Consumer Finance Monitor Ballard Spahr LLP

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.

Our special guest is Brian Johnson, Managing Director of Patomak Global Partners and former CFPB Deputy Director. In Nov. 2023, the CFPB issued a proposed rule to supervise nonbank companies that qualify as larger participants in a market for “general-use digital consumer payment applications.” We first discuss the CFPB’s authority to supervise nonbank entities considered to be “a larger participant of a market for other consumer financial products or services” and  its previous use of that authority. We look next at how the CFPB has defined the relevant market in its current proposal and its rationale for the proposal. We then discuss the deficiencies in the CFPB’s cost benefit analysis of the proposal and how the proposal reflects changes to the CFPB’s approach to rulemaking under Director Chopra. We conclude with a discussion of possible litigation challenges to a final rule and issues companies likely to be covered by a final rule should be considering.
Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, leads the conversation.

On February 27, 2024, the U.S. Supreme Court heard oral argument in Cantero v. Bank of America, N.A., a case involving the effect of the Dodd-Frank Act on the scope of preemption under the National Bank Act (NBA). The specific question before the Court is whether, post-Dodd-Frank, the NBA preempts a New York statute requiring banks to pay interest on mortgage escrow accounts. The decision, however, could have ramifications well beyond the specific New York law at issue. This episode repurposes a recent webinar roundtable and brings together as our guests four attorneys who filed amicus briefs with the Supreme Court: Jonathan Y. Ellis, William M. Jay, and Matthew A. Schwartz, partners in private law firms, and Professor Arthur E. Wilmarth, Jr. After we review the procedural history of Cantero, our guests discuss the arguments made in favor of and against preemption in their amicus briefs and share their reactions to the oral argument and predictions for how the Court will rule.
Alan Kaplinsky, Senior Counsel and former Practice Group Leader in the firm’s Consumer Financial Services Group, moderates the discussion.