1. 2017 NCHER FALL LEGAL MEETING October 6, 2017 Philadelphia, PA
CFPB Update
2017 NCHER FALL LEGAL MEETING October 6, Philadelphia, PA
Alan S. Kaplinsky
Practice Group Leader
Consumer Financial Services
Copyright 2015 Ballard Spahr LLP. All rights reserved.

2. Director Cordray’s future
5-year term ends on July 17, 2018
Widely-speculated he plans to run as Democratic candidate for Ohio Governor in 2018
Timing of announcement possibly tied to issuance of small dollar loan/debt collection rules, CRA vote on arbitration rule
2/7/18 Ohio filing deadline for party candidates
Who would succeed Director Cordray if he resigns?
Under Dodd-Frank Act, the Deputy Director will “serve as acting Director in the absence or unavailability of the Director.”
David Silberman is the Acting Deputy Director

3. Director Cordray’s future (cont’d)
Unclear if “absence or unavailability of the Director” covers resignation
Federal Vacancies Reform Act of 1998 (the “FVRA”) applies when “an officer of an Executive agency…whose appointment to office is required to be made by the President, by and with the advice and consent of the Senate, dies, resigns, or is otherwise unable to perform the functions and duties of the office.”
FVRA provides that certain persons may perform the duties of the vacant office on an acting basis without Senate approval for a period of 210 days from the date of the vacancy or the date a nominee to fill the position is rejected, withdrawn or returned to the President by the Senate.
FVRA establishes as a default that the first assistant “to the departed office will perform the duties of the vacated office on an

4. Director Cordray’s future (cont’d)
acting basis” but allows the President to appoint as an acting Director either a senior employee of the CFPB or an officer of an agency who has already been approved by the Senate
Treasury Secretary Mnuchin likely choice for Acting Director
Impact of new Director
Rulemaking likely to slow
Repeal/delay of effective date of finalized rule would require use of APA notice and comment procedures
Supervision unlikely to change absent legislation
Enforcement likely to slow, focus on clear-cut violations/issues with bi-partisan support (e.g. out and out fraud)

5. CFPB Arbitration Rule Chronology Section 1028 of Dodd-Frank
Requires the CFPB to “conduct a study of, and to provide a report to Congress concerning, the use of agreements providing for arbitration of any future dispute between covered persons and consumers in connection with the offering or providing of consumer financial products or services”
Provides further that the CFPB “by regulation, may prohibit or impose conditions and limitations for the use of [such] an agreement” if the CFPB “finds that such a prohibition or imposition of conditions and limitations is in the public interest and for the protection of consumers”
CFPB issued 728-page empirical study on March 10, 2015

6. CFPB Arbitration Rule (cont’d)
CFPB issued proposed Rule on May 5, 2016
CFPB received more than 113,000 comments on proposed rule
CFPB issued 775-page final Rule and commentary on July 10, 2017
Rule would bar companies from including arbitration clauses that block class action lawsuits in their consumer financial services contracts
Rule would also require companies that use arbitration clauses for individual disputes to submit to the CFPB the arbitration claims filed and awards issued so that the CFPB can monitor fairness of the process

7. CFPB Arbitration Rule (cont’d)
Rule is effective September 18, 2017; mandatory compliance date is March 19, 2018
Rule is based on the CFPB’s conclusions that: (a) individual dispute resolution is insufficient as the sole mechanism available to consumers to enforce contracts and the laws applicable to consumer financial products and services; (b) class actions provide a more effective means of securing relief for large numbers of consumers affected by common legally questionable practices and for changing companies' potentially harmful behaviors and (c) arbitration agreements block many class action claims that are filed and discourage the filing of others.
Covered persons include:

8. CFPB Arbitration Rule (cont’d)
original consumer credit providers
buyers and sellers of consumer credit
debt collectors and buyers
those providing consumer financial services to the above, such as servicing
Substance of Rule
Under § 1028(b), the Rule applies to any pre-dispute arbitration agreement “entered into” after March 19, 2018 (i.e. 241 days after the Rule was published in the Federal Register).
“Entered into” includes any circumstance in which a person agrees to undertake obligations or gains rights in an agreement.

9. CFPB Arbitration Rule (cont’d)
Thus, when a person, before the compliance date, enters into an agreement to arbitrate future disputes with a consumer, and then provides the consumer with a new product that is subject to that agreement after the compliance date, the provider would be considered to be entering into that arbitration agreement for the new product after the compliance date for purposes of the Rule.

10. CFPB Arbitration Rule (cont’d)
A provider shall not seek to rely in any way on a pre-dispute arbitration agreement “entered into” after March 19, with respect to any aspect of a class action that is related to any of the covered consumer financial products or services, including to seek a stay or dismissal of particular claims or the entire action, unless and until the presiding court has ruled that the case may not proceed as a class action and, if that ruling may be subject to appellate review on an interlocutory basis, the time to seek such review has elapsed or the review has been resolved.
Upon “entering into” a pre-dispute arbitration agreement for a covered product or service after the compliance date, a provider must ensure that the agreement states:

11. CFPB Arbitration Rule (cont’d)
“We agree that neither we nor anyone else will rely on this agreement to stop you from being part of a class action case in court. You may file a class action in court or you may be a member of a class action filed by someone else.”
Alternate language can be used when the pre-dispute arbitration agreement applies to multiple products or services, only some of which are covered products
Provider that acquires or purchases a covered product and becomes a party to a pre-dispute arbitration agreement that existed previously between other parties and did not contain the required language must within 60 days of “entering into” the pre-dispute arbitration agreement:

12. CFPB Arbitration Rule (cont’d)
Amend the agreement to include specified language or
Provide a specified notice to the consumer
For any pre-dispute arbitration agreement “entered into” after March 19, 2018, the provider must submit certain arbitral records to the CFPB in connection with any claim filed in arbitration by or against the provider concerning any covered consumer financial products or services.
These records (redacted) will be posted on the CFPB’s website by July 1, 2019.

13. CFPB Arbitration Rule (cont’d)
Lawsuit filed challenging Rule on September 29
Filed in Texas federal court by U.S. Chamber of Commerce, American Bankers Association, American Financial Services Association, other trade groups.
Lawsuit alleges Rule is unlawful because:
CFPB’s structure is unconstitutional
Rule does not satisfy Dodd-Frank standard that it be “in the public interest and for the protection of consumers”
CFPB’s study was flawed
Rule is inconsistent with the study

14. CFPB Arbitration Rule (cont’d)
Other Possible Challenges
Congressional Review Act
Allows the House of Representatives and Senate to override a federal agency's final rule by passing a resolution of disapproval by a simple majority vote within a specified time period following the rule's receipt by Congress.
In July 2017, the House passed a joint resolution to disapprove the arbitration rule by a vote of
Prior to the House vote, the White House issued a statement supporting the joint resolution
Estimated date by which Senate must pass resolution is November 16.

15. CFPB Arbitration Rule (cont’d)
New Director-reopen rulemaking
Ramifications of Rule
Will companies abandon arbitration?
Class action explosion
Financial impact on providers

16. Debt collection rulemaking
CFPB issued an Advance Notice of Proposed Rulemaking in November 2013
In anticipation of convening a SBREFA panel, CFPB issued an outline of the proposals it is considering in July 2016.
Convened SBREFA panel in August 2016.
Coverage of SBREFA proposals was limited to “debt collectors” that are subject to the FDCPA.

17. Debt collection rulemaking (cont’d)
In July 2016, CFPB said it expected to convene a second SBREFA panel in the “next several months” to address a separate rulemaking for creditors and others engaged in debt collection not covered by the proposals.
In June 2017, Director Cordray announced the CFPB has decided to proceed first with a proposed rule on disclosures and treatment of consumers by debt collectors and thereafter write a market-wide rule in which it will consolidate the issues of “right consumer, right amount” into a separate rule that would cover first- and third-party collections.

18. Debt collection rulemaking (cont’d)
Spring 2017 rulemaking agenda gave September 2017 date for a proposed rule that will presumably address disclosures and treatment of consumers by debt collectors.

19. Student loan servicing rulemaking
In September 2015, CFPB issued report on student loan servicing practices.
In May 2016, CFPB issued RFI seeking comments on potential borrower communications regarding alternative repayment options.
In July 2016, CFPB endorsed new policy guidance on servicing standards for federal student loans issued by the Department of Education.

20. Student loan servicing rulemaking (cont’d)
Guidance was developed by ED in consultation with CFPB and Treasury
In April 2017, ED Secretary Betsy DeVos withdrew guidance
In Spring 2017 rulemaking agenda, CFPB designated student loan servicing a “long term action.”
Designation means CFPB does not expect to take a regulatory action within the 12 months after the agenda’s publication.
CFPB stated it “will evaluate possible policy responses, including potential rulemaking. Possible topics for consideration might include specific acts or practices and consumer disclosures.”

21. Student loan servicing rulemaking (cont’d)
Subsequent CFPB reports continue to be highly critical of student loan servicing
April 2017 Monthly Complaint Report
June 2017 Ombudsman Report on Public Service Loan Forgiveness
August 2017 Report on Loan Repayment (focusing on “vulnerable” consumers)
August 2017 Update on Student Loan Debt and Older Consumers

22. Student loan servicing rulemaking (cont’d)
Timing and scope of any rulemaking will depend on a number of factors
Resolution of jurisdictional dispute with ED
CFPB assessment of likelihood of Congressional action

23. Legislative reform of CFPB
Financial CHOICE Act
Passed House on June 8, 2017 by vote of
Key changes:
CFPB would be renamed the “Consumer Law Enforcement Agency” (CLEA).
CLEA would be run by a single Director appointed by the President and confirmed by the Senate. There would be no “for cause” limit on the President’s authority to remove the CLEA Director
CLEA Deputy Director would also be appointed by the President.

24. Legislative reform of CFPB (cont’d)
CLEA would have no supervisory authority, no UDAAP enforcement or rulemaking authority, no enforcement or rulemaking authority “with respect to payday loans, vehicle title loans, or other similar loans,” and no authority to prohibit or limit the use of arbitration agreements in connection with consumer financial products or services.
CLEA would be subject to the regular Congressional appropriations process.
Appropriations Bill (Make America Secure and Prosperous Appropriations Act)
Passed House by vote of on September 14, 2017.

25. Legislative reform of CFPB (cont’d)
Key changes:
CFPB would be subject to regular appropriations process
CFPB’s supervisory authority would be eliminated
CFPB’s authority with respect to “rulemaking, enforcement, or other authority with respect to payday loans, vehicle title loans or other similar loans” would be removed
CFPB’s UDAAP authority would be removed
CFPB’s authority to restrict arbitration would be eliminated

26. Thank you! Alan S. Kaplinsky Practice Group Leader
Consumer Financial Services

27. E-mail questions@ballardspahr.com.
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29. Alan S. Kaplinsky
Practice Leader of the Consumer Financial Services Group at Ballard Spahr
Devotes his practice to counseling financial institutions with respect to bank regulatory and transactional matters and defending them in individual and class action lawsuits (including CFPB investigations and government enforcement matters)
First President of the American College of Consumer Financial Services Lawyers and the recipient of the College’s 2016 Lifetime Achievement Award
Former Chair of the American Bar Association Committee on Consumer Financial Services of the Business Law Section
Co-Chair of the Practising Law Institute's Annual Consumer Financial Services Institute, now on its 22nd year
Has been named as a tier one banking and consumer financial services lawyer in the 2006 through 2016 editions of Chambers USA
Has been named in The Best Lawyers in America under financial services regulation law and banking and finance litigation from 2007 to 2015
Member of the Bloomberg BNA Banking Report Advisory Board
Recipient of the National Law Journal's 2015 Litigation Trailblazers Award for pioneering the use of class action waivers in consumer arbitration provisions