National Creditors Bar Association

2018 Spring ConferenceJW Marriott, Austin, TX

May 16-19, 2018

Regulatory and Enforcement Update:Where We Are, Where We May be Headed and

What You Should Be Doing To Prepare

Presented By:Joann Needleman, Clark Hill, PLC

Ashley J. Taylor, Troutman Sanders, LLP

Joann Needleman is a partner in the law firm of Clark Hill PLC where she serves as the leader of the Consumer Financial Services Regulatory & Compliance Practice Group. Joann serves as a navigator to her clients seeking advice and guidance in the complex regulatory environment facing the financial services industry. She provides counsel, consultation, and litigation services to a wide array of financial institutions, law firms, credit reporting agencies, and debt buyers throughout the country. With extensive experience as a collection attorney, she understands the regulatory requirements expected from attorneys and non-attorneys in the credit and collection industry.

Ashley L. Taylor, Former Deputy Attorney General of Virginia, is a partner at Troutman Sanders LLP in the Consumer Financial Services practice with a primary focus on federal and state government regulatory and enforcement matters involving state Attorneys General, the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC). He serves as a member of the firm’s Executive Committee and Partner Compensation Committee. Ashley focuses his practice on consumer protection issues and defends companies against a variety of enforcement actions brought by the state and federal regulators, and on claims including marketing and advertising representations, statutory disclosures, unfair or deceptive acts or practices, and data security breach response.

Legal DisclaimerThis information is not intended to be legal advice and may not be used as legal advice. Legal advice must be tailored to the specific circumstances of each case. Every effort has been made to assure this information is up-to-date. However, it is not intended to be a full and exhaustive explanation of the law in any area, nor should it be used to replace the advice of your own legal counsel.

CFPB — then and nowCFPB is loved by some and hated by others:– Supporters argue that it has “made a real lasting

difference that has improved peoples’ lives”– Critics argue that it is “the single most powerful

and least accountable federal agency in all of Washington”

CFPB – then and now

• President Trump’s interim appointment of Mick Mulvaney as Acting Director came after a last minute effort by Cordray to appoint Leandra English, Cordray’s former chief-of-staff, to the position.

• U.S. District Court for the District of Columbia preliminarily rejected English’s legal challenges to Mulvaney’s leadership.

• Mulvaney v. English

CFPB — New Philosophy

CFPB mission statement under Director Cordray:• “The Consumer Financial Protection Bureau is a

21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.” (emphasis added)

CFPB — New PhilosophyCFPB mission statement under Acting Director Mulvaney:• “The Consumer Financial Protection Bureau is a 21st

century agency that helps consumer finance markets work by regularly identifying and addressing outdated, unnecessary, or unduly burdensome regulations, by making rules more effective, by consistently enforcing federal consumer financial law, and by empowering consumers to take more control over their economic lives.” (emphasis added)

Constitutional ChallengesCFPB’s leadership shuffle is playing out while the constitutional challenge to its leadership structure was muddled through in the D.C. Circuit Court of Appeals.•PHH Corp. v. CFPB (CFPB-2014-1, 2016) appeal docketed, No. 15-1177 (Apr. 11, 2017).

Legislative Developments• In June of 2017, the House of Representatives passed

the Financial Choice Act (H.R. 10)• Regulatory Relief passed the Senate in March 2018.• Chairman Hensarling is pushing for Senate

negotiations to include parts of Financial Choice in the comprehensive “Reg. Relief” bill.

CFPB - Current Developments

– In July, 2017 — CFPB issued its final rule banning covered entities from including class-action waivers in arbitration provisions and requiring them

CFPB - Current Developments

• The Arbitration Rule was scheduled to take effect in March, 2018 — however, Republicans in Congress invoked the Congressional Review Act and passed a resolution to revoke the rule.

CFPB - Current Developments• October, 2017 — CFPB issued its final rule governing the

underwriting of certain short-term personal loans, which include the following:– Payday loans (Payday Lending Rule)

§ Payday rule may not be implemented.§ Mulvaney has said that CFPB is reexamining the rule and may delay its effective

date or refocus it on disclosure requirements.§ Sen. Lindsay Graham has proposed a bill that would repeal the rule

– Automobile title loans– Deposit-advance loans

CFPB - Current Developments

CFPB v. Golden Valley Lending, Inc., et al., No. 2:17-cv-02521 (D.Kan.)•As part of that initiative — On January 18, 2018, the CFPB requested that the Court voluntarily dismiss its suit against tribal payday lenders.

CFPB - Current Developments

OPPORTUNITIES FOR A DEBT COLLECTION RULE•Debt Collection industry has an opportunity for significantand real influence at the Bureau but the time period is short.Bureau engagement is critical. Associations and stakeholdersare working to put together their “regulatory wish lists”, thoserules they would like to see in place in order to provide long-term certainly. More importantly the Bureau is looking forspecific feedback from associations regarding issuessurrounding the original proposal, states regimes and specificfixes to the FDCPA.

CFPB - Anticipated Reforms• Placing an immediate freeze on new bureau actions to allow for a

careful review of all pending and current investigations and litigation and all pending and final rulemaking activity, consistent with the approach taken at other agencies;

• Promulgating policies and regulations to end “regulation by enforcement” and to restore certainty for regulated entities;

• Refocusing the agency on addressing consumer harm and promoting consumer-friendly competition, rather than pursuing broad policy initiatives through enforcement; and

State Regulatory “Gap-Filling”• A. Overview–Change in regulatory landscape– State AGs and State Regulatory Bodies–Becoming More Engaged in

investigation/enforcement actions.

State Regulatory “Gap-Filling”A. State Attorneys General• Mulvaney released memo to CFPB staff that the

Bureau will no longer “push the envelope” when it comes to enforcement, which will be the choice of last resort.

• “Why we think we know better or how to protect consumers in your state surprises me . . . “

“

State AGs – Gap-Filling

• State Attorney General “Class Action Project”– Class Action Fairness Act – passed Congress in 1995

– Requires parties filing federal class action to send proposed settlements to every state AG in order to allow that state to participate

– Each state maintains independent authority but allows each state to collaborate to the maximum output.

State AGs – Gap-FillingNY AG — Eric Schneiderman has led the charge to fill the regulatory gaps left by the Trump Administration.• “deeply troubled by reports that the presidential transition is

considering ways to eviscerate some of the most basic consumer and investor protection laws in the country.”

Mass. AG — Maura Healey has also promised to step in to fill the gaps created by the Trump Administration.• AG Healey promised that state attorneys general would be “the first

line of defense against illegal action by the federal government.”

State AGs – Gap -Filling

States Attorneys General will continue their focus collectively in the following areas:– “Predatory Lending” —– CashCall settlement– Navient litigation

GAP - FILLING

• “Data Security and Privacy”• Acer Service Corp breach• Target Corp. Agreement• Uber breach

GAP-FILLING

• “Opioid Suits”– State AGs also focused on combating the opioid

epidemic by filing lawsuits against various pharmaceutical manufacturers and distributors, and drugstore chains.

GAP-FILLING

• Actions against law firms • Massachusetts AG brought suit against the largest debt collection firm in the state, claiming

that the firm relied on computerized spreadsheets provided by national debt buyers that allowed it to process thousands of consumer accounts for collection in a day’s time.

• On July 19, 2017, the parties agreed to a consent decree where by the law firm would:– Disclosure to consumers that certain income is exempt from collection.– Verify the accuracy of a consumer’s debt before attempting to collect– Refrain from suing unless a lawyer has meaningfully reviewed documentation and determined there is sufficient

evidence to proceed.

HOW TO PREPARE • Confidentiality Agreements • Litigation Hold and Legal Hold — secure data• Know your weak spots —– Breach simulation exercise– Self-audit– Policies and Procedures– Third Party Subpoenas

Takeaways• CFPB — change in leadership means change in

focus• States Attorneys General filling the Gap as

CFPB becomes de-regulated• Plan ahead — don’t wait for the threat to

knock at your door!

Questions & Answers