal Reserve even though the Federal Reserve Banks have lost money on a combined basis since September 2022. Dodd-Frank provides that the CFPB is to receive its funding out of the Federal Reserve Banks “combined earnings.” The Wall Street Journal published an op-ed by Prof Scott on May 20 titled “The CFPB’s Pyrrhic Victory in the Supreme Court” in which he explains that even though the CFPB’s funding mechanism as written was upheld in CFSA v. CFPB, this will not help the agency now or at any time in the future when the Federal Reserve operates at a deficit. A lot has happened since Prof. Scott’s last appearance on our podcast show. Several enforcement  lawsuits filed by the CFPB were faced with motions to dismiss filed by the defendants alleging that the lawsuits could not be financed by the CFPB with funds that were unlawfully procured The CFPB gave short shrift to this argument but never could adequately explain how “earnings” as used in Dodd-Frank really means “revenues” and not profits. While 3 courts rejected the motions to dismiss, those courts decided to do so without dealing with the core issue of whether “earnings” means profits or revenues. President Trump became President on January 20 and, shortly thereafter, Rohit Chopra was terminated. The new Acting Director, Russell Vought, proceeded to shutter the CFPB by, among other things, terminating or putting on administrative leave with instructions to do no work  most of its employees and refusing to seek a quarterly funding from the Federal Reserve. Mr. Vought did not base this refusal on the premise that the receipt of such funding would be illegal. Two lawsuits have been filed against the Acting Director challenging the legality of the apparent dismantling of the CFPB. While the CFPB is defending these cases on the basis that the President and the Acting Director have the Constitutional right to downsize and alter the policies of the CFPB, they have surprisingly not made the argument that the CFPB’s funding is unlawful. Prof. Scott on Feb, 1 published another op-Ed in the Wall Street Journal entitled “Rohit Chopra is out. Now Shutter the CFPB” and two articles on the website of the Committee on Capital Markets Regulation (of which Prof. Scott is the President and Director) entitled “Understanding the CFPB’s Funding Problem” and “The Fed’s Accounting Methodology Cannot Expand its Statutory Authority to Fund the CFOB.”  Our podcast show released today takes a very deep dive into those articles and explains Prof. Scott’s position that the Fed’s accounting for the massive losses of the Federal Reserve Banks (which creates a deferred asset account composed of anticipated future earnings of the Federal Reserve Banks which the Federal Reserve Banks will not need to remit to the treasury because the banks may recoup its accumulated losses since September 2022) has no bearing on whether the Fed has been lawfully funding the CFPB out of “combined earnings” of the Federal Reserve Banks. Prof Scott also rebuts several counterarguments made by those who claim that the CFPB has been lawfully funded throughout. Prof. Scott also discusses why he believes that congress may use a budget appropriations bill whose passage requires only a majority, not 60, vote in the Senate in order to subject the CFPB to funding through the congressional appropriations process.  Our blogs about the Supreme Court decision in CFSA v. CFPB can be found here and here. To read our blog about Professor Scott’s op-ed in the Wall Street Journal, which includes a link to the op-ed, click here.  To read his more recent op-ed in the Wall Street Journal, click here to read his two articles published on the website of the Committee on Capital Markets Regulation entitled, click here and here. A transcript of the recording will be available soon.

    57 min

  6. MAR 6

    “Accidental Arbitration” -- A New Theory that Would Rein in Consumer Arbitration Clauses and the Scope of the FAA

    Our special guest is David Horton, Professor of Law at the University of California, Davis, who has written a creative and thought-provoking article analyzing how courts should interpret certain key provisions that are frequently used in consumer arbitration agreements. The article may be accessed online at SSRN and will be published in the Washington University Law Review later this year.  Prof. Horton first contends that courts have misinterpreted the Federal Arbitration Act (FAA) as requiring arbitration clauses to be construed broadly, which in many cases forces consumers to arbitrate disputes they never agreed to because the dispute is not causally related to the consumer’s original transaction with the company. Instead, he argues, courts should be guided by the literal text of the FAA, which limits the statute’s application to disputes that “arise out of” the contract containing the clause. Such an approach would narrow the scope of the arbitration clause to disputes that were contemplated by both parties at the time of contracting. Second, Prof. Horton addresses the issue of third parties who are not signatories to the consumer arbitration agreement but are nevertheless defined as “parties” in the agreement. According to Prof. Horton, such “artificial privity” unduly broadens the scope of the arbitration clause because many courts automatically permit the third parties to enforce the agreement without satisfying more rigorous state law requirements for establishing third-party beneficiary status. Third, Prof. Horton argues that arbitrability questions concerning whether a dispute “arises under” the contract and whether a third party properly has enforcement rights should be decided by a court even if the arbitration clause purports to delegate such issues to the arbitrator. Mark Levin, Senior Counsel in the Consumer Financial Services Group, who helped pioneer the use of arbitration agreements and class action waivers in bank, credit card and other consumer contracts, provides the industry response to each of the arguments asserted by Prof. Horton. Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.

    1h 2m
  7. The Patterns of Digital Deception

    FEB 27

    The Patterns of Digital Deception

    Our podcast show today features Gregory M. Dickinson, Assistant Professor of Law at the University of Nebraska, who was previously a guest on our show on August 3, 2023. Our 2023 episode was based on Professor Dickinson’s article titled “Privately Policing Dark Patterns”, 57 Ga. L. Rev. 1633 (2023). The show today focuses on Professor Dickinson’s more recent article, which builds on his 2023 article, titled “The Patterns of Digital Deception”, 65 B. C. L. Rev. 2457 (2024). The abstract to this article states: “Current consumer-protection debates focus on the powerful new data-analysis techniques that have disrupted the balance of power between companies and their customers. Online tracking enables sellers to amass troves of historical data, apply machine-learning tools to construct detailed customer profiles, and target those customers with tailored offers that best suit their interests. It is often a win-win. Sellers avoid pumping dud products and consumers see ads for things they actually want to buy. But the same tools are also used for ill—to target vulnerable members of the population with scams specially tailored to prey on their weaknesses. The result has been a dramatic rise in online fraud that disproportionately impacts those least able to bear the loss. The law’s response has been technology centric. Lawmakers race to identify those technologies that drive consumer deception and target them for regulatory restrictions. But that approach comes at a major cost. General-purpose data-analysis and communications tools have both desirable and undesirable uses, and uniform restrictions on their use impede the good along with the bad. A superior approach would focus not on the technological tools of deception but on what this Article identifies as the legal patterns of digital deception—those aspects of digital technology that have outflanked the law’s existing mechanisms for redressing consumer harm. This Article reorients the discussion from the power of new technologies to the shortcomings in existing regulatory structures that have allowed for their abuse. Focus on these patterns of deception will allow regulators to reallocate resources to offset those shortcomings and thereby enhance efforts to combat online fraud without impeding technological innovation.” During the show, we discuss the following questions: What is digital deception? What are some examples of digital deception? How is modern online deception any different from old-fashioned, in-person fraud? What have lawmakers been doing to address this issue? Have they succeeded? What sorts of restrictions are on the horizon? What are the challenges to lawmaking in this area? How do these challenges tie in with the “Patterns of Digital Deception”? Given these challenges, what sort of approach should state and federal lawmakers take? Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.

    35 min

  8. FEB 20

    Banking as a Service

    Our podcast show today features Jason Mikula, publisher of Fintech Business Weekly; a newsletter going beyond the headlines to analyze the technology, regulatory and business model trends, driving the rapidly evolving financial services ecosystem at the intersection of traditional banking, payments, FinTech and crypto. We discuss his recently released book, titled “Banking as a Service: Opportunities, Challenges, and Risks of New Banking Business Models” (Kogan Page 2024). The publisher describes the book as follows: “This book provides a comprehensive look at banking-as-a-service (BaaS), equipping readers with an understanding of the origins, evolution, future and applications of BaaS and the key differences across global markets.” BaaS is a game changer in the financial services sector, radically transforming both how consumers experience financial products and the business models delivering them. “Banking as a Service” cuts through the hype to provide a measured overview of BaaS, helping readers to demystify a complex evolving field, and understand its key opportunities, challenges, and risks. It provides a framework for understanding where BaaS came from, how BaaS changes the economics and business models of banking products and services, its impact on key stakeholders, and its key regulatory implications. “Banking as a Service” explains how business and operating models work, exploring different models such as interchange, deposit gathering, loan origination-to-distribute, legacy, API-first, own license, match-making and bank service providers, and offers a framework for thinking about whether or not they're sustainable. It explores how BaaS operating and business models compare in different global territories and is supported by real-world examples and cases profiling organizations such as Blue Ridge Bank, Unit, Synapse, Goldman Sachs, Railsr, Starling, Solaris, Cacao Paycard, QNB, OnePipe, Airwallex, Nium and Pomelo. It also explains the differences between BaaS, embedded finance and “open banking.” Alan and Jason discuss the answers to the following questions and topics: 1.              What do we mean when we say "banking as a service"? 2.              What are the different BaaS business models/operating models? 3.              What led to the explosion in banking-as-a-service? 4.              Why have bank/fintech partnerships had a rough go of it lately in the US and is that likely to change with a new administration? 5.              What is (or what should be) regulators' role in supervising non-bank entities in the BaaS value chain (eg, middleware, customer-facing fintechs)? 6.              What is an FBO and are FBOs the "original sin" of banking-as-a-service? 7.              What advice would you give to banks considering getting into the BaaS space? How do you see the market evolving from here - for banks, for technology providers, and for customer-facing companies? 8.              What advice would you give to fintechs that rely on a bank partner or are looking for one? Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.

    1h 14m
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    About

    The Consumer Financial Services industry is changing quickly. This weekly podcast from national law firm Ballard Spahr focuses on the consumer finance issues that matter most, from new product development and emerging technologies to regulatory compliance and enforcement and the ramifications of private litigation. Our legal team—recognized as one of the industry's finest— will help you make sense of breaking developments, avoid risk, and make the most of opportunity.

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    • Creator
      Ballard Spahr LLP
    • Years Active
      2018 - 2025
    • Episodes
      101
    • Rating
      Clean
    • Copyright
      ©2022 Ballard Spahr LLP
    • Show Website
      Consumer Finance Monitor

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