March 6 – Read the newsletter below for the latest Mortgage Banking and Consumer Finance industry news, written by Ballard Spahr attorneys. In this issue, we examine the Massachusetts Attorney General's lawsuit against Hometap, legislation that would eliminate all funding for the CFPB, Oregon's consideration of DIDMCA opt-out legislation, the Wisconsin Appeals Court's rejection of National Bank Act preemption, and much more.
- CFPB Nominee McKernan: Bureau Will Continue Its Work
- President Trump Takes Control of ‘Independent Agencies’
- President Trump Orders Review of Regulations to Help the ‘Deconstruction of the Overbearing and Burdensome Administrative State’
- Massachusetts Attorney General Sues Hometap, Saying Company Offers Illegal Home Equity Investments That Really Are Reverse Mortgages
- Legislation to Eliminate All Funding for the CFPB Introduced in House, Senate
- Oregon Considering DIDMCA Opt-Out Legislation
- Wisconsin Appeals Court Rejects National Bank Act Preemption
- Podcast: The Patterns of Digital Deception
- Looking Ahead
CFPB Nominee McKernan: Bureau Will Continue Its Work
Earlier today Jonathan McKernan, President Trump’s nominee to head the CFPB, pledged that the agency would “implement and enforce the federal consumer financial laws and perform each of its other statutorily assigned functions.”
The comment, made during his confirmation hearing before the Senate Banking Committee, came in stark contrast to the Trump administration’s previous statements that it intends to take the actions necessary to dismantle the CFPB. That includes canceling the lease at CFPB headquarters, according to Sen. Jack Reed, D-R.I.
McKernan’s comments echo those made in a document the Department of Justice (DOJ) filed on behalf of the CFPB in the National Treasury Employees Union’s lawsuit against the agency. The union has accused the Trump administration of starting to dismantle the bureau.
However, the DOJ said in its filing that bureau officials recently wrote to the Federal Reserve that the bureau will be run in a streamlined and efficient fashion. “The predicate to running a more streamlined and efficient bureau is that there will continue to be a CFPB,” the DOJ said, in opposing a request for a preliminary injunction blocking agency actions that would appear to dismantle the bureau.
In his testimony, McKernan pledged to follow the requirements of the Dodd Frank Act, which, according to Banking Committee ranking Democrat Senator Elizabeth Warren, (D-Mass.), established 88 specific duties for the bureau.
“I’m going to enforce the law,” McKernan said.
However, he added that there are problems at the bureau.
“It’s clear that the CFPB suffers from a crisis of legitimacy,” McKernan told the Banking Committee. “This must be corrected if the CFPB is to reliably do what it’s supposed to do—look out for the American consumer. To that noble end, the CFPB needs to be made accountable to our elected officials and its past excesses need to come to an end.”
In his testimony, McKernan also said the bureau will focus “on real risks to consumers … by focusing its enforcement on bad actors.” The bureau has not always done that, McKernan said, adding that the agency has very little accountability to Congress.
“It has acted in a politicized manner,” he told the committee. “It has pushed beyond the limits of its statutory authority. It has seized opportunities to expand its jurisdiction and power. It has offended our basic notions of fairness and due process when it has regulated by enforcement. And it has harmed consumers through higher prices and reduced choice when it has failed to strike an appropriate balance between costs and benefits in prescribing new regulations.”
Warren said she remains concerned that the administration intends to shut down the agency.
“Congress created the CFPB, and no one, not Donald Trump, not co-Presidents Elon Musk and Donald Trump, no one except Congress can shut it down,” she said.
Consumer Financial Services Group
President Trump Takes Control of ‘Independent Agencies’
President Trump has issued an executive order that requires agencies to review all regulations “for consistency with law and administration policy.”
In issuing the order, President Trump said, “It is the policy of my administration to focus the executive branch’s limited enforcement resources on regulations squarely authorized by constitutional federal statutes, and to commence the deconstruction of the overbearing and burdensome administrative state.”
He continued, “Ending federal overreach and restoring the constitutional separation of powers is a priority of my administration.”
The administration has issued several executive orders that attempt to centralize rulemaking in the White House and the Department of Government Efficiency. For instance, as we previously reported, President Trump has issued an executive order that gives the administration power over independent agencies.
The regulatory order gives agency heads, the Office of Management and Budget and DOGE, and in some cases, the Attorney General, 60 days to identify regulations that, among other things:
- Impose undue burdens on small businesses and impede private enterprise and entrepreneurship.
- Are based on unlawful delegations of legislative power.
- Include matters of social, political, or economic significance that are not authorized by clear statutory authority.
- Impose significant costs on private industries and people and are not outweighed by public benefits.
- Impose undue burdens on small business and impede private enterprise and entrepreneurship.
- “Harm the national interest by significantly and unjustifiably impeding technological innovation, infrastructure development, disaster response, inflation reduction, research and development, economic development, energy production, land use, and foreign policy objectives.”
As part of the process, OMB’s Office of Information and Regulatory Affairs is directed to work with agency heads to develop a Unified Regulatory Agenda that will rescind or modify those rules. The Unified Regulatory Agenda is released semi-annually. The next version, the Spring 2025 Unified Agenda, is likely to be released in early July.
Consumer Financial Services Group
President Trump has issued an executive order that requires agencies to review all regulations “for consistency with law and administration policy.”
In issuing the order, President Trump said, “It is the policy of my administration to focus the executive branch’s limited enforcement resources on regulations squarely authorized by constitutional federal statutes, and to commence the deconstruction of the overbearing and burdensome administrative state.”
He continued, “Ending federal overreach and restoring the constitutional separation of powers is a priority of my administration.”
The administration has issued several executive orders that attempt to centralize rulemaking in the White House and the Department of Government Efficiency. For instance, as we previously reported, President Trump has issued an executive order that gives the administration power over independent agencies.
The regulatory order gives agency heads, the Office of Management and Budget and DOGE, and in some cases, the Attorney General, 60 days to identify regulations that, among other things:
- Impose undue burdens on small businesses and impede private enterprise and entrepreneurship.
- Are based on unlawful delegations of legislative power.
- Include matters of social, political, or economic significance that are not authorized by clear statutory authority.
- Impose significant costs on private industries and people and are not outweighed by public benefits.
- Impose undue burdens on small business and impede private enterprise and entrepreneurship.
- “Harm the national interest by significantly and unjustifiably impeding technological innovation, infrastructure development, disaster response, inflation reduction, research and development, economic development, energy production, land use, and foreign policy objectives.”
As part of the process, OMB’s Office of Information and Regulatory Affairs is directed to work with agency heads to develop a Unified Regulatory Agenda that will rescind or modify those rules. The Unified Regulatory Agenda is released semi-annually. The next version, the Spring 2025 Unified Agenda, is likely to be released in early July.
Consumer Financial Services Group
Alleging that a Boston company “pervasively and systematically violated the state’s consumer protection laws, including mortgage and foreclosure prevention laws, putting financially vulnerable homeowners at high risk of losing their homes,” Massachusetts Attorney General Andrea Joy Campbell has filed suit against the firm and its holding company.
The AG alleged that Hometap Equity Partners LLC–and HomeTap Management Systems, LLC–engaged in illegal and predatory practices targeted for financially vulnerable homeowners, according to the suit filed in Suffolk County Superior Court.
“The Commonwealth alleges systematic and pervasive unfair or deceptive acts and practices in connection with a purportedly novel financial product which operate to strip Massachusetts homeowners of home equity,” the suit alleged.
“Lured by promises of no payments or interest for ten years, hundreds of Massachusetts homeowners have taken on a risky lending product, secured by a mortgage on their family home, that amounts to a ticking time bomb,” according to the suit. “Soon, these unlawful loans will come due, and communities across the Commonwealth will face the fallout.”
The complaint alleged that while Hometap claims to ‘make homeownership less stressful’ by offering a product that has no interest and no income requirements, “in reality, this product is vastly more expensive than any common mortgage product on the market.” The compliant continued, “When consumers cannot pay, Hometap will sell their homes.”
In addition, the suit alleges that Hometap:
- Devalues a homeowner’s equity by paying them as little as half the value of the equity it takes.
- Offers upfront “fast cash” to consumers without evaluating their financial conditions. Campbell alleged that Hometap markets its product to “house rich, cash poor” homeowners. That practice would lead to homeowners being unable to pay the large amount required at the end of their contract. That, the AG said, put them at risk of losing their homes.
- Offers illegal reverse mortgages, although the company contends that its home equity product is an investment and not a reverse mortgage. In the suit, the state contended that Hometap’s Home Equity Investment does not comply with requirements intended to protect reverse mortgage borrowers, including that the loans only be made to borrowers over 60 years old, that a seven-day cancelation period be offered and a requirement that borrowers receive third-party counseling to ensure that they understand the product.
- Engages in deceptive marketing practices by claiming that it invests alongside consumers and does not charge interest. Campbell and the suit alleged that the product is far more costly than advertised.
Campbell asked for Hometap to be barred from continuing allegedly illegal activities, as well as restoration of financial losses for consumers and a prevention of foreclosures for homeowners with Hometap home equity products.
As we have blogged about previously, these types of agreements have come under increasing scrutiny from the CFPB (in the waning days of Director Rohit Chopra’s leadership) and state regulators, with a number of states (Connecticut, Maryland, and Washington) having amended their statutes and/or issued regulations making their position clear that these types of products are considered residential mortgage loans and imposing specific disclosure obligations in connection with these products. This action by the Massachusetts AG is consistent with our forecasting regarding increased focus and scrutiny from state regulators.
Legislation to Eliminate All Funding for the CFPB Introduced in House, Senate
Legislation that would eliminate all funding for the CFPB has been introduced in the House and Senate, with the main House sponsor now calling for the bill to be placed on a fast track by including it in budget reconciliation.
Representative Keith Self, (R-Texas), has introduced H.R. 814 and Senator Ted Cruz, (R-Texas) has introduced S. 303. A federal judge temporarily has blocked the Trump administration from dismantling the bureau.
In a letter to House Speaker Mike Johnson, (R-La.), Self, and Representatives Tom Tiffany, (R-Wis.), and Randy K. Weber, Sr., (R-Texas), asked that the legislation be included in the budget reconciliation legislation the House will soon be considering, asserting, without elaboration, that it is consistent with the Byrd Rule limitations on such amendments.
If so, and if the House agrees to include it, that could ensure that the legislation would not be filibustered in the Senate. Defeating a filibuster requires 60 votes in the Senate, while budget reconciliation matters only require 50 votes.
“This bill is essential to advancing conservative fiscal policy by cutting off all funding to the Consumer Financial Protection Bureau (CFPB) and ensuring that this rogue agency is permanently eliminated,” the three House members wrote.
They continued, “This demonstrates a clear commitment to dismantling the agency altogether. This aligns with the long-standing position amongst conservative Members of Congress that the CFPB operates without meaningful oversight and imposes unnecessary burdens on the financial sector.”
“The CFPB has long been a source of regulatory overreach, with its funding mechanism shielding it from congressional accountability,” the members wrote.
They also asserted that by reducing the agency’s statutory cap to zero, the legislation could not be revived by future administrations.
Consumer Financial Services Group
Oregon Considering DIDMCA Opt-Out Legislation
Oregon may become the latest state attempting to stop out-of-state banks from “exporting” home-state interest rates on loans made to Oregon consumers. Like similar legislation adopted by Colorado in 2023, House Bill 2561 explicitly provides that the state does not want certain provisions of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) to apply to loans made in Oregon.
The Oregon House Commerce and Consumer Protection committee approved the legislation last week.
Like Section 85 of the National Bank Act (Section 85), DIDMCA Section 521 (Section 521) allows insured state banks to charge interest at the highest rate permitted in the states where they are located. Because of the similarity in their text and Congress’s expressly stated purpose, courts have consistently interpreted Section 85 and Section 521in pari materia, that is, they have interpreted them uniformly because they address the same subject matter. In particular, Section 85 and Section 521 have both been construed to authorize out-of-state banks to “export” interest rates allowed under the laws of states where they are located on loans to borrowers located in other states. See, e.g., Marquette v. First of Omaha Service Corp., 439 U.S. 299 (1978) (holding that Section 85 authorizes a national bank to charge interest on interstate loans at rates allowed where the bank is located, regardless of more restrictive laws in the state where the borrower is located); Greenwood Trust Co. v. Mass., 971 F.2d 818 (1st Cir. 1992), cert. denied, 506 U.S. 1052 (1993) (same with respect to FDIC-insured state banks).
Section 521 expressly states that Congress’ intention in giving insured state banks this authority on par with national banks is “to prevent discrimination against State-chartered insured banks . . . with respect to interest rates.” In DIDMCA Section 525, however, Congress gave states authority to opt out of Section 521, but only “with respect to loans made in such State.” A handful of states enacted opt-out legislation shortly after DIDMCA went into effect. With the exception of Puerto Rico and Iowa, these states have all since repealed or decided not to extend their original opt-outs. Colorado originally opted out, then opted back in, and recently opted out again in 2023. Similar opt-out legislation was introduced in Minnesota, Nevada, Rhode Island, and Washington, DC last year, but none of these proposals were ultimately adopted. In last November’s election, voters in Nevada rejected a statewide referendum that was intended to result in that state’s opt-out.
Proponents of H.B. 2561 hope to prevent insured state banks located outside of Oregon from applying their higher home state rates on loans to Oregon consumers. However, we feel strongly that this is not what Congress intended and that courts will not construe the scope of a states’ opt-out this broadly. Last year, in a well-reasoned opinion, a federal district court in Colorado enjoined the state from enforcing its usury laws with respect to loans made by out-of-state banks, concluding that these loans are not “made in” Colorado, and that Colorado’s opt-out under DIDMCA Section 525, therefore, does not apply. The state’s appeal is currently pending before the 10th Circuit. Not surprisingly, the FDIC has withdrawn the amicus brief it filed in the 10th Circuit in support of the state of Colorado. Now, the only “on record” position of the FDIC with respect to this opt-out issue is an amicus brief it submitted to the 1st Circuit Court of Appeals in 1992 in the Greenwood Trust case cited above. In that brief, the FDIC argued that because Greenwood Trust was a Delaware state bank, its extensions of credit to Massachusetts credit card borrowers were not “made in” Massachusetts, and “the fact that a State has countermanded under section 525 should not affect the usury preemption of section 521 for a bank not located in that state.”
As we have previously blogged, we believe the answer as to where a loan is made for purposes of a state’s opt-out under DIDMCA Section 525 is obvious in light of the context of when DIDMCA was adopted, its legislative history, and longstanding canons of statutory interpretation. When construed under this framework, a loan is made where the lender performs material lending functions, not where the borrower is located.
If Oregon enacts the opt-out under H.B. 2561, it will, like Colorado, be mired in litigation for the foreseeable future; moreover, the legislature’s intended effect of preventing lending at rates above 36 percent APR could never be fully achieved. Even if courts ultimately disagree with our position (and the conclusion reached last year by the federal district court in Colorado) and rule that a DIDMCA Section 525 opt-out prohibits out-of-state insured state banks from exporting rates allowed under their home states on loans to Oregon consumers, H.B. 2561 still would not prevent out-of-state national banks, thrifts or credit unions from bypassing Oregon usury laws. In effect, H.B. 2561 could not prevent lending at rates above 36 percent in Oregon. At most, the only thing H.B. 2561 could do is make high-rate lending less competitive since national banks, thrifts and credit unions located in other states would remain free to export their home state rates on loans to Oregon consumers.
Ronald K. Vaske, Pilar C. French, John L. Culhane, Jr., Joseph Schuster, and Alan S. Kaplinsky
Wisconsin Appeals Court Rejects National Bank Act Preemption
In a significant ruling on February 18, 2025, the Wisconsin Court of Appeals determined that the National Bank Act (NBA) does not preempt the procedural “right to cure” notice requirements mandated by the Wisconsin Consumer Act (WCA), reversing a judgment in two debt collection actions.
The court, thereby, determined that this state-level consumer protection was not preempted by the NBA.
The case arose as a result of legal proceedings brought by a national bank to recover two credit card debts following a default by the credit card holder. The credit card holder contended that the bank failed to comply with the WCA’s notice provisions, which require creditors to issue a Notice of Right to Cure Default before commencing collection actions. The bank argued that these state requirements were preempted by the NBA, asserting federal law supremacy over state regulations in banking operations.
The Court of Appeals, however, rejected this preemption claim. Citing the U.S. Supreme Court’s decision in Cantero v. Bank of America, N.A. (2024), the court emphasized that state laws are preempted by the NBA only when they “prevent or significantly interfere” with a national bank’s exercise of its powers. The court found that the WCA’s notice requirements did not impose such a burden on the bank’s operations.
The Cantero decision has become a pivotal reference for cases involving NBA preemption of state consumer protection laws. In Cantero, the Supreme Court remanded the case to the Second Circuit, instructing it to apply a nuanced analysis to determine whether New York’s law requiring interest payments on mortgage escrow accounts was preempted by the NBA. Oral argument in the Second Circuit is scheduled for March 3.
This recent ruling in Wisconsin continues to underscores the necessity for national banks to carefully assess the impact of state laws on their operations.
We have been advising numerous banks with respect to identifying and evaluating state laws that apply to their products and services in light of the evolving NBA preemption landscape. Given this ruling, we encourage national banks to conduct thorough reviews of their state law inventories to ensure compliance with applicable state laws that may not be subject to NBA preemption.
In light of the decreased activity by the federal regulators, we expect that this decision will continue to embolden state attorneys general and regulators as they step up their activities relating to enforcing consumer finance laws.
Joseph Schuster, Ronald K. Vaske, Alan S. Kaplinsky, and John L. Culhane, Jr.
Podcast: The Patterns of Digital Deception
Our podcast show features Gregory M. Dickinson, Assistant Professor of Law at the University of Nebraska, who was previously a guest on our show on August 3, 2023. Our 2023 episode was based on Professor Dickinson’s article titled “Privately Policing Dark Patterns”, 57 Ga. L. Rev. 1633 (2023). The show focuses on Professor Dickinson’s more recent article, which builds on his 2023 article, titled “The Patterns of Digital Deception”, 65 B. C. L. Rev. 2457 (2024).
The abstract to this article states:
“Current consumer-protection debates focus on the powerful new data-analysis techniques that have disrupted the balance of power between companies and their customers. Online tracking enables sellers to amass troves of historical data, apply machine-learning tools to construct detailed customer profiles, and target those customers with tailored offers that best suit their interests. It is often a win-win. Sellers avoid pumping dud products and consumers see ads for things they actually want to buy. But the same tools are also used for ill—to target vulnerable members of the population with scams specially tailored to prey on their weaknesses. The result has been a dramatic rise in online fraud that disproportionately impacts those least able to bear the loss.
The law’s response has been technology centric. Lawmakers race to identify those technologies that drive consumer deception and target them for regulatory restrictions. But that approach comes at a major cost. General-purpose data analysis and communications tools have both desirable and undesirable uses, and uniform restrictions on their use impede the good along with the bad. A superior approach would focus not on the technological tools of deception but on what this article identifies as the legal patterns of digital deception—those aspects of digital technology that have outflanked the law’s existing mechanisms for redressing consumer harm. This article reorients the discussion from the power of new technologies to the shortcomings in existing regulatory structures that have allowed for their abuse. Focus on these patterns of deception will allow regulators to reallocate resources to offset those shortcomings and thereby enhance efforts to combat online fraud without impeding technological innovation.”
During the show, we discuss the following questions:
- What is digital deception?
- What are some examples of digital deception?
- How is modern online deception any different from old-fashioned, in-person fraud?
- What have lawmakers been doing to address this issue? Have they succeeded? What sorts of restrictions are on the horizon?
- What are the challenges to lawmaking in this area?
- How do these challenges tie in with the “Patterns of Digital Deception”?
- Given these challenges, what sort of approach should state and federal lawmakers take?
Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.
To listen to this episode, click here.
Consumer Financial Services Group
A Ballard Spahr Webinar | March 11, 2025, 2 PM ET
Speakers: Alan S. Kaplinsky and John D. Socknat
CFPB Developments: Everything You Want to Know About the CFPB as Things Stand Today
A Ballard Spahr Webinar | March 24, 2025, 12 PM ET
Speakers: Alan S. Kaplinsky, Richard J. Andreano, Jr., Thomas Burke, John L. Culhane, Jr., and Joseph Schuster
The Impact of the Election on the CFPB and Others
A Ballard Spahr Webinar | March 25, 2025, 12 PM ET
Speakers: Alan S. Kaplinsky, Thomas Burke, Daniel JT McKenna, Jenny N. Perkins, Joseph Schuster, and Melanie J. Vartabedian
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