Consumer Finance Monitor Ballard Spahr LLP

On May 16, 2024, the U.S. Supreme Court ruled that the CFPB’s funding mechanism does not violate the Appropriations Clause of the U.S. Constitution. This two-part episode repurposes a recent webinar. In Part II, we first discuss the CFPB’s launch of Fair Credit Reporting Act rulemaking, proposed rule to supervise larger payment providers, proposed rule on personal financial data rights, and interpretive rule on buy-now-pay-later.  We next discuss the operation of the Congressional Review Act and its potential impact on final CFPB rules if the November 2024 election results in a change in Administrations. We then discuss the impact of the SCOTUS decision on pending CFPB enforcement actions, the expected proliferation of new CFPB investigations and enforcement actions, and the CFPB’s announced hiring binge. We conclude by sharing our thoughts on what companies can do to prepare for an uptick in CFPB activity and how the CFPB’s increased staffing is likely to impact which companies will be targeted.
Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, moderates the discussion joined by John Culhane and Joseph Schuster, Partners in the Group, and Kristen Larson, Of Counsel in the Group.

On May 16, 2024, the U.S. Supreme Court ruled that the CFPB’s funding mechanism does not violate the Appropriations Clause of the U.S. Constitution. This two-part episode repurposes a recent webinar. In Part I, we first discuss the SCOTUS decision, the status of the CFPB’s payday lending rule that was at issue in the underlying case, and a potential new challenge to the CFPB’s funding that has been the focus of recent attention. We then discuss four cases still pending before SCOTUS in which the decisions could impact the CFPB. Next, we discuss the pending lawsuits challenging the CFPB’s final rules on credit card late fees and small business data collection and the changes to the CFPB’s UDAAP exam manual defining “unfairness” to include discrimination, including the background of those cases, their current status, and the non-constitutional legal challenges made by the plaintiffs in those cases. We conclude with a discussion of final and proposed CFPB rules expected to be issued soon and potential non-constitutional legal challenges to those rules.
Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, moderates the discussion joined by John Culhane, Richard Andreano, and Joseph Schuster, Partners in the Group, and Kristen Larson, Of Counsel in the Group.

Special guest Professor Hal Scott of Harvard Law School joins us today as we delve into the thought-provoking question of whether the Supreme Court’s recent decision 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: whether the CFPB is legally permitted to receive funds from the Federal Reserve if (as now) the Fed has no earnings. In other words, was the outcome in CFSA v. CFPB an illusory Pyrrhic victory for the CFPB? And, what happens next?
Our episode begins with a brief discussion of the underlying case. Professor Scott follows with an explanation of the CFPB’s statutory funding mechanism as established by the Dodd-Frank Act, which provides that the CFPB is to receive its funding out of the Federal Reserve System’s “earnings”, and the Supreme Court’s decision upholding that structure.
Then, we turn to an in-depth discussion of the op-ed Professor Scott published in the Wall Street Journal entitled “The CFPB's Pyrrhic Victory in the Supreme Court”, in which Professor Scott 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 – in fact, has no earnings it can legally send to the CFPB. Professor Scott describes how his focus on the Federal Reserve led him to scrutinize and then question the approach taken in the majority opinion; and then turns to an explanation of how a constitutional issue under the Appropriations Clause in fact may persist because in the absence of Fed earnings, funds paid to the CFPB arguably have not been drawn from the Treasury. We then go over possible arguments challenging the CFPB’s issuance and enforcement of regulations, and what might ensue when the federal district court takes up CFSA v. CFPB for further proceedings.
Alan Kaplinsky, former practice leader and current Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, hosts this week’s episode.

Our special guest this week is John Tonetti. After decades as an industry risk executive, Mr. Tonetti joined the Consumer Financial Protection Bureau (CFPB), where he worked for many years in roles including Debt Collection Program Manager, senior policy analyst, and internal consultant on numerous issues including debt collection and risk management policies and examinations. In this episode, Mr. Tonetti shares his perspectives from the point of view of an agency insider who served under every CFPB director and acting director in office to date.
We first discuss the pitfalls of the CFPB’s leadership structure, which gives a single individual broad regulatory power over “the largest financial system that has ever existed”, and Mr. Tonetti’s observations on the contrasting leadership and rulemaking approaches taken by the various CFPB directors and acting directors. We then turn to consideration of regulations and guidance recently proposed and adopted by the CFPB, including flaws in the agency’s approach to obtaining and utilizing data on which its mandates are based. We ask and respond to the question of whether the CFPB, on more than one occasion, has exceeded its authority, and how the courts have reacted and likely will react.
Alan Kaplinsky, former practice leader and current Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, hosts this week’s episode.

Our special guests are Professor Dru Stevenson, South Texas College of Law in Houston, and Brian Knight, Senior Research Fellow, Mercatus Center at George Mason University. In this episode, we first discuss the history of  “Operation Chokepoint,” the Obama-era initiative in which the FDIC and other federal banking agencies targeted banks serving payday lenders and companies engaged in other “disfavored” industries. We then devote the remainder of the episode to a discussion of what is the appropriate role of bank regulators with regard to banks’ customer relationships, with our guests presenting opposing views on how regulators should use their authority to address reputational and other risks to banks arising from customer relationships.
Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, leads the conversation.

Our special guest is Professor Richard Frankel of Drexel University Thomas R. Kline School of Law and the author of a recent article on mass arbitration. In this episode, we first discuss what mass arbitration is, how it relates to class action lawsuits, and the role of public enforcement. We then discuss the industry and consumer positions on the use of mass arbitration and the empirical study conducted by Prof. Frankel for his article. We conclude with a discussion of steps that companies using arbitration provisions in their consumer agreements can take to respond to the use of mass arbitration, the application of the Federal Arbitration Act to arbitration agreements containing provisions that address mass arbitration, and the role of state regulation.
Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, leads the conversation, joined by Mark Levin, Senior Counsel in the Group.