Photo of David N. Anthony

David is an experienced trial attorney with a concentration in litigating financial services and business disputes, including class actions related to the FCRA, FDCPA, TCPA and other consumer protection statutes.

On Tuesday, January 23rd, from 3-4 p.m. ET, Troutman Sanders attorneys David Anthony, Cindy Hanson and Tim St. George will present a webinar examining class actions under the Fair Credit Reporting Act. These class actions have surged, and they are a favorite vehicle for plaintiff’s counsel in both federal and state court.  Because of the outsized risk posed by such actions, effective planning and aggressive defense strategies can be the difference between an individual case and a truly bet-the-company class action.  Please join three highly-experienced FCRA class action litigators as they share their tips about how to defend against such class actions, as well as strategies on avoiding class actions in the first place.

One hour of CLE credit is pending.  

To register, click here.

 

On February 6-8, 2018, DBA International will host its annual conference – Play Your Best Hand – at the Aria Resort & Casino in Las Vegas.

We are pleased to announce to announce that Troutman Sanders partner David Anthony will present on a panel entitled, “De-tangling Licensing Requirements – Monitoring for Changes, License Maintenance, and Practical Considerations.” This session will discuss the importance of monitoring case law and legislation for potential changes to licensing requirements, crucial steps to take in managing licenses, including compliance with licensing requirements, and allocating appropriate resources for supervision by the regulator.

To register or obtain additional information, visit the RMA 21st Annual Conference website.

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray’s announced yesterday (as covered here) that he will be resigning from his position by the end of this month.

The Administration appears poised to announce Office of Management and Budget Director Mick Mulvaney as an interim replacement until a permanent director can be selected by the President and approved by the Senate.

From a legal perspective, when it comes to determining the interim CFPB director, the succession issue is a simple one.

Some commentators have asserted that the Acting Deputy Director of the CFPB must succeed Cordray as Acting Director, until a permanent Director is confirmed; however, an analysis of the applicable statutes suggests the President does have the authority to select the Acting Director.

Statutory Framework for Interim Succession at the CFPB

There are two statutes under which an interim director potentially could be appointed.

The first is the Dodd-Frank Act, which created the CFPB, and which provides that the deputy director “shall…serve as acting Director in the absence or unavailability of the Director.” 12 U.S.C. § 5491(b)(5).

The second statute is the Federal Vacancies Reform Act of 1998 (“FVRA”), 5 U.S.C. § 3341 et seq., which 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.” 5 U.S.C. § 3345(a).

Under the FVRA, an acting director may perform the duties of the vacated office for 210 days, without approval by the Senate. 5 U.S.C. §§ 3345-46. (The Supreme Court has recently ruled that the interim director cannot be the same person as the nominee for the permanent position. See Natl. Labor Relat. Bd. v. SW Gen., Inc., 137 S. Ct. 929 (March 21, 2017).)

By default, under the FVRA, the “first assistant” to the resigning officer performs the duties of the office on an acting basis. So, by default, the deputy director would step into Cordray’s shoes. But, the FVRA also provides that the president may bypass the “first assistant” and choose to appoint a senior employee or officer of the CFPB, or an officer at any agency who has already been approved by the Senate, as acting director. 5 U.S.C. § 3345(a)(2)-(3).

Some Analysts Have Suggested Dodd-Frank Requires that the Acting Deputy Director Replace Cordray

So far, there have been few analyses of how these statutes would apply to determining an interim replacement for Cordray. Some of those who have analyzed how these statutes interact have concluded that the Dodd-Frank provision likely controls. See articles here and here. These commentators make two primary arguments:

First, they rely on 5 U.S.C. § 3347(a)(1)(B), the “Exclusivity Provision” of the FVRA, which provides that the FVRA vacancy-filling methods are:

the exclusive means for temporarily authorizing an acting official to perform the functions and duties of any Executive agency…for which appointment is required to be made by the President, by and with the advice and consent of the Senate, unless…a statutory provision expressly…designates an officer or employee to perform the functions and duties of a specified office temporarily in an acting capacity…”

(Emphasis added.)

Those who assert Dodd-Frank controls for purposes of filling the vacancy at the CFPB, interpret this provision to mean that if another statute – like Dodd-Frank – designates an officer or employee to perform duties temporarily, then the FVRA’s otherwise applicable vacancy-filling provisions do not apply.

Second, those who argue that Dodd-Frank should control cite the basic principle of statutory interpretation that the specific statute controls over the general. Because Dodd-Frank specifically deals with vacancies in the Director position at the CFPB, so this argument goes, Dodd-Frank should control over the more general provisions of the FVRA dealing with vacancies in federal offices.

The President Likely Has the Authority to Appoint Cordray’s Interim Successor

There are three reasons that these arguments in favor of a Dodd-Frank-controlled appointment likely would be rejected in favor of the President’s authority to appoint the interim director under the FVRA. [1]

  1.  The Ninth Circuit and legislative history suggest the President may elect under which statute to proceed in making the appointment.

The first argument is based on Hooks ex rel. NLRB v. Kitsap Tenant Support Servs., 816 F.3d 550 (9th Cir. 2016), a case that involved the appointment by President Obama of a new General Counsel for the National Labor Relations Board (“NLRB”). The facts of the case are unimportant, but the court’s discussion of one of the arguments raised by the plaintiff is on point.

In Hooks, the plaintiff asserted that because the National Labor Relations Act (the “NLRA”) provided a means for temporarily filling vacancies in its top positions, in light of the Exclusivity Provision of the FVRA, the “NLRA provides the exclusive means for the President to appoint an Acting General Counsel.” 816 F.3d at 555.

The court rejected this argument, holding that when the Exclusivity Provision of the FVRA and another statute both provide means for filling a vacancy, the President may elect between the statutes to designate an acting agency head. The court reasoned that because both the NLRA and the FVRA provide means for filling a vacancy, “neither the FVRA nor the NLRA is the exclusive means of appointing an Acting General Counsel of the NLRB. Thus, the President is permitted to elect between these two statutory alternatives to designate an Acting General Counsel. Id. at 556 (first emphasis in original; second emphasis added).

The court went on to note that its reasoning was supported by the history of the FVRA:

The Senate Report on the FVRA confirms this interpretation. The Senate Report explains that the FVRA retains the vacancy-filling mechanisms in forty different statutes, including NLRA section 3(d), and states that “even with respect to the specific positions in which temporary officers may serve under the specific statutes this bill retains, the [FVRA] would continue to provide an alternative procedure for temporarily occupying the office.” S. Rep. 105-250, 1998 WL 404532, at *17 (1998) (emphasis added).

Id. The court’s holding applies with equal force to vacancy filling at the CFPB. Under Hooks, the President should have the authority to elect which of the two procedures – the procedure in Dodd-Frank or the procedure in the FVRA – to follow in appointing a temporary replacement for Cordray.

  1. Dodd-Frank may not apply to “permanent-until-appointed” vacancies.

The second argument in favor of the President’s appointment authority stems from comparing the language of Dodd-Frank, which provides for the deputy director to fill the role of acting director in case of “the absence or unavailability of the Director,” 12 U.S.C. § 5491(b)(5) (emphasis added), with the language of the FVRA, which applies when an officer “dies, resigns, or is otherwise unable to perform the functions and duties of the office,” 5 U.S.C. § 3345(a).

Because it is so new, courts have had little opportunity to interpret the succession provision in Dodd-Frank. But, in interpreting the FVRA, courts have differentiated between temporary absences that occur due to disability or sickness, and permanent vacancies in cases “when there has been a death or resignation, that is, when the vacancy will be permanent unless a successor is appointed.” United States v. Lucido, 373 F. Supp. 1142, 1149 (E.D. Mich. 1974).

Based on this distinction, supporters of a presidential interim appointment should be able to argue that the provision in Dodd-Frank that places the deputy director in the position of acting director in cases of “absence or unavailability of the Director,” only applies to temporary vacancies, as in the case of extended travel or sickness; while the FVRA provision that applies to an officer who “dies, resigns, or is otherwise unable to perform the functions and duties of the office” applies to vacancies that are permanent until appointment of a successor.

Lending credence to this interpretation is the fact that when Congress has adopted succession statutes in the past, it has seemed to specify when it intends an appointment to apply to all vacancies or to temporary vacancies only.

For example, 28 U.S.C. § 508, which deals with succession the position of U.S. Attorney General, provides: “In case of a vacancy in the office of Attorney General, or of his absence or disability, the Deputy Attorney General may exercise all the duties of that office….” (Emphasis added.) (Indeed, by its use of the disjunctive, “or,” that statute seems to implicitly recognize a distinction between a “vacancy” (i.e., a vacancy that is permanent-until-filled) and an “absence or disability” that might leave the office temporarily unfilled.)

Had Congress intended Dodd-Frank’s succession provision to apply to permanent-until-filled vacancies, it could have included similar language in that statute. The fact that it did not suggests that the FVRA, rather than Dodd-Frank, applies to a resignation like Director Cordray’s.

  1. Constitutional concerns favor the President’s appointment power.

The third argument in favor of the President’s appointment power under the FVRA is constitutional.

If the Dodd-Frank Act is read to dictate that the Acting Deputy Director automatically becomes the Acting Director, then this statutory method of succession may violate the Constitution.

As a panel of the D. C. Circuit noted: “[T]he Director enjoys significantly more unilateral power than any single member of any other independent agency…. Indeed, other than the President, the Director of the CFPB is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power.” PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1, 16 (D.C. Cir. 2016) (emphasis in original).

The panel went on to say: “The CFPB is exceptional in our constitutional structure and unprecedented in our constitutional history.” Id. at 21. The panel then ruled that the Dodd-Franks Act is unconstitutional insofar as it prevents the President from removing a Director without “cause.”

While that issue is now before the full D. C. Circuit, the panel’s rationale was sound as applied to the Director, and it applies with even greater force to an Acting Deputy Director, who was simply hired by Cordray.

The idea of an official having an absolute right to appoint his successor is difficult to square with principles of democratic government. Fundamental constitutional principles should not permit an individual to exercise the unilateral power available to the Director, immune from any oversight, when that individual was never elected by any voters, never appointed by any President and never confirmed by the Senate.

In short, despite commentary to the contrary, the President likely has solid legal ground to appoint the Acting Director of his choice – by all accounts (at least of as of the time of publication), OMB Director Mulvaney – to head the CFPB until a permanent replacement for Cordray can be found.

____________________________________

[1] Another less nuanced argument has been advanced to support the President’s appointment power, which claims that the current deputy director at CFPB, David Silberman, is only Acting Deputy Director, rather than the Deputy Director, and therefore Dodd-Frank’s succession provision may not apply. That objection is quickly overcome, however, if Director Cordray simply removes “Acting” from Silberman’s title.

A federal district court in Connecticut recently ruled that a debt collector’s 29 telephone calls to a debtor’s home telephone over a period of 24 days was sufficient to establish a claim under the Fair Debt Collection Practices Act. In denying in part the defendant debt collector’s motion for judgment on the pleadings, Judge Jeffrey A. Meyer found that the frequency of the telephone calls could support plaintiff Peter Lundstedt’s claim that the debt collector made the calls to harass, abuse, or coerce him.

Lundstedt, who is representing himself, filed the action in Connecticut state court in May of 2015. The debt collector removed the action to federal court later that month. Lundstedt alleged the debt collector made 29 “terrorizing collection calls” in an attempt to collect on a $160 debt he owed to Verizon even though Lundstedt requested the debt collector to stop calling him. The complaint also alleged the debt collector violated the Telephone Consumer Protection Act as well as Connecticut state and common law. Attached to the complaint was a call log which purportedly showed 29 phone calls from the debt collector to Lundstedt from February 16 through April 11, 2015.

On August 25, 2015, the debt collector filed its motion for judgment on the pleadings in which it asked the Court to dismiss Lundstedt’s complaint. With regards to Lundstedt’s FDCPA claim, the debt collector argued the number of calls it made to Lundstedt is not sufficient to support a claim of harassment under the FDCPA. The debt collector also argued that Lundstedt failed to plead facts sufficient to support a claim under the TCPA or Connecticut state and common law.

Judge Meyer agreed with the debt collector’s analysis of Lundstedt’s TCPA and Connecticut state law claims and dismissed those counts of the complaint with prejudice. However, Judge Meyer found the 29 telephone calls over a period of 24 days was not “so insubstantial that it fails as a matter of law.” Judge Meyer further cited the fact that Lundstedt had orally requested that the debt collector stop calling him as well as evidence that the debt collector made multiple calls per day to support his decision that Lundstedt had pled facts sufficient to support a claim under the FDCPA.

This decision adds to the series of cases in which courts have attempted to quantify the number of telephone calls that constitute harassing or abusive conduct under the FDCPA. However, application of this decision to future cases is notably limited due to the procedural posture of the case. Further, claims of harassing or abusive telephone calls remain highly fact-specific inquiries for courts to consider, which may lessen the effect of a given court’s decision.

Richard Cordray, the Director of the Consumer Financial Protection Bureau (“CFPB”), announced today that he plans to step down from that post by the end of the month. Cordray’s term was otherwise set to expire in July of 2018.

Cordray, who was appointed by the Obama Administration after the CFPB was created in 2011, issued his announcement in an e-mail to CFPB staff. “Together, we have made a real and lasting difference that has improved people’s lives,” Cordray said in the e-mail. “I trust that new leadership will see that value also and work to preserve it – perhaps in different ways than before, but desiring, as I have done, to serve in ways that benefit and strengthen our economy and our country.”

Cordray’s resignation paves the way for the Trump Administration to install its own director, whose vision for the CFPB likely will differ significantly from Cordray’s.

Republican leaders cheered Cordray’s departure, with House Financial Services Chairman Jeb Hensarling, a Texas Republican, saying: “We are long overdue for new leadership at the CFPB, a rogue agency that has done more to hurt consumers than help them. The extreme overregulation it imposes on our economy leads to higher costs and less access to financial products and services, particularly for Americans with lower and middle incomes.”

Although Cordray’s e-mail did not provide a reason for his departure, pundits have speculated that Cordray’s resignation was triggered by a plan to run for governor of his home state of Ohio.

If Cordray’s departure results in a pull-back by the CFPB in its regulatory activities, this may prompt the acceleration of efforts by other regulators, including State Attorneys General (as reported here), to fill in the perceived regulatory gap.

We will continue to monitor the situation at the CFPB as it develops.

We are pleased to announce that Troutman Sanders attorneys David Anthony, Keith Barnett, Ashley Taylor and Melanie Witte will be featured speakers at the upcoming Third Party Payment Processors Association (TPPPA) Executive Summit in Scottsdale, Arizona on November 8-9, 2017.

Troutman Sanders attorneys will participate in panels on topics including:

  • The Supposed End to Operation Chokepoint – Why Payment Processors Should Not Let Their Guard Down
  • Third-Party Risk – Managing Third-Party Risk in Third-Party Payment Processing: ISOs, Nested TPPPs and Vendors
  • Data Breach! – The Impact of High Profile Data Breaches
  • Opportunity is Knocking: How to be Strategic Rather than Reckless in Higher-Risk Industries and Products

For additional information or to register, click here.

The Federal Trade Commission (FTC) issued a press release earlier today alerting the media and other interested parties that it will announce a “major coordinated consumer fraud enforcement initiative” Friday, October 13 at 11:30 a.m. EST.

The Acting Director of the FTC’s Bureau of Consumer Protection, Thomas Pahl, and Illinois Attorney General Lisa Madigan will headline tomorrow’s press conference, which will be held at the Kluczynski Federal Building in Chicago.

You can watch the event live on the FTC’s Facebook page on Friday, October 13 at 11:30 a.m. EST, or review coverage of the event tomorrow evening on Troutman Sanders’ Consumer Financial Services Law Monitor blog.

The FTC’s press release is available here.

On September 7, the Financial Services Committee held hearings on a bill, H.R. 1849: Practice of Law Technical Clarification Act of 2017 (Trott), that seeks to amend the Fair Debt Collection Practices Act.

The current definition of “debt collector” under the FDCPA does not make clear whether it applies to attorneys, especially in the context of judicial proceedings and related communications.  In Heintz v. Jenkins, 514 U.S. 291 (1995), the United States Supreme Court interpreted this term to apply to attorneys even when making court filings.  The Bill introduced earlier this year seeks to narrow the definition of “debt collector” by exempting “law firms and licensed attorneys to the extent such firm or attorney is: (i) serving, filing, or conveying formal legal pleadings, discovery requests, or other documents pursuant to the applicable rules of civil procedure; or (ii) communicating in connection with a legal action to collect a debt on behalf of a client in, or at the direction of, a court of law (including in depositions or settlement conferences) or in the enforcement of a judgment.

During the hearings, proponents of the Bill explained its purpose, that is, “a technical correction [of the FDCPA] to clarify that there is no liability under the FDCPA when you are litigating.”  Unsurprisingly, the opponents—in particular, the National Consumer Law Center that presented both written and live testimony—maintained that such amendment would “eradicate essential protections against abusive and deceptive debt collection practices by collection attorneys.”

If passed, the bill will bring long-awaited clarity for attorneys who engage in collection activities through legal proceedings.

Today the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) issued a new rule that will have a significant impact on the payday lending market. The CFPB will now require lenders to conduct a “full-payment test” to determine upfront whether the borrower will have the ability to repay the loan when it becomes due. Lenders can skip this test if they offer a “principal-payoff option.” The new rule also limits the number of times that a lender can access a borrower’s bank account.

The new rule covers loans that require consumers to repay all or most of the debt at once, including payday loans with 45-day repayment terms, auto title loans with 30-day terms, deposit advance products, and longer-term loans with balloon payments. The CFPB claims that these loans lead to a “debt trap” for consumers when they cannot afford to repay them. “Too often, borrowers who need quick cash end up trapped in loans they can’t afford,” said CFPB Director Richard Cordray in a statement.

Payday loans are typically for small-dollar amounts and require repayment in full by the borrower’s next paycheck. The lender charges fees and interest that the borrower must repay when the loan becomes due. Auto title loans operate similarly, except that the borrowers put up their vehicles as collateral. As part of the loan, borrowers allow the lender to electronically debit funds from their checking account at the end of the loan term.

The Full-Payment Test

Under the new rule, lenders must now determine whether the borrower can make the loan payment and still afford basic living expenses and other major financial obligations. For payday and auto loans that are due in one lump sum, the test requires that the borrower can afford to pay the full loan amount, including any fees and finance charges, within two weeks or a month. For longer-term balloon payment loans, lenders must assess whether the borrower can afford the payments in the month with the highest total payments on the loan.

Additionally, the rule caps the number of short-term loans a lender can extend to a borrower to three in quick succession. Likewise, lenders cannot issue loans with flexible repayment plans if a borrower has outstanding short-term or balloon-payment loans.

Principal-Payoff Option

Lenders can avoid the full-payment test on certain short-term loans up to $500. To qualify for this exemption, the lender may offer up to two extensions, but only if the borrower pays off at least one-third of the original principal each time. A lender may not offer these loans to a borrower with recent or outstanding short-term or balloon-payment loans. This option is not available for auto title loans.

Account Debit Limits

The new rule also restricts the number of times that a lender can access a borrower’s bank account. After two unsuccessful attempts, the lender may not debit the account again without reauthorization from the borrower.

The Bureau has excluded from the rule some loans that it claims pose less risk. It excludes lenders who make 2,500 or fewer short-term or balloon payment loans per year and derive no more than 10 percent of their revenues from such loans.

This new rule will take effect 21 months after it is published in the Federal Register.

Conclusion

Payday lenders should immediately begin putting into place revised compliance procedures regarding how they qualify borrowers. Otherwise, they could find themselves in violation of the rule.

On July 10, the Consumer Financial Protection Bureau issued its long-awaited final Rule banning class action waivers in arbitration provisions for covered entities, as well as requiring the covered entities to provide information to the CFPB regarding any efforts to compel arbitration.  This Rule is of significance to any financial services company that utilizes consumer contracts containing arbitration provisions. The Rule is scheduled to take effect on March 19, 2018 and will govern contracts executed after that time.

The Substance of the Rule

The Rule contains requirements that apply to a provider’s use of a “pre-dispute arbitration agreement” that is entered into on or after the compliance date.  The Rule defines “pre-dispute arbitration agreement” as an agreement that (1) is between a covered person and a consumer, and (2) provides for arbitration of any future dispute concerning a covered consumer financial product or service.  The form or structure of the agreement is not determinative; an agreement can be a pre-dispute arbitration agreement under the Rule regardless of whether it is a standalone agreement, an agreement or provision that is incorporated into, annexed to, or otherwise made a part of a larger contract, is in some other form, or has some other structure.

The Rule prohibits a provider from relying on a pre-dispute arbitration agreement entered into after the compliance date with respect to any aspect of a class action that concerns any covered consumer financial product or service.  That prohibition may apply to a provider with respect to a pre-dispute arbitration agreement initially entered into between a consumer or a covered person other than the initial provider, such as debt collectors seeking to collect on the contract or assignees of the contract.  The CFPB also specifically stated that the Rule applies to “indirect automobile lenders,” using them as an example of covered entities.

The Rule requires that, upon entering into a pre-dispute arbitration agreement, a provider must ensure that certain language set forth in the Rule is included in the agreement.  Generally, the required language informs consumers that the agreement may not be used to block class actions.

The Rule also requires providers that use pre-dispute arbitration agreements to submit to the CFPB certain records relating to arbitral and court proceedings.  The requirement to submit these records applies to: (1) specified records filed in any arbitration or court proceedings in which a party relies on a pre-dispute arbitration agreement; (2) communications the provider receives from an arbitrator pertaining to a determination that a pre-dispute arbitration agreement does not comply with due process or fairness standards; and (3) communications the provider receives from an arbitrator regarding a dismissal of or refusal to administer a claim due to the provider’s failure to pay required filing or administrative fees.

The CFPB will use information it collects to continue monitoring arbitral and court proceedings to determine whether there are consumer protection concerns that may warrant further Bureau action.  The CFPB is also finalizing provisions that will require it to publish on its website the materials it collects, with appropriate redactions as warranted, to provide greater transparency into the arbitration of consumer disputes.

Small Business Compliance Guide

In late September, the CFPB issued a small entity compliance guide designed to assist small businesses providing covered financial products and services with compliance with the Rule.  The guide provides an additional, succinct summary of the requirements of the Rule, and it sets forth a number of illustrations as to when the Rule does and does not apply.

Due to this additional interpretative guidance, along with the strict potential penalties for non-compliance with the Rule, all companies offering consumer products and services and utilizing arbitration provisions should be familiar with the guide and consult counsel on further compliance issues, as necessary.

Troutman Sanders LLP will continue to monitor developments with the CFPB’s arbitration Rule, including challenges to its implementation.