The Director of the Consumer Financial Protection Bureau (“CFPB”), Rohit Chopra, while attending an event organized by the Public Citizen (a group that opposes mandatory arbitration clauses in consumer agreements), indicated that the CFPB is unlikely to issue a new rule regulating such clauses because the Congressional Review Act prevents it from issuing “a substantially similar rule.”

As readers may recall, in 2017 the CFPB issued a final rule which would have permitted mandatory arbitration agreements in consumer transactions but largely ban class action waivers in such agreements. Congress then used the Congressional Review Act to nullify the CFPB’s final rule. The 2017 class-action waiver prohibition was strenuously opposed by the financial industry, but the invalidating statutory act passed only with a tie-breaking vote from then Vice President Mike Pence.

Director Chopra’s comments were made in response to a question about whether the CFPB would seek to prevent the inclusion of arbitration agreements that require consumers to arbitrate disputes, instead of bringing suits against banks and other financial institutions in court. Before the event, on September 13, 2022, the Public Citizen and more than 100 other organizations purporting to “represent[] millions of consumers” co-signed a letter to the Director calling on the CFPB “to limit the use of forced arbitration requirements utilized by banks and financial institutions to strip Americans of their right to seek justice after being victimized by banking abuses or fraud.” The letter claimed that the CFPB’s 2015 study of mandatory arbitration clauses revealed “that forced arbitration produced vastly more favorable results for corporations rather than consumers.”

The letter failed to recognize that the same 2015 study also contained data indicating that consumers do better in arbitration than in class actions because, on average, consumers who underwent arbitration recovered more money and within a shorter period of time than consumers in class actions.

Despite recognizing the CFPB’s limitations with respect to the 2017 class-action waiver rule, Director Chopra did not back down from the possibility of regulating contract clauses. He indicated that the CFPB was focusing on larger companies that he characterized as “repeat offenders” and looking at non-monetary “structural remedies.” On other occasions, Chopra has mentioned limitations on growth of companies, disqualification from certain activities, revocation of government-granted privileges, or the limitation or closing of business lines as a means of deterring legal violations where, he argues, companies merely accept civil penalties as the cost of doing business. Those remedies are highly controversial.

Chopra’s comments suggest that one structural remedy the CFPB may pursue would be to require repeat offenders, in future consent orders, that they agree not to include class action waiver provisions in their consumer arbitration agreements. To do so would be a clear shot across the bow at industry and Congressional Republicans, and potentially could cause significant disruption given that entities with multiple consent orders in place already have substantial or even dominant market share. Nonetheless, Chopra ended his comments stating the CFPB had “no specific plans as of now,” suggesting such a proviso has not been proposed in any ongoing settlement negotiations and, at least for now, the idea may be more bark than bite.

On May 4, 2022, California Governor Gavin Newsom signed an executive order aimed at creating a framework for both regulating and developing the quickly growing blockchain and cryptocurrency industry. The Order follows President Biden’s March 9, 2022, Executive Order on Ensuring responsible Development of digital Assets. In a press release announcing the Order, the Governor’s office cited the rapid growth of the crypto asset and blockchain technology business—from $14 billion five years ago to $3 trillion last November—as the impetus for issuing the Order. Continue Reading California Governor Newsom Signs Blockchain and Crypto Assets Executive Order: Familiar Agencies To Lead Efforts To Regulate New Technology

Yesterday, in Sheen v. Wells Fargo (S258019), the California Supreme Court resolved an important issue for the mortgage servicing industry. The court unanimously held that lenders owe no tort duty to process, review, and respond to a borrower’s loan modification application. Continue Reading The California Supreme Court Rules that Lenders Have No General Tort Duty to Process, Review, and Respond to a Borrower’s Application for a Loan Modification

If Mark Zuckerberg is to be believed, the Metaverse is the next step in our digital evolution, a  virtual reality space where users can interact with a computer-generated environment and socialize among user-created avatars.

And it’s already here.

The Metaverse is a new virtual frontier that combines many aspects of the virtual world we already know: social media, Zoom, online gaming, augmented reality, virtual reality, blockchain, and cryptocurrencies. The Metaverse allows its users to interact with each other in ways that mimics real-world interaction. Users can virtually surf, race, go to a bar, or engage in combat – the possibilities are endless.

Now, you can even buy land in this virtual frontier.

Just as in the real world, you can finance your virtual property with a virtual mortgage. In this virtual world, can virtual mortgages be foreclosed and how can loans be enforced? This new paradigm implicates both loan enforcement and bankruptcy.

Let us break down a few of the basics.

Continue Reading Mining the Metaverse: Prospecting the Virtual Real Estate Boom and Implications For Lenders

On February 7, 2022, Acting Chairman Martin J. Gruenberg released a statement outlining the FDIC’s 2022 priorities. He also recognized the contributions of former Chairman Jelena McWilliams, who resigned on February 4, 2022.

The FDIC has been the recent subject of uncommon public infighting, as the FDIC board faces internal and external turmoil related to political and intra-agency pressures brought into focus due to the change in presidential administrations. Many on the board support a more pro-active and progressive approach, while Ms. McWilliams favored a more conservative style of oversight. With her resignation, as well as the recent FDIC, Department of Justice (DOJ), and Financial Crimes Enforcement Network actions related to bank oversight, it appears the activist wing has succeeded for now.

Entities operating in the financial services industry should pay close attention to the agenda, and specifically to two of these priorities in particular:

Continue Reading FDIC Announces 2022 Priorities in the Wake of Chairman Jelena McWilliams Resignation; Financial Services Entities Should Take Note of FDIC Focus on Bank Mergers and Crypto

The Fourth Circuit recently found that the imposition of convenience fees can run afoul of consumer protection statutes—including the Fair Debt Collection Practices Act.

Convenience fees are commonly charged by financial institutions in exchange for allowing a consumer to easily make payments online or via telephone as opposed to making payments by mail.

The case is Alexander v. Carrington Mortgage Services, LLC, and the three-judge panel for the Fourth Circuit unanimously held that a mortgage servicer violated Maryland’s consumer protection statute when it charged consumers a $5 fee to make mortgage payments online or by phone.

Continue Reading Convenience Fees Face Increased Scrutiny After Fourth Circuit Holds That Online Payments May Violate Consumer Protection Statutes

A recent decision by Bankruptcy Judge Stacey Jurnigan in the U.S. Bankruptcy Court for the Northern District of Texas is being touted as the new Farah Manufacturing lender liability opinion for the 2020s.

While an extreme case, Judge Jurnigan’s decision in in Bailey Tool & Mfg. Co., et al. v. Republic Bus. Credit (In re Bailey Tool & Mfg. Co.), Adv. No. 16-03025-SGJ (Bankr. N.D. Tex. Dec. 23, 2021) will likely open the door to future litigation by distressed borrowers and trustees, and it serves as a cautionary tale on what lenders should avoid when entering into, executing, and performing obligations under lending agreements.

  • Lenders should address any concerns they discover during the due diligence process with clarity and before entering into agreements.
  • Regardless of the discretion a lender has under an agreement or any alleged breach of the agreement by its counterparty, it is imperative that they follow and comply in good faith with the terms of the agreement.
  • Lenders should not exceed their duty by micromanaging and taking an active role in controlling business decisions for the borrowers.
  • Lenders should not unilaterally withhold advances in an erratic manner.
  • Lenders should keep clear records that are accessible to the borrower, and document fees and expenses with full transparency.
  • Lenders should not communicate in a confusing or misleading manner.
  • Lenders should turn over excess funds to the borrower after the loan is paid in full.

Lenders are well-advised to seek counsel from their trusted advisors when facing difficult issues with borrowers, in order to avoid the fate of the lender in Bailey Tool.

Continue Reading Lenders, Don’t Let This Happen to You: A Cautionary Tale in <i>Bailey Tool</i><i></i>

Respondents to Dykema’s 17th annual M&A Outlook Survey expected the financial services industry to be among the busiest sectors for M&A activity in the coming 12 months. While automotive topped the list, financial services was ranked third, up from fifth place last year.

Continue Reading Survey Results: Significant M&A Activity Expected for the Financial Services Sector in the Next 12 Months

In May 2019, the Consumer Financial Protection Bureau (CFPB) proposed new rules to amend and expand Regulation F, to further regulate the debt collection industry and those connected to it. It was meant to supplement the federal Fair Debt Collection Practices Act (FDCPA).

These rules are now final and scheduled to go into effect on November 30, 2021.

Continue Reading No Time to Waste: New Federal Rules Regulating Debt Collection Practices (Regulation F) Take Effect November 30, 2021

On August 11, 2021, the Federal Financial Institutions Examination Council (the “FFIEC”) issued new guidance on risk management principles for access to and authentication of electronic funds transfers for the first time in over a decade, titled Authentication and Access to Financial Institution Services and Systems (the “New Guidance”).[1] The New Guidance effectively replaces the FFIEC’s prior guidance on this topic, including its original guidance issued in 2005, Authentication in an Internet Banking Environment (the “Original Guidance”), and the supplement issued in 2011 in response to increased fraud in Internet-based financial transactions (the “Supplement,”[2] and together with the Original Guidance, the “Guidance”). The Guidance was intended to set regulatory expectations for financial institutions offering Internet-based financial services to both commercial and consumer customers. Continue Reading An Enhanced Standard of Commercial Reasonableness for Security Procedures? The FFIEC Updates Its Authentication Guidance for Internet-Based Financial Services