Consumer Finance Monitor

Our podcast show being released today is part 2 of a repurposed interactive webinar that we presented on March 24 featuring two of the leading journalists who cover the CFPB - Jon Hill from Law360 and Evan Weinberger from Bloomberg.

Our show begins with Tom Burke, a Ballard Spahr consumer financial services litigator, describing in general terms the status of the 38 CFPB enforcement lawsuits that were pending when Rohit Chopra was terminated. The cases fall into four categories: (a) those which have already been voluntarily dismissed with prejudice by the CFPB; (b) those which the CFPB has notified the courts that it intends to continue to prosecute; (c) those in which the CFPB has sought a stay for a period of time in order for it to evaluate whether or not to continue to prosecute them where the stay has been granted by the courts; and (d) those in which the CFPBs motion for a stay has been denied by the courts or not yet acted upon.

Alan Kaplinsky then gave a short report describing a number of bills introduced this term related to the CFPB. Alan remarked that the only legislative effort which might bear fruit for the Republicans is to attempt to add to the budget reconciliation bill a provision subjecting the CFPB to funding through Congressional appropriations. Such an effort would need to be approved by the Senate Parliamentarian. Finally, Alan expressed surprise that the Republicans, in seeking to shut down the CFPB, have not relied on the argument that the CFPB has been unlawfully funded by the Federal Reserve Board since September 2022 because there has been no combined earnings of the Federal Reserve Banks beginning then through the present. (Dodd-Frank stipulates that the CFPB may be funded only out of such combined earnings). For more information about that funding issue, listen to Alans recent interview of Professor Hal Scott of Harvard Law School who has written prolifically about it. On Monday of this week, Professor Scott published his third op-ed in the Wall Street Journal, in which he concluded:

Since the bureau is operating illegally, the president can halt its work immediately by executive order. The order should declare that all work at the CFPB will stop, that all rules enacted since funding became illegal in September 2022 are void, and that no new rules will be enforced.

Joseph Schuster then briefly described what has been happening at other federal agencies with respect to consumer financial services matters. Joseph and Alan reported on the fact that President Trump recently fired without cause the two Democratic members of the Federal Trade Commission leaving only two Republican members on the Commission. He took that action despite an old Supreme Court case holding that the language in the FTC Act stating that the President may remove an FTC member only for cause does not run afoul of the separation of powers clause in the Constitution. The two Democratic commissioners have sued the Administration for violating the FTC Act provision, stating that the President may only remove an FTC commissioner for cause. The President had previously fired Democratic members at the Merit Systems Selection Board and National Labor Relations Board. President Trump based his firings on the belief that the Supreme Court will overrule the old Supreme Court case on the basis that the termination for cause language in the relevant statutes is unconstitutional. After the recording of this webinar, the DC Circuit Court of Appeals stayed, by a 2-1 vote, a District Court order holding that Trumps firing of the Democratic members of the NLRB and Merit Systems Selection Board was unlawful. That order was subsequently overturned by the court of appeals acting en banc. Subsequently, Chief Justice Roberts stayed that order. In light of these developments, it seems unlikely that the two FTC commissioners will be reinstated, if at all, until the Supreme Court decides the case. Also, after the recording of this webinar, the Senate confirmed a third Republican to be an FTC commissioner. For those of you who want a deeper dive into post-election developments at federal agencies other than the CFPB, please register for our webinar titled What Is Happening at the Federal Agencies (Other Than the CFPB) That is Relevant to the Consumer Financial Services Industry? which will occur on May 13, 2025.

Joseph then discussed developments at the FDIC where the FDIC withdrew the very controversial brokered deposits proposal, the 2023 corporate governance proposal, the Change-in-Bank- Control Act proposal and the incentive-based compensation proposal. He also reported that the FDIC rescinded its 2024 Statement of Policy on Bank Merger Transactions and delayed the compliance date for certain provisions in the sign and advertising rule.

Joseph then discussed developments at the OCC where it (and the FDIC) announced that it would no longer use reputation risk as a basis for evaluating the safety and soundness of state-chartered banks that it supervises. The OCC, also, conditionally approved a charter for a Fintech business model to be a national bank and withdrew statements relating to crypto currency risk.

Finally, Joseph discussed how state AGs and departments of banking have significantly ramped up their enforcement activities in response to what is happening at the CFPB.

The podcast ended with each participant expressing his view on what the CFPB will look like when the dust settles. The broad consensus is that the CFPB will continue to operate with a greatly reduced staff and will only perform duties that are statutorily required. It is anticipated that there will be very little rulemaking except for rules that the CFPB is required to issue - namely, the small business data collection rule under 1071 of Dodd-Frank and the open banking rule under 1033 of Dodd-Frank. The panel also felt that the number of enforcement lawsuits and investigations will measurably decline with the focus being on companies engaged in blatant fraud or violations of the Military Lending Act.

This podcast show was hosted by Alan Kaplinsky, the former practice group leader for 25 years and now senior counsel of the Consumer Financial Services Group.

If you missed part 1 of our repurposed webinar produced on March 24, click here for a blog describing its content and a link to the podcast itself. In short, part 1 featured Jon Hill from Law360 and Evan Weinberger from Bloomberg, who chronicle the initiatives of CFPB Acting Directors Scott Bessent and Russell Vought and DOGE to dismantle the CFPB and the status of the two lawsuits brought to enjoin those initiatives. Ballard Spahr partners John Culhane and Rich Andreano give a status report on the effort of Acting Director Vought to nullify most of the final and proposed rules and other written guidance issued by Rohit Chopra. The podcast concludes with John and Rich describing the fact that supervision and examinations of banks and non-banks is non-existent.

Our podcast show being released today is Part 1 of a repurposed interactive webinar that we presented on March 24, featuring two of the leading journalists who cover the CFPB - Jon Hill from Law360 and Evan Weinberger from Bloomberg.

Our show began with Jon and Evan chronicling the initiatives beginning on February 3 by CFPB Acting Directors Scott Bessent, Russell Vought and DOGE to shut down or at least minimize the CFPB. These initiatives were met with two federal district court lawsuits (one in DC brought by the labor unions who represents CFPB employees who were terminated and the other brought in Baltimore, MD by the CFPB and others) challenging one or more of these initiatives. Jon and Evan described the lawsuits in detail. While the Baltimore lawsuit was dismissed on the basis of lack of ripeness under the Administrative Procedure Act, Judge Amy Berman Jackson issued a TRO freezing the CFPB from terminating more CFPB employees through the end of March while she decides whether to enter a further injunction with respect to the CFPB’s initiatives.

Ballard Spahr partners, Rich Andreano and John Culhane, then gave an up-to-date status report on CFPB (a) final rules being challenged in litigation and/or eligible to be challenged under the Congressional Review Act; (b) final rules not being challenged in litigation which may be repealed or amended or whose effective or compliance dates may be extended under the Administrative Procedure Act; (c) proposed rules; and (d) non-rule written guidance. Rich and John paid particular attention to the following final rules:

1.  The Small Business Loan Data Collection and Reporting Rule under Section 1071 of      Dodd-Frank

2.  The Non-bank enforcement order Registry Rule

3.  The Fair Credit Reporting Act “Data Broker” Rule

4.  The Residential Property Assessed Clean Energy (PACE) Financing Rule

5.  The Residential Mortgage Servicing Proposed Rule

6.  Credit Card Penalty fees under Reg Z (Late Fee Rule)

7. Personal Financial Data Rights (Open Banking) Rule under Section 1033 of Dodd-Frank

8.  Overdraft Lending Rule Applicable to very large financial institutions

9. Prohibition on creditors and consumer reporting agencies reporting medical debt under Reg V

Part 1 of our podcast concludes with Rich and John describing the fact that supervision and examination of banks and non-banks is apparently on hold.

This podcast show was hosted by Alan Kaplinsky, the former practice group leader for 25 years of the Consumer Financial Services Group and now Senior Counsel.

Our special podcast show today deals primarily with a 112-page opinion and 3-page order issued on March 28 by Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia in a lawsuit brought, among others, by two labor unions representing CFPB employees against Acting Director Russell Vought. The complaint alleged that Acting Director Vought and others were in the process of dismantling the CFPB through various actions taken since Rohit Chopra was fired and replaced by Acting Director Scott Bessent and then Acting Director Russell Vought. This process included, among other things, the termination of probationary and term employees and possibly another 1,300 or so employees through a reduction-in-force , the issuance of a stop work order, the closure of the CFPB’s main office in DC and branch offices throughout the country, the termination of most third-party contracts, the decision not to request any additional funding from the Federal Reserve Board for the balance of the fiscal year and the voluntary dismissal of several enforcement lawsuits.

Alan Kaplinsky, Senior Counsel and former chair of Ballard Spahr’s Consumer Financial Services Group, and Joseph Schuster, a Partner in the Consumer Financial Services Group, discuss each part of the preliminary injunction issued by Judge Jackson which, among other things, required the CFPB to re-hire all probationary and term employees who had been terminated, prohibited the CFPB from terminating any CFPB employee except for just cause (which apparently does not include lack of work because of the change in focus and direction of the CFPB), required the CFPB not to enforce a previous “stop work” order or reduction-in-force.  We observed that Judge Jackson’s order has required the CFPB to maintain for now a work force that is not needed for the “new” CFPB.

We also discuss that the preliminary injunction order does not require the CFPB to maintain any of the regulations promulgated or proposed by Rohit Chopra or to continue to prosecute any of the enforcement lawsuits brought by Director Chopra.

DOJ filed a notice of appeal on March 29 and on March 31 filed a motion in the DC Court of Appeals to stay Judge Jackson’s order. (After the recording of this podcast, the DOJ filed in the Court of Appeals a motion seeking a stay of Judge Jackson’s order. Pending a hearing on April 9^th, the Court issued an administrative stay of Judge Jackson’s order. The 3-Judge panel is composed of two Trump appointees and one Obama appointee.) A copy of the blog co-authored by Alan and Joseph is linked here.

We also discuss another lawsuit initiated by the City of Baltimore and one other plaintiff against Acting Director Vought in Federal District Court for the District of Maryland seeking to enjoin him from returning to the Federal Reserve Board or the Treasury funds held by the CFPB. The Court denied the motion for preliminary injunction on the basis that it was not ripe for adjudication under the Administrative Procedure Act because the CFPB never actually returned any funds.

Finally, Alan expresses surprise that the Acting Director has not relied on the argument that all funds received by the CFPB after September, 2022 were unlawfully obtained because the Dodd-Frank Act stipulates that the CFPB can be funded only out of “combined earnings of the Federal Reserve Banks” and the fact that there have only been huge combined losses of the Federal Reserve Banks since Sept 2022 which continue through today and are likely to continue through the foreseeable future.

Today’s podcast show features a discussion with David Dayen, executive editor of the American Prospect, which is an online magazine about ideas, politics, and power. He's the author of “Chain of Title: How Three Ordinary Americans Uncovered Wall Street's Great Foreclosure Fraud,” which was published in 2016. David has written and published about 10 or so articles in which he chronicles in great detail the apparent effort by the Trump Administration, acting through Scott Bessent and Russell Vought, to dismantle the CFPB by abruptly ordering a cessation of all activities and layoffs of probationary and term employees and a plan to layoff 1,300 or so additional employees.

Because this plan would have crippled the CFPB, two lawsuits were initiated in rapid fashion against Acting Director Vought seeking to enjoin him from pursuing this strategy. One lawsuit was brought by the two labor unions representing CFPB employees and others in the U.S. District Court for the District of Columbia and got assigned to Judge Amy Berman Jackson. The second lawsuit was brought by the City of Baltimore and others in the U.S. District Court for the District of Maryland. David describes in detail the case pending before Judge Jackson, including the hearings at which several CFPB employees testified. Those employees painted a very grim picture of the effort to shut down the agency. The DOJ lawyer stated that there was never an intent to shut down the CFPB and that the steps taken by the Acting Directors to “freeze” the CFPB were similar to steps taken by any new Administration in order to provide time to evaluate the situation and decide what changes should be made to reflect the new Administration’s policy objectives.

Shortly after the recording of this podcast, Judge Jackson issued on March 28 a 112-page opinion and 3-page order in which she required the reinstatement with back pay of all CFPB employees that had been terminated, enjoined the CFPB from terminating any employees except for good cause related to the individual employee, fully maintain the consumer complaint portal, ordered the defendants to reinstate all third-party contracts which had been earlier terminated, ordered the defendants to not enforce a February 10 stop-work order and required that the CFPB not destroy any records. The defendants have filed a notice of appeal to the D.C. Circuit Court of Appeals. On March 29. On March 31, the defendants filed a motion in the Court of Appeals to stay Judge Jackson’s order. See  this blog for more detail about Judge Jackson’s opinion.

Because of the importance of Judge Jackson’s opinion, Alan Kaplinsky and Joseph Schuster have recorded a special (additional) podcast show, where we dissected Judge Jackson’s opinion and order and the other lawsuit brought by the City of Baltimore against Acting Director, Russell Vought, challenging his consideration of returning operating finds to the Federal Reserve Board or Treasury. That podcast will be released tomorrow, Friday, April 4.

The Judge in the City of Baltimore case, in which the plaintiffs had not established nearly as complete a record as the case before Judge Jackson, denied the motion for a preliminary injunction based on the Court’s belief that there was no final order which could be challenged under the Administrative Procedure Act.

We also discussed the possibility that Congress could subject the CFPB to funding through Congressional appropriations by putting such language in the Budget Reconciliation bill which can be enacted by a simple majority and not 60 votes in the Senate.

Alan Kaplinsky, former Chair for 25 years and now Senior Counsel of the Consumer Financial Services Group, hosts the discussion.

Our podcast show today features Professor Dan Awrey of Cornell Law School, and Matt Lambert, Deputy General Counsel of the Conference of State Bank Supervisors (“CSBS”) who discuss the pros and cons of Congress enacting a statute which would require federal charter for non-banks engaged in the payments business. At present, such non-banks are generally required to be licensed by state departments of banking under money transmitter laws.

On November 14 of last year, on our podcast show, Professor Awrey discussed his working paper “Money and Federalism” in which he advocates for the enactment of Federal legislation creating a Federal charter for non-banks engaged in the payments business, like PayPal and Venmo. The article may be accessed online at SSRN and will likely be published in a law review at some time in the future. The abstract of Professor Awrey’s article states, in relevant part:

The dual banking system is now under stress. The source of the stress is a new breed of technology-driven financial institutions licensed and regulated almost entirely at the state level that provide money and payments outside the perimeter of both conventional bank regulation and the financial safety net. This article examines the rise of these new monetary institutions, the state-level regulatory frameworks that govern them and the nature of the threats they may one day pose to monetary stability.

It also examines the legal and policy cases for federal supremacy over the regulation of these new institutions and advances two potential models, one based on complete federal preemption, the other more tailored to reflect the narrow yet critical objective of promoting public confidence and trust in our monetary system.

The CSBS on Nov. 12 of last year published an article on its website entitled “The Reality of Money Transmission: Secure, Convenient, and Trusted under State Supervision” in which it purported to dispel several myths about state money transmitter and money services statutes. CSBS stated:

Recent statements about money transmission in the United States have perpetuated myths about consumer protections and the safety and soundness of this vibrant, secure, and trusted part of our country’s payments ecosystem.

It is time that we dispel some of these myths by explaining the realities of the state-developed, nationwide framework for regulation, licensing, and supervision of money transmission.

While targeted reforms made through cooperation between the states and federal government may be appropriate, a complete overhaul of an established, secure, convenient, and stable money transmission ecosystem is an unwarranted federal overreach.

Because of these sharp differences of opinion between Professor Awrey and CSBS, we decided to invite Professor Awrey and Matt Lambert to be our guests on this show and to discuss the following issues:

• The historical background to and rationale for state money transmitter laws
• How the National Multistate Licensing System (“NMLS”) and state supervision work today
• The emergence of new business models: e.g. PayPal, Stripe, Crypto
• A brief history of recent federal proposals: from the OCC fintech charter to the current stablecoin bills
• How state legislatures and regulators have responded to the emergence of new business models (e.g. model act amendments and adoption, new chartering frameworks)
• Where the federal government can meaningfully improve on these state level responses (standardization, bankruptcy protection, payment network access, systemic risk regulation, international coordination)
• Where state regulators have a comparative advantage (novel chartering, supervision)
• Where we think the nonbank payment industry and regulation are heading in 2025 and beyond

Alan Kaplinsky, Senior Counsel and former practice group leader of the Consumer Financial Services Group, hosts the podcast show.