Consumer Finance Monitor

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.

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.

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.

Jason Mikula, publisher of Fintech Business Weekly and author of "Banking as a Service," shares insights on the transformative power of Banking as a Service (BaaS). He discusses how BaaS reshapes consumer experiences and alters traditional banking models, revealing the significance of partnerships between banks and fintech companies. The conversation also touches upon regulatory challenges, interchange fees, and the evolving financial landscape, making complex topics more accessible for listeners eager to understand the future of banking.

In this episode of the Consumer Finance Monitor Podcast, Ballard Spahr partners Mike Kilgarriff and Joseph Schuster break down the seismic shifts in consumer financial regulation following the dramatic changes at the CFPB. With the Bureau's enforcement and supervisory activities on hold, state attorneys general are stepping in to fill the regulatory void. Mike and Joseph explore what this means for financial institutions, how businesses should navigate the evolving landscape, and the increasing role of state AGs in consumer protection enforcement. Tune in for insights on what's next in the world of financial regulation.

Today's podcast show is a repurposing of the second half of a webinar we produced on January 17, 2025. That webinar was Part 3 of our webinar series entitled "The Impact of the Election on the CFPB and Others." In Part 3, we focus on the role of state attorneys general in a rapidly shifting CFPB environment. Our previous podcast show, released on Tuesday February 11th, was a repurposing of the first half of our January 17th webinar in which Alan Kaplinsky had a "fireside chat" with Matthew J. Platkin, the New Jersey Attorney General. See here. The importance of Part 3 is underscored by the recent actions taken by President Trump to fire Rohit Chopra as Director of the CFPB and to appoint new Treasury Secretary, Scott Bessent, and then new Office of Management and Budget (OMB) Director, Russell Vought, as Acting Directors, Messrs. Bessent, and Vought have essentially stopped all activities of the CFPB for the time being. During today's podcast show, Mike Kilgarriff, Joseph Schuster, Adrian King and Jenny Perkins of Ballard Spahr's Consumer Financial Services Group discussed in detail the following issues, among others: • CFPB post-election messaging to state attorneys general providing a roadmap to them on powers they may exercise under federal law, including the use of the UDAAP provision of Dodd-Frank (particularly the "abusive" prong) • The probable decline in collaboration with the CFPB following the change in administration • More networking of state attorneys general • What can we expect from state legislatures in enacting new consumer financial services protection laws? • What can we expect from state attorneys general and other state agencies in promulgating new consumer financial services protection laws? • The continuing need for companies to maintain a robust compliance management system Parts 1, 2 and 3 of our webinar series appear here, here, and here. Our podcast shows (repurposing Parts 1 and 2 of our webinar series) appear here, here, here, and here. The title of Part 1 is: "The Impact of the election on the CFPB: Regulations and other written guidance, which featured Alan Kaplinsky's "fireside chat" with David Silberman who held senior positions at the CFPB for almost 10 years during the Directorships of Cordray, Mulvaney, and Kraninger. Part 2 is: "The Impact of the Election on the CFPB: Supervision and Enforcement, which featured Alan Kaplinsky's "fireside chat" with former Director Kathy Kraninger during Trump's first term in office. Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.

Today's podcast show is a repurposing of Alan Kaplinsky's "fireside chat" with Matthew J. Platkin, the New Jersey Attorney General, which was the first half of a webinar we produced on January 17, 2025. That webinar was Part 3 of our webinar series entitled "The Impact of the Election on the CFPB and Others." In Part 3, we focus on the role of state attorneys general in a rapidly shifting CFPB environment. The importance of Part 3 is underscored by the recent actions taken by President Trump to fire Rohit Chopra as Director of the CFPB and to appoint new Treasury Secretary, Scott Bessent, and then new Office of Management and Budget (OMB) Director, Russell Vought, as Acting Directors. Messrs, Bessent, and Vought have essentially temporarily stopped all activities of the CFPB for the time being. During our "fireside chat" with General Platkin, we discussed the following topics, among others: 1. What is General Platkin's background, including his stint as Chief Counsel to the New Jersey Governor? 2. Since General Platkin has been New Jersey Attorney General, what are some examples of the consent orders or lawsuits he has initiated related to consumer financial services? 3. Has the New Jersey Attorney General previously collaborated with the CFPB and/or FTC in investigating certain companies or segments of the consumer financial services industry, and is that likely to change? 4. What effect will there be on consumers in New Jersey if President Trump appoints (as he did) an Acting Director of the CFPB whose interpretation and enforcement of federal consumer protection laws differs markedly from Rohit Chopra? 5. What will the New Jersey Attorney General's office do in response to this anticipated shifting CFPB environment? 6. Elon Musk has called for the deletion of the CFPB and Project 2025 has also called for the elimination of the CFPB. If that were to happen, what would the New Jersey Attorney General's office do to fill this anticipated void? 7. We then looked beyond New Jersey to other state attorney general's offices similarly situated to the New Jersey Attorney General office – who will have the need to initiate more cases when resources are limited. We discussed how state Attorney General's (including the New Jersey Attorney General) have networked with each other to investigate and sue companies that are violating consumers' rights in multiple states. We then discussed why it is anticipated that the networking process is likely to increase. 8. The areas of consumer financial protection law and segments of the consumer financial services industry that will be areas of focus for the New Jersey Attorney General during 2025? Our next episode will be the second half of our January 17 webinar in which several of our colleagues will explore in depth why we expect state Attorney General's offices to significantly ramp up their investigations involving and lawsuits filed against banks and other consumer financial services providers. Parts 1, 2 and 3 of our webinar series appear here, here, and here. Our podcast shows (repurposing Parts 1 and 2 of our webinar series) appear here, here, here, and here. The title of Part 1 is: "The Impact of the election on the CFPB: Regulations and other written guidance, which featured Alan Kaplinsky's "fireside chat" with David Silberman who held senior positions at the CFPB for almost 10 years during the Directorships of Cordray, Mulvaney, and Kraninger. Part 2 is: "The Impact of the Election on the CFPB: Supervision and Enforcement, which featured Alan Kaplinsky's "fireside chat" with former Director Kathy Kraninger during Trump's first term in office.

Today's podcast show features a discussion with Julie Andersen Hill about her law review article titled "Regulating Bank Reputation Risk", 54 GA. L. Rev. 523 (2023). Professor Hill is the Dean and Wyoming Excellence Chair of the University of Wyoming College of Law. The abstract to Professor Hill's article does an excellent job of summarizing her thesis: This Article surveys reputation risk guidance and enforcement efforts. It shows that reputation risk regulation is usually an ancillary consideration to credit risk, operational risk, or other primary risk. In these instances, reputation risk adds little because regulators have strong tools to address the root problems. Sometimes, however, regulators justify guidance or enforcement primarily in terms of controlling reputation risk. Regulators use reputation risk to weigh in on hot-button political topics afield from safety and soundness like gun rights, payday lending and fossil fuels. Because regulators believe that reputation risk is present in every facet of banking, little prevents them from using it to address other controversies. This Article argues that expansive regulation of reputation risk is harmful. There is little evidence that can accurately predict and prevent bank reputational losses. Moreover, because reputation risk is largely subjective, regulators can use it to further political agendas apart from bank safety and soundness. Unnecessary politicization of banking regulation undermines faith in the regulatory system and correspondently erodes trust in banks. During our discussion, Professor Hill addressed the following issues: What is reputation risk? What legal authority do bank supervisors have to regulate reputation risk? Why do you believe that the regulation of reputation risk is unnecessary and harmful? What is Operation Choke Point all about and how did it turn out? What was the outcome in the U.S. Supreme Court in NRA v. Vullo of the New York State bank regulator urging state banks to manage the reputation risk posed by doing business with the National Rifle Association? Has concern over the regulation of reputation risk subsided in light of the termination of Operation Chokepoint and the unanimous Supreme Court opinion in NRA v. Vullo? Why does there appear to be renewed worry that regulators are using reputation risk and other justifications to force banks to cut services to people, businesses or industries that they don't like? Is there any credence to the claims of Elon Musk and others that crypto and tech startups are being debanked or denied fair access to banking services? In light of the fact that President Trump himself and many members of Congress are troubled by debanking claims, what sort of policy changes are likely to be considered? What is the likelihood of the OCC promulgating a regulation prohibiting debanking in Trump 2.0 similar to the one it almost finalized in Trump 1.0? The importance of this podcast is underscored by the fact that yesterday, the Senate Committee on Banking, Housing and Urban Affairs held a hearing entitled "Investigating the Real Impacts of Debanking in America." Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.

Our podcast show today features John Culhane and Mike Kilgarriff, partners in Ballard Spahr's Consumer Financial Services group. They discuss what supervision and enforcement will look like under a new acting director/director appointed by President Trump. This episode is a repurposing of the second half of a webinar that was produced on January 6. On January 23, we released the first half of the webinar, which consisted of Alan Kaplinsky's "fireside chat" with Kathy Kraninger, the former Director of the CFPB during Trump 1.0., linked here. With respect to supervision, we consider, among others, the following issues with respect to the CFPB's leadership under Trump 2.0: (a) Will it be business as usual or more relaxed? (b) Will it focus on compliance with the Federal consumer financial services laws and less on UDAAP? (c) Will there be reduced staffing and fewer exams? (d) Will there be fewer PAAR letters and more use of MRAS and MRIAs? With respect to enforcement, we consider, among others, the following issues with respect to the CFPB's leadership under Trump 2.0: (a) Will there be an exhaustive review of all existing investigations and lawsuits and a dismissal of those which involve "regulation by enforcement" or "pushing the envelope"? (b) Will they focus more on fraud and scams and less on UDAAP? (c) What position will they take on whether the CFPB has been unlawfully funded because the Federal Reserve Banks have had no combined earnings since September 2022? Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.

Today's podcast episode is a repurposing of Alan Kaplinsky's "fireside chat" with Kathy Kraninger, the Director of the CFPB during the second half of President Trump's presidency from December 2018 until January 2021. (This was originally the first half of a webinar we did on January 6, 2025 which was entitled "The Impact of the Election on the CFPB - Supervision and Enforcement." The January 6 webinar is Part 2 of a 3-part series. Next Thursday, we will release the second half of that webinar which will feature Ballard Spahr partners, John Culhane and Mike Kilgariff, who will take a deep dive into the expected changes in CFPB supervision and enforcement during President Trump's second term in office.) During her "fireside chat" with Alan, Kathy discussed the following things: (a) How she was nominated by Trump to be the Director and succeeded Mick Mulvaney, the acting Director appointed by Trump to succeed Richard Cordray as Acting Director; (b) Organizational and other changes made by Mulvaney and/or Kraninger, including a hiring freeze, appointments of new heads of departments, etc; (c) The practical impact on CFPB operations of the Supreme Court's opinion in the Seila Law case in which the Court held that the President had the right to remove the CFPB director without cause; (d) Her priorities as Director, including her regulatory, supervisory and enforcement agendas; (e) Her policy statements on "abusiveness", supervisory expectations and COVID-19; (g) Her thoughts on what she anticipates will change at the CFPB once a new acting director chosen by Trump succeeds Rohit Chopra; and (h) Her thoughts on whether Congress should re-structure the CFPB's governance and funding. The "fireside chat" provides stakeholders in the CFPB insight into what may happen at the CFPB during Trump 2.0. There will, however, be some important differences between the circumstances that existed during the transition from Cordray to Mulvaney Kraninger during Traump 1.0 and the transition from Chopra to a new acting Director during Trump 2.0.. At the time when Mick Mulvaney became Acting Director, there were no pending lawsuits challenging CFPB final regs and other actions. During Mulvaney's term in office, a trade association of payday lenders sued the CFPB challenging the CFPB's payday lending rule and, in particular, its "ability to pay" requirement. The acting director appointed by Trump will inherit multiple pending lawsuits against the CFPB challenging many of the regs issued by the CFPB under Rohit Chopra's last two years as Director. The Acting Director will need to develop legislative (Congressional Review Act), judicial and regulatory strategies for dealing with the slough of regs, proposed regs and other written guidance issued by Chopra. The Acting Director will also need to quickly decide what position the CFPB will take with respect to the defense raised in at least 13 enforcement lawsuits claiming that the CFPB has been disabled from conducting business since September 2022 when there was no longer any "combined earnings of the Federal Reserve Banks" - a prerequisite to the Federal Reserve Board funding the CFPB under the Dodd-Frank Act. Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.