Financial Services Report - Summer 2013

Editor's Note

It's time again to put on the cranky pants and lay down a groove. The IRS got into trouble this quarter for belief-based harassment. The targeted groups now get to wallow in the limelight. They are as thick as cicadas, suing, giving TV interviews, and behaving put upon. We want to know, where's our wallow? Somehow, this newsletter got passed over. Not enough shrill? Doubt it. We asked Lois Lerner but she left us a voicemail saying she was busy and would get back to us on the fifth. It's enough to put the "ire" back in IRS. (Product Placement Alert: Lululemon offers a complete line of cranky pants - ours comes with an expandable waistline.)

Did we mention we listen? It turns out our readers can't get enough Bureau jokes. This one is no joke: CFPB employees want to unionize because they are, um, unhappy. Couldn't they just join our conga line? (Some thought being miserable was a CFPB job description.) What really got them off-leash was management's decision to build out the CFPB headquarters as open space—think "cube farm"—without individual offices. This will be good to know when you get examined. It will be public and open: Latex gloves, no hospital gown.

If you "like" our terroir, you can fill out our customer satisfaction survey. Just go to www.Mofo.crankypants.com, register with a simple alphanumeric password that must include at least two punctuation marks (one of which must have a squiggle) and the initials of your mother's maiden name, print out the form on 20-lb canary paper (double-sided), fill in the answer bubbles completely (#2 pencil), affix a commemorative Latin music legends "forever" stamp, and leave in your glove compartment.

Until next time, remember: Google Glass only look like arcwelding goggles, ask your coffee designer for references, and avoid North Korean fireworks.

William Stern, Editor-in-chief

Arbitration Report

Ninth Circuit Punts

In Kilgore v. Keybank, N.A., the Ninth Circuit was poised to decide whether the Supreme Court's Concepcion decision vitiates California's "public" injunction exemption from arbitration. Under that exemption, California courts have held that the federal policy in favor of arbitration under the FAA inherently conflicts with statutes, such as California's unfair competition law, that authorize "public" injunctive relief. The en banc court did not reach the issue, ruling instead that plaintiffs sought relief solely for their own benefit so the exemption did not apply. Kilgore v. Keybank, N.A., Nos. 09-16703, 10-15934, 2013 U.S. App. LEXIS 7312 (9th Cir. Apr. 11, 2013). The court held plaintiffs were required to arbitrate their claims against the originating bank and loan servicer of the student loans they challenged.

TCPA Suit Sent to Arbitration

A Florida federal court granted BBVA Compass Bancshares Inc.'s motion to compel arbitration in a putative class action brought by a Florida cellphone user alleging the company violated the Telephone Consumer Protection Act (TCPA) by sending out unsolicited text messages promoting its mobile banking application. The plaintiff's user agreement with BBVA contained an arbitration provision. The court declined to consider plaintiff's argument that his TCPA claim is not covered by the arbitration provision, because the arbitration agreement contained a provision that the arbitrator, not the court, should consider questions of arbitrability. Shea v. BBVA Compass Bancshares, Inc., No. 1:12-cv-23324-KMM, 2013 U.S. Dist. LEXIS 31906 (S.D. Fla. Mar. 7, 2013).

Severing the Unconscionable

A California appeals court actually reversed a decision denying a motion to compel arbitration! Mercedes-Benz Fin. Servs. USA, LLC v. Okudan, No. D061669, 2013 Cal. App. Unpub. LEXIS 2478 (Apr. 8, 2013). In an unpublished opinion, the court agreed with the trial court that provisions in a Mercedes-Benz Financial Services contract that authorized a new arbitration for final awards that exceeded $100,000 was unconscionable. However, the court remanded to the trial court to consider whether the unconscionable provisions could be severed.

Bureau Report

Time for Recess

Litigation continues in Noel Canning v. NLRB, where the U.S. Court of Appealsfor the D.C. Circuit recently ruled thatPresident Obama improperly used hisrecess appointment authority to appointthree members to the National LaborRelations Board. Bureau watchers continueto buzz about the implications of this case,as Consumer Financial Protection Bureau(CFPB) Director Richard Cordray wasappointed under the same circumstances.

The NLRB and the Obama Administration filed their petition for certiorari on April 25, 2013. Noel Canning did not oppose the petition in its response. Supreme Court watchers expect the Supreme Court to grant the petition, although the case will not be heard until the fall at the earliest.

In the meantime, the Third Circuit agreed with the D.C. Circuit, finding recess appointments to the NLRB in 2010 were invalid as well. NLRB v. New Vista Nursing & Rehab., No. 11-3440 et al.,2013 U.S. App. LEXIS 9860 (3d Cir. May16, 2013). The Third Circuit relied ondifferent reasoning than the D.C. Circuit,but reached the same conclusion.

"Compliance U" for Student Loan Servicers

In addition to holding field hearings and publishing numerous reports and blog posts about the student loan debt crisis, the CFPB has proposed a Larger Participant Rulemaking to bring nonbank student loan servicers under its supervisory purview. The proposal would apply to those entities that service both federal and private student loans, with the CFPB coordinating supervision of servicers of federal loans with the Department of Education. This is the third Larger Participant Rulemaking issued by the CFPB. In its first two rules, the CFPB set the "larger participant" threshold at $7 million (credit bureaus) and $10 million (debt collectors) in sales. In this more recent rulemaking, the metric used is number of loans serviced, and the CFPB has set the bar at one million accounts, which the CFPB has said will capture the seven largest student loan servicers.

Spouses in, Roommates out

The CFPB finalized an amendment to Regulation Z's ability-to-pay requirements to expand access to open-end credit to those spouses, partners, and family members who do not earn an income outside of the home. The amendment permits a credit card issuer to consider income to which an applicant has a "reasonable expectation of access" that is used to regularly pay the applicant's expenses, like a bank account funded by a working family member. Issuers may assess an adult applicant's ability to pay in a variety of ways. However, the CFPB opted not to permit issuers to rely solely on responses to prompts for household income, citing concerns that applicants may mistakenly think they have a reasonable expectation of access to their roommate's income.

Now That's More Fee-sible

The CFPB announced a final rule amending Regulation Z to eliminate limits on preaccount opening fees, notwithstanding Regulation Z's current prohibition on first year fees in excess of 25% of a cardholder's credit limit. The CFPB warns credit card issuers, though, that it will "continue to monitor the credit card market to determine if it should take further action to protect consumers." The revision reflects a court ruling that limits on pre-account opening fees went beyond the authority in the CARD Act requiring limits on first-year fees.

What's It Gonna Take to Put You in This Brand New Guidance Today?

Continuing its tradition of regulating without rulemaking, on March 21, 2013, the CFPB published a guidance bulletin on fair lending compliance for indirect auto lenders. The bulletin announces the CFPB's concerns that indirect auto lending may introduce discriminatory lending practices, as auto dealers are given discretion to further mark up a borrower's interest rate at the point of sale. By doing so, the bulletin reflects the CFPB's view that discrimination may be proven through disparate impact, a theory that may yet be the subject of Supreme Court review.

The guidance also serves as an end-run around the Dodd-Frank Act's restrictions against the CFPB regulating the conduct of auto dealers, and indicates the regulatory gymnastics the CFPB is prepared to engage in to extend its reach beyond traditional consumer financial services market participants.

Try Try Again with Re-Re-Remittance Transfer

Many Justin Bieber coifs ago there were remittance transfer rules. The CFPB just released another round of amendments to its remittance transfer regulations. The revisions (1) relax a requirement for remittance transfer providers to disclose foreign taxes and fees imposed by a non-affiliated recipient institution and (2) reduce providers' liability when sender error causes funds to be deposited into an incorrect recipient's account. The CFPB also pushed back the effective date of the remittance transfer regulations yet again, to October 28, 2013. On a related topic, the CFPB recently announced that it is accepting money transfer complaints. Unfortunately, the new intake forms don't seem to have an option for complaints about the CFPB's perpetual revisions to the remittance transfer rules.

Burning a Hole in Their Pockets

The CFPB issued a final rule for administering its civil penalty fund, which is flush with funds due to the penalties imposed by the CFPB in its high-profile consent orders. The final ruleissued without a proposed ruleestablishes a fund administrator, who is empowered to allocate funds to eligible victims or to consumer education and financial literacy programs...

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