One of the ABA’s Top 100 Blawgs for four straight years, Ballard Spahr’s CFPB Monitor sets itself apart with its laser focus on the Consumer Financial Protection Bureau. In the first of a continuing series of interviews focused on top bloggers in the top legal blogging network, LexBlog, Alan S. Kaplinsky, head of Ballard’s Consumer Financial Services Group, discusses the genesis and evolution of CFPB Monitor and the latest goings on in and around one of the federal government’s most active and controversial agencies. His remarks have been edited for length and style.
MCC: Why did you create your blog, CFPB Monitor, and what did you hope to achieve with it?
Kaplinsky: We launched Ballard’s Consumer Financial Services Group in February 2005. This was an area of law to which several of us had devoted our entire careers. When the Dodd-Frank Act was enacted on July 21, 2010, it included provisions for the creation of the Consumer Financial Protection Bureau (CFPB). We recognized that this was going to have an enormous impact on our consumer financial services clients and our group. Clients were going to need a reliable and analytical resource that would enable them to keep abreast of everything going on at the CFPB so they could stay ahead of the curve.
We were ideally suited to be that resource because we were already steeped in the area of consumer financial services. For many years, we were ranked by Chambers USA as one of a handful of Tier 1 firms in this area.
CFPB Monitor was the very first blog at Ballard Spahr and was somewhat revolutionary. As with any large law firm, there was trepidation about what it would mean to implement a blog. We were fortunate because Barbara Mishkin had joined us several years before from another law firm. Barbara is a consumer financial services lawyer with many years of experience, and she was very enthusiastic about taking charge of the blog. That meant, among other things, monitoring anything and everything going on at the CFPB (except for matters involving clients) and then either finding people to blog about items or blogging about items herself. The blog has been an enormous success. We have thousands of subscribers.
MCC: Do you know if CFPB Director Cordray or others at the CFPB read your blog? What do they think of it?
Kaplinsky: Yes, it’s our understanding that we have many readers at the CFPB, right up to the director. We’ve gotten a lot of recognition from our clients, the CFPB and others in the industry, as well as the ABA, which for four years in a row has named our blog one of the top 100 in the country.
MCC: The blog is published by Ballard Spahr’s Consumer Financial Services Group. How many lawyers are in that group? What are their skill sets?
Kaplinsky: We have 115 lawyers in our group located across all 14 of our offices. I work out of our Philadelphia and Manhattan offices. While all of our lawyers focus on consumer financial services, some are more on the regulatory side and others are more on the litigation side. Many of our litigators defend clients being investigated by the CFPB.
Our group includes three CFPB alumni: James Kim, in Manhattan, a former senior enforcement lawyer; Bo Ranney, in Washington, D.C., a former examiner-in-charge; and Tristram Wolf, in Philadelphia, who worked in the very important area of handling consumer complaints. They provide extraordinary insight into the workings of the CFPB that is very helpful to our clients.
We handle a wide range of CFPB matters. The CFPB supervises and examines banks with more than $10 billion in assets, and many different kinds of nonbanks, including payday lenders, student lenders and mortgage companies. They’ve added many businesses to that list, such as debt collectors, debt buyers, auto finance companies, student loan servicers and companies involved in international money transfers. They are constantly adding businesses.
MCC: What types of clients retain you for CFPB-related work, and what needs do they have?
Kaplinsky: We work with the entire banking industry. In the nonbanking area, we’re doing work for companies that originate mortgages, companies that service mortgages, auto finance companies, student loan lenders and servicers, online marketplace lenders, payday and auto title lenders, debt collectors, debt buyers, even debt collection law firms, payment processors, and the list goes on and on. There really is no type of client within the consumer finance area that we don’t do work for.
With the CFPB’s creation, nonbanks that have never before been examined by a federal regulator for compliance now face CFPB examinations. We help them prepare for CFPB exams by getting their compliance management systems in order and putting in place the policies and procedures the CFPB is going to demand. Before the CFPB comes in, we put our clients through their paces by simulating a CFPB examination so that when the agency actually arrives the client will know what it’s in for. Then we hold the client’s hand during the examination. Issues always arise, and we are behind the scenes to answer questions about the process or issues the CFPB identifies, including potential violations of the law. If the CFPB does identify potential violations, we help the client reply to the CFPB and work with it to try to keep it outside the grasp of the CFPB’s enforcement lawyers.
MCC: What other types of CFPB-related work does your firm handle?
Kaplinsky: In addition to supervision work, we are immersed in enforcement and regulatory work. We have a whole team focused on enforcement matters. The CFPB, in the short time it has been in existence, has entered into consent orders with more than 100 banks and nonbanks and has obtained billions of dollars in monetary relief. We probably have handled more CFPB enforcement matters than any other firm in the country.
In the regulatory area, we work with clients in implementing the regulations the CFPB has issued, particularly in the mortgage area. Within our group, we have a separate mortgage banking group that focuses on assisting clients in complying with the CFPB’s mortgage regulations.
Currently, the CFPB is writing rules for debt collectors, debt buyers, payday lenders and auto title lenders, and covering arbitration. The arbitration rulemaking has now been ongoing for almost four years. There have been three CFPB field hearings on arbitration, and I’ve been one of a very few industry people who’ve been invited to testify in person. We have written comment letters on the arbitration rulemaking on behalf of the American Bankers Association, Consumer Bankers Association and Financial Services Roundtable.
The agency very recently finalized a rule pertaining to prepaid cards. The rule won’t go into effect for about a year, but it’s a vast rule and we’ve begun to help our clients comply. The CFPB has also proposed a rule for payday, auto title and high-cost installment loans, and we have submitted comments on behalf of several clients. We’re now waiting for the CFPB to issue final payday loan and arbitration rules. That will probably occur sometime next year.
MCC: Tell us a little more about arbitration, a key area of interest to our readers.
Kaplinsky: Arbitration is a subject very near and dear to my heart because 15 years ago I pioneered the use of arbitration in consumer financial services contracts. This past summer, we submitted a very lengthy comment letter to the CFPB with respect to its arbitration proposal. The Dodd-Frank Act (Section 1028) gave the CFPB responsibility for conducting a study of consumer arbitration to determine whether or not it was in the public interest and protected consumers and then to decide whether to prohibit or limit arbitration. Their approach so far (as reflected in their proposed regulation) has been not to ban arbitration altogether but to ban the use of class action waivers in arbitration agreements. Class action waivers prohibit a consumer from being part of a class action if that consumer has agreed to arbitrate.
MCC: Does your thought leadership and your work range beyond CFPB-related matters?
Kaplinsky: In addition to our blog, we do a lot of legal alerts about developments in the consumer financial services area, whether they’re related to the CFPB or have nothing to do with it. We do about 40 to 50 webinars a year on what we consider to be particularly hot topics about which our clients and others in the industry are clamoring for information. We routinely have hundreds of people attending, and some webinars have been attended by more than 1,000. We also do in-house CLE programs for clients, usually sending from four to eight attorneys to visit the client for a day to educate its in-house lawyers about whatever they are interested in. They work with us on designing the list of topics and agenda.
There’s a lot going on in the consumer finance area that has little or no connection with the CFPB. That includes the financial technology area, marketplace lending and litigation. We handle many class actions and individual lawsuits where our clients are getting sued under a wide range of federal and state laws, including the Truth in Lending Act, the Equal Credit Opportunity Act, the Telephone Consumer Protection Act (TCPA) and the Fair Credit Reporting Act. We are handling hundreds of lawsuits dealing with the TCPA. For a growing number of clients, we are handling their TCPA lawsuits nationwide.
MCC: What makes CFPB Monitor stand out from other law firm blogs?
Kaplinsky: There are several things. First, we focus only on the CFPB. There is no other blog that does that. Early on in the CFPB’s existence, a couple of other law firms tried to launch blogs related to the CFPB, but they were a little late to the party. Second, we provide the information on a very timely basis. When something happens, we write about it immediately. Very often, we have broken stories before the mass media became aware of a development because we are so close to what’s going on at the agency. Third, we don’t just report the news, which any newspaper can do; instead, we go beyond the headline or event. We analyze the development and tell our clients and others in the industry why the development should be important to them. Because of our background and experience, we are able to connect the dots for our readers in our blog.
MCC: What’s next for the CFPB?
As previously mentioned, the CFPB next year will likely issue final regulations pertaining to payday loans and arbitration. They are also going to propose a rule pertaining to debt collection. They’ve done an outline of the rule they are considering for third-party debt collectors, but they haven’t yet proposed a rule regarding third-party debt collectors or creditors collecting debts owed to them. That will probably happen next year. They will be developing a rule regulating overdrafts on bank checking accounts. They’re also going to propose a rule requiring lenders to collect data on credit applications made by women- or minority-owned businesses and small businesses. That rule will have a huge impact. They also will expand the companies they supervise to include installment lenders and auto title lenders. That will also probably happen next year.
In addition, they’re thinking of creating a registration system for nonbank lenders. They want to get a better handle on all of the companies in the U.S. that offer some type of consumer financial service. They believe requiring all of them to register may be the best way to do that, even if a company isn’t examined by the CFPB. They’re also likely to get more involved in financial technology, particularly lending that is offered over the Internet.
The CFPB has a lot on its plate. That activity creates a lot of issues our clients need to grapple with, and a lot of work for the members of our group. In 1995, we were a group of four and, as I said earlier, we’re now up to 115. A large part of our growth has been during the roughly five years the CFPB has been operational.
MCC: What obstacles does the Bureau need to overcome?
The major obstacle is the opinion issued by the U.S. Court of Appeals for the D.C. Circuit on October 11 in PHH Corporation vs. CFPB. A three-judge panel held that the structure of the CFPB is unconstitutional. The court concluded that there is too much power reposed in a single director who is not accountable to either Congress or the President, who is only allowed to remove the director for just cause. The court basically said that structure violates the separation-of-powers provision of the U.S. Constitution. It remedied that constitutional flaw by wiping out the “just cause” language so that the President now can remove the director for any reason.
The court also found other problems with the CFPB. It said they had interpreted certain language in the Real Estate Settlement Procedures Act (RESPA) in a completely novel way that was inconsistent with the language of the statute and a longstanding interpretation applied by HUD (the agency that had regulatory jurisdiction with respect to RESPA until the CFPB became operational), and held that it was a denial of due process to apply that interpretation retroactively to PHH. It further held that it was wrong for the CFPB not to consider itself subject to the statute of limitations in an administrative hearing that would have applied if the CFPB had sued PHH in court. The CFPB had taken the position that when it proceeded in front of an administrative law judge, it did not have to concern itself with the statute of limitations. The court, in so many words, said that position was nonsense.
The PHH case has been remanded back to the CFPB, which might be filing a petition for rehearing en banc or a petition for a writ of certiorari with the U.S. Supreme Court. One or both of those things is very likely to happen.
The effect has been to cast a cloud over all of the CFPB’s rulemaking because if it’s an executive agency, which is what the court ruled the CFPB is, rather than an independent agency, every proposed and final rule must be reviewed by the Office of Management and Budget. The CFPB has never had to do that, but if the decision takes effect it will need to do so.
As a result, things are in turmoil at the CFPB. We’ve been fielding many questions from clients about the significance of the decision and what it means for regulation, enforcement and supervision.
Published November 4, 2016.
