On January 3, 2018, in Italian Colors Restaurant v. Becerra, No. 15-15873, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit invalidated an application of a California law that would prohibit merchants from imposing a surcharge on credit card payments. The California law would allow offering discounts for payments by

Acting CFPB Director Mick Mulvaney made three important announcements this week.  First, on December 4, he announced a suspension of the agency’s collection of consumers’ personal information due to concerns about cybersecurity. Mulvaney, who said he is taking data security “very, very seriously” according to The Wall Street Journal report (paywall), explained that the Bureau should first hold itself accountable and ensure it has a rigorous data-security program before expecting the same from the financial services industry it oversees. In addition, Mulvaney revealed two of his immediate priorities for the Bureau under his leadership: hiring senior political appointees to work with the heads of the independent agency’s main divisions and reviewing more than 100 pending CFPB enforcement cases.

Continue Reading CFPB Acting Director Institutes Suspension of Data Collection, Reveals Plans to Bring in More Political Appointees, and Announces Review of Pending Enforcement Matters

On September 29, 2017, a coalition of bank and trade associations filed a federal court challenge to the Consumer Financial Protection Bureau’s (“CFPB” or the “Bureau”) arbitration rule. The industry group plaintiffs allege that the arbitration rule is illegal on four grounds, including that the CFPB’s actions are unconstitutional, and that the Bureau violated the Administrative Procedure Act (“APA”) in conducting and interpreting the arbitration study it used to justify the rule.

The Bureau published its final arbitration rule in July. As we have explained previously, the regulation would generally prohibit financial services businesses from including arbitration clauses in consumer contracts unless those arbitration clauses expressly permit class actions to proceed in court. In reaching the conclusion that the arbitration rule was justified, the CFPB relied on a study it conducted on the effects of consumer arbitration clauses in the financial services industry.

The lawsuit argues that the district court should invalidate the arbitration rule on four grounds:

  1. The structure of the Bureau, with its single director removable only for cause, is unconstitutional, and this unconstitutionality “fatally infected” the passage of the rule. This constitutional argument has been previously raised in the PHH case, which we have previously discussed.
  2. The Bureau’s study into the effects of mandatory arbitration does not properly support the rule under the APA,  because it improperly limited public participation, used improper methodologies, misconstrued the data, and did not address additional essential considerations.
  3. The Bureau’s interpretation of this study also violated the APA because its conclusions ran counter to the factual record the Bureau developed, and thus was arbitrary and capricious.
  4. Adoption of the arbitration rule violated the directive of the Dodd-Frank Act to implement a rule limiting the use of consumer arbitration clauses only if such a rule was in the public interest and advanced consumer welfare. Along similar lines, the Office of the Comptroller of the Currency recently published a report indicating that the arbitration rule would increase credit costs for consumers.


Continue Reading Industry Coalition Challenges CFPB Arbitration Rule in Court

On September 8, 2017, the U.S. District Court for the Northern District of California entered an order granting a civil penalty and injunctive relief in a CFPB case against mortgage loan servicer Nationwide Biweekly Administration, Inc. (“Nationwide”), its wholly-owned subsidiary Loan Payment Administration, and the principal of Nationwide. In its suit, the CFPB alleged that the defendants engaged in abusive and deceptive practices and violated the Telephone Sales Rule (“TSR”) in the course of offering its mortgage payment program.

Among the notable aspects of this case was the court’s interpretation of the relevant statute of limitations period. The Dodd-Frank Act generally sets a statute of limitations for the Bureau of “3 years after the date of discovery of the violation to which an action relates.” 12 U.S.C. § 5564(g)(1). Prior to this decision, no court had ruled on how to interpret the Dodd-Frank “date of discovery” provision.

Here, the court found that “mere receipt of a consumer complaint” does not cause the statute to run, and moreover that such an interpretation would be “unworkable.” Instead, the court wrote that even a “credible and specific” consumer complaint would “at most” provide “inquiry notice” and that the statute begins running only after the CFPB “actually” discovers facts allegedly constituting a violation of law or until a “reasonably diligent plaintiff would have” discovered those facts. In other words, the clock does not begin to run until the Bureau has had enough time to conduct a preliminary investigation into the wrongdoing alleged in a consumer complaint.


Continue Reading Federal Court Takes Expansive View of CFPB Statute of Limitations, Limits Restitution

On August 25, 2017, a federal judge for the U.S. District Court for the District of Georgia dismissed five payment processor defendants from a CFPB lawsuit, following what the Court described as the repeated failure by the Bureau to follow court discovery orders. In particular, the Bureau refused to provide factual evidence supporting the elements

Earlier this week, the Consumer Financial Protection Bureau published a final rule substantially curtailing the ability of financial services providers and consumers to enter into voluntary pre-dispute arbitration clauses.  The final rule, like the proposed rule that preceded it, would i) prevent financial services providers from including arbitration clauses in consumer contracts unless those arbitration

On June 21, 2017, a federal district court judge referred to a magistrate the Consumer Financial Protection Bureau’s (“CFPB”) first attempt to obtain a contempt finding against a subject who allegedly failed to comply with a civil investigative demand (“CID”).

The matter arrived in district court in November 2016, when the CFPB first sought judicial

On January 5, 2017, the Consumer Financial Protection Bureau (the “CFPB”) issued a civil investigative demand (“CID”) to The Source for Public Data, L.P. (“Public Data”), a company that collects personal information about consumers. The CID requested information to determine whether consumer reporting agencies, persons using consumer reports, or other persons have engaged or are engaging in unlawful acts and practices in connection with the provision or use of public records information in violation of the Fair Credit Reporting Act. The CID implied that Public Data is a consumer reporting agency, a characterization Public Data has rejected.

Continue Reading Texas District Court Rules that Notification of Purpose in CFPB CID Provides Fair Notice

In its decision in Kokesh v. SEC, issued on Monday, June 5, 2017, the Supreme Court unanimously ruled that “disgorgement” of ill-gotten gains by the Securities and Exchange Commission (“SEC”) is a “penalty” within the meaning of 28 U.S.C. § 2462.  As a result, disgorgement is unavailable to the SEC in judicial proceedings involving conduct that took  place more than five years before the filing of the government’s complaint.  As explained below, because Section 2462 is a statute of general application (i.e., not specific to the SEC), the Court’s ruling could have implications for judicial civil penalty proceedings brought by the Consumer Financial Protection Bureau (“CFPB”), the Federal Trade Commission (“FTC”), the Commodity Futures Trading Commission (“CFTC”), and other financial and consumer regulators.

Continue Reading Kokesh v. SEC and Implications for Consumer and Financial Regulatory Agencies