April 3 – Read the newsletter below for the latest Mortgage Banking and Consumer Finance industry news, written by Ballard Spahr attorneys. In this issue, we explore the Senate's adoption of a resolution to nullify the CFPB overdraft rule, Republican senators' efforts to use the CRA to void the medical debt rule, HUD's reversal of course on the eligibility of nonpermanent U.S. residents for FHA loans, and much more.
- A Deep Dive Into Judge Jackson’s Preliminary Injunction Order Against CFPB Acting Director Vought
- Judge Enjoins Trump Administration From Dismantling the CFPB
- Federal Judge Says Consideration of Funds Transfer Is Not Evidence of the CFPB’s Demise
- CFPB Seeking to Reverse Townstone Settlement, Saying Bureau ‘Abused Its Power’
- HUD Reverses Course and Eliminates Eligibility of Nonpermanent U.S. Residents for FHA Loans
- President Trump Fires Democratic Members of FTC
- Senate Adopts Resolution to Nullify the CFPB Overdraft Rule
- Podcast Episode: A Debate About the Need, If Any, For a Federal Charter for Nonbanks Engaged in the Payments Business
- Podcast Episode: How to Use the Restatement of Consumer Contracts: A Guide for Judges
- 10 Takeaways for Employers From the EEOC and DOJ Guidance on DEI-Related Discrimination in the Workplace
- Republican Senators Seek to Use CRA to Void Medical Debt Rule
- House Subcommittee Chairman Pushes Legislation to Convert the CFPB Into a Commission, Make it Subject to Appropriations
- Looking Ahead
A Deep Dive Into Judge Jackson’s Preliminary Injunction Order Against CFPB Acting Director Vought
On Friday, March 28, Judge Amy Berman Jackson issued a 112-page opinion and three-page order in National Treasury Employees Union, et al. v. Russell Vought, in his official capacity as Acting Director of the Consumer Financial Protection Bureau, et al, Civil Action No. 25-0381 (D.D.C.). Judge Jackson granted a motion for Preliminary Injunction which, in broad terms, enjoined the defendants from continuing to dismantle the CFPB without Congressional authorization to do so. Specifically, the order states:
- Defendants, shall maintain and shall not delete, destroy, remove, or impair any data or other CFPB records covered by the Federal Records Act (hereafter “agency data”) except in accordance with the procedures described in 44 U.S.C. Chapter 33. This means that Defendants shall maintain and shall not delete, destroy, remove, or impair agency data from any database or information system controlled by, or stored on behalf of, the CFPB. The term “agency data” includes any data or CFPB records stored on the CFPB’s premises, on physical media, on a cloud server, or otherwise. The defendants must take all necessary steps to ensure that its contractors do the same.
- Defendants shall reinstate all probationary and term employees terminated between February 10, 2025, and the date of this order, including but not limited to, Julia Barnard, the Private Student Loan Ombudsman.
- Defendants shall not terminate any CFPB employee, except for cause related to the individual employee’s performance or conduct; and defendants shall not issue any notice of reduction-in-force to any CFPB employee.
- Defendants shall not enforce the February 10, 2025, stop-work order or require employees to take administrative leave in furtherance of that order, and defendants shall not reinstitute or seek to achieve the outcome of a work stoppage, whether through a stop-work order, an order directing employees to take administrative leave, or any other means.
- To ensure that employees can perform their statutorily mandated functions, the defendants must provide them with either fully-equipped office space, or permission to work remotely and laptop computers that are enabled to connect securely to the agency server through the Citrix Virtual Desktop or another similar program.
- Defendants shall ensure that in accordance with 12 U.S.C. §5492(b)(3), the CFPB Office of Consumer Response continues to maintain a single, toll-free telephone number, a website, and a database for the centralized collection of consumer complaints regarding consumer financial products and services, and that it continues to monitor and respond to those complaints, including by providing Elevated Case Management.
- Defendants shall rescind all notices of contract termination issued on or after February 11, 2025, and they may not reinitiate the wholesale cancellation of contracts. This provision does not prohibit the defendants from ordering that work or services under specific contracts be halted based on an individualized assessment that the contract involved is unnecessary for the agency to fulfill its statutory functions. To ensure that this court can award full relief at the end of the case, however, the defendants may not finalize the termination of any contract.
- Defendants shall file a report with the court by April 4, 2025, confirming that all individuals and entities that fall within Fed. R. Civ. Proc. 65(d)(2)(A), (B), and (C) have received actual notice of this Order, and that the defendants are in compliance with this Order.
- The court’s temporary consent order issued on February 14, 2024 [Dkt. #19] and the March 3, 2025, Minute Order issued in light of the parties’ Notice of Agreement [Dkt. #53] and Notice of Agreement (Corrected) [Dkt #65], are hereby vacated.
The Defendants filed a Notice of Appeal to the D.C. Court of Appeals on Saturday, March 29. On March 31, the Defendants filed in the Court of Appeals a motion to stay Judge Jackson’s order on the alleged basis that the terms of the injunction bear no relationship to the gravamen of the complaint, which was to prevent Acting Director from shutting down the CFPB. The introductory paragraph of the stay motion states:
The district court in this case believed that judicial intervention was necessary to preserve the existence and minimum statutory functions of the Consumer Financial Protection Bureau (CFPB) pending the resolution of plaintiffs’ claims. Yet instead of prohibiting defendants from eliminating the agency or falling below any statutory minimum baseline, the district court entered an extraordinary eight-part injunction whose requirements sweep far beyond the putative problem it identified. In effect, the district court has indefinitely frozen CFPB as it stood before President Trump’s inauguration. There is no legal basis for that relief, which stymies lawful reforms and imposes restrictions on an Executive Branch agency akin to judicial receivership. Defendants therefore respectfully request an emergency stay pending appeal, and an immediate administrative stay.
While the Order is clearly very important for CFPB employees who have already been terminated and those that were on the cusp of being terminated but for the intervention of the court, the Order is more important for what it does not say. It does not require the CFPB to continue to function in the way it functioned under former Director Rohit Chopra. It does not preclude the CFPB from ceasing to perform functions that are not statutorily required even though they were performed by the CFPB prior to the time that Chopra was terminated by President Trump. Indeed, the Order does not expressly require the CFPB to perform functions that are statutorily required such as supervision of large banks and certain nonbanks, although it does require that employees have the ability to work in their offices or to work remotely to perform statutorily mandated functions. (To our knowledge, the CFPB has not yet resumed conduction examinations of supervised institutions even though supervision is a statutorily required function.) It does not preclude the CFPB from continuing to voluntarily dismiss enforcement lawsuits or ceasing enforcement investigations. It does not preclude the CFPB from seeking to void prior consent orders, even if the CFPB refunds to the defendants civil money penalties that it previously collected. It does not preclude the CFPB from taking otherwise lawful steps to invalidate final regulations or other written guidance issued during Chopra’s tenure.
When you boil it all down, the main thing the order requires is that the CFPB rehire probationary and term employees and not terminate any employees going forward except for cause related to such employee’s performance. In light of the fact that the activities of the CFPB have already diminished and are likely to continue to diminish under Trump 2.0, it seems likely that many of the CFPB’s employees will have very little, if any, work to perform. However, at least as things stand now, the CFPB will not be able to terminate such employees or put them on administrative leave. Thus, this Order, if upheld on appeal, will preclude the administration from unilaterally shutting down or dismantling the CFPB. We seriously doubt, however, whether it will ultimately preclude the administration from reshaping the focus and direction of the CFPB for the next four years.
It will be very interesting to see how many terminated employees will elect to return to work. We are sure that some of them, as well as other employees, have already taken or are looking for new jobs because of the chaos that exists at the CFPB and their opposition to the new administration’s vision for the CFPB.
We can’t help but think that the initiative of Trump 2.0 to “right-size” the CFPB could have been accomplished if the administration had used a scalpel rather than a meat cleaver to achieve its objective of changing the direction of the CFPB. That is what former Acting Director Mulvaney and Director Kraninger did during Trump 1.0. The administration still has in its arsenal the possible ability to use the Budget Reconciliation Bill to subject the CFPB to Congressional appropriations. The use of such a bill would require just a majority vote in the House and Senate.
CFPB reform is necessary because of the disruption, anti-innovation, and restriction of credit products that were the hallmarks of Chopra’s term in office and that were contrary to the best interests of all stakeholders. But the court order makes clear that reform cannot be achieved unilaterally by the administration. Congress must play a role.
We would be remiss also if we did not identify that the administration could also have raised as an argument that the funds the CFPB has received from the Federal Reserve Board since September 2022 may have been unlawfully obtained because of the requirement under the Dodd-Frank Act that the CFPB may be funded only out of “combined earnings of the Federal Reserve Banks.” (There have been no “combined earnings” since September 2022 and that situation is likely to continue for the foreseeable future.) If the administration is able to convince a court and ultimately the Supreme Court of the argument that the CFPB has been and is unlawfully funded, that could be an impetus for the Democrats to agree that CFPB reform makes sense.
Alan S. Kaplinsky and Joseph J. Schuster
Judge Enjoins Trump Administration From Dismantling the CFPB
Contending that the Trump administration still intends to dismantle the CFPB, a federal judge on Friday issued a temporary injunction prohibiting the administration from firing employees without cause, prohibiting it from enforcing the stop work order or forcing employees to take administrative leave, and requiring it to provide employees with the means to perform their statutorily mandated functions.
Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia wrote that the Trump administration’s actions “were taken in complete disregard for the decision Congress made 15 years ago, which was spurred by the devastating financial crisis of 2008 and embodied in the United States Code, that the agency must exist and that it must perform specific functions to protect the borrowing public.”
“This is precisely the sort of situation preliminary injunctions were designed to address,” Berman wrote. “If the defendants are not enjoined, they will eliminate the agency before the court has the opportunity to decide whether the law permits them to do it, and as the defendants’ own witness warned, the harm will be irreparable.”
The union representing CFPB employees, several other groups and a pastor have filed suit against the bureau and Acting Director Russell Vought seeking an order that would prohibit the CFPB from doing any work to stop the agency’s operations.
In the suit, filed in the U.S. District Court for the District of Columbia, the plaintiffs ask the court to order the CFPB to resume all activities they said the bureau is required to perform under federal law, asserting a violation of the Administrative Procedure Act and a nonstatutory right to seek to enjoin and have declared unlawful agency action that is ultra vires (beyond the agency’s legal power or authority).
Jackson wrote that testimony and documents the agency produced at the last minute demonstrating that it was not dismantling the CFPB amounted to window dressing and that the Trump administration still is planning to dismantle the CFPB.
“Absent an injunction freezing the status quo – preserving the agency’s data, its operational capacity, and its workforce – there is a substantial risk that the defendants will complete the destruction of the agency completely in violation of law well before the court can rule on the merits, and it will be impossible to rebuild,” Jackson wrote. The Mayor and City Council of Baltimore have filed a similar suit. That suit is pending in the U.S. District for the District of Maryland, although the court in that case declined to grant the Mayor and City’s request for a preliminary injunction.
Consumer Financial Services Group
Federal Judge Says Consideration of Funds Transfer Is Not Evidence of the CFPB’s Demise
Saying that the CFPB’s consideration of returning funds to the Federal Reserve is not a sign that the Trump administration intends to abolish the bureau, a federal judge has refused to issue a preliminary injunction stopping those transfers.
“For the court to intervene and entangle itself in the Bureau’s administrative processes before the agency has made any final decision about the disposition of its operating and reserve funds — and without clear indication that an unlawful and injurious decision will be made imminently — would exceed the bounds of the court’s proper role and jurisdiction,” Judge Matthew Maddox, of the District of Maryland, wrote.
Baltimore’s City Council and Mayor have filed suit against the CFPB contending that they and several other plaintiffs would be harmed if the bureau were abolished by the Trump administration. And they cited contemplated money transfers as signs that was the Trump administration’s intentions.
However, Maddox wrote, “In sum, the court finds that recent operational decisions made at the CFPB, viewed in combination with other evidence, do not sustain Plaintiffs’ unsupported claim that Defendants made a final decision or attempt to defund the Bureau.”
Maddox wrote that Acting CFPB Director Russell Vought “determined that the funds currently available to the Bureau were sufficient to carry out its statutory mandate for the next fiscal quarter and that no additional funds were necessary for this.”
The judge wrote that the plaintiffs had not demonstrated that a final decision to transfer the operating and reserve funds had been made or that the agency would lack the funds it needs to fulfill its statutory responsibilities.
He said that to the contrary, two CFPB officials said that the bureau’s leadership is attempting to increase efficiency and that deciding to reduce funding at the agency is not evidence of its demise.
“Even assuming that the President’s statements reflect a plan by the Trump administration to dissolve the Bureau, the court cannot assume from these statements that the administration intends to dissolve it by defunding it out of operation,” Maddox wrote.
Meanwhile in Washington, D.C., in a suit filed by the National Treasury Employees Union—the union representing CFPB employees—U.S. District Judge Amy Berman Jackson is considering whether to issue an order stopping the Trump administration from taking any action to dismantle the CFPB.
In the suit, filed in the U.S. District Court for the District of Columbia, the plaintiffs ask the court to order the CFPB to resume all activities they said the bureau is required to perform under federal law, asserting a violation of the Administrative Procedure Act and a nonstatutory right to seek to enjoin and have declared unlawful agency action that is ultra vires (beyond the agency’s legal power or authority). An evidentiary hearing in that case was held last week.
Consumer Financial Services Group
CFPB Seeking to Reverse Townstone Settlement, Saying Bureau ‘Abused Its Power’
Saying that the bureau under the Biden administration abused its power, the CFPB is seeking to reverse its settlement with Townstone Financial.
“CFPB abused its power, used radical ‘equity’ arguments to tag Townstone as racist with zero evidence, and spent years persecuting and extorting them – all to further the goal of mandating DEI in lending via their regulation by enforcement tactics,” said CFPB Acting Director Russell Vought.
Townstone operated as a nonbank residential mortgage creditor and broker based in Chicago. In its initial complaint against Townstone filed in July 2020 in the U.S. District Court for the Northern District of Illinois, the CFPB asserted that 90 percent of Townstone’s mortgage origination activity was in the Chicago metropolitan area. The CFPB also asserted that, from 2014 through 2017, Townstone ranked in the top 10 percent of mortgage companies that drew applications from the Chicago metropolitan area, receiving an average of 740 mortgage loan applications each year, the bureau said.
The bureau alleged that Townstone violated the Equal Credit Opportunity Act (ECOA) and Regulation B by discouraging potential applicants because of their race or the racial composition of their majority African American neighborhoods. This was the first redlining complaint ever made against a nonbank mortgage company. A central basis of the CFPB claim was the Regulation B provision that provides “A creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application.”
Townstone filed a motion to dismiss the lawsuit in October 2020. A key argument made by Townstone was that while Regulation B refers to “prospective applicants,” the ECOA only refers to “applicants” and, therefore, a redlining claim cannot be brought under the ECOA because such a claim focuses on persons who are not yet applicants. The district court agreed with Townstone in a February 2023 opinion and dismissed the lawsuit.
In April 2023 the CFPB appealed the decision to the U.S. Court of Appeals for the Seventh Circuit. In a July 2024 opinion that we criticized the Seventh Circuit reversed the district court’s ruling, finding that redlining claims may be brought under the ECOA because the statute prohibits the discouragement of prospective applicants for credit.
While Townstone had the options of seeking a rehearing en banc before the entire Seventh Circuit, petitions for which are rarely granted, or seeking review by the U.S. Supreme Court, which is a significant undertaking, it settled with the CFPB in November 2024.
Under the settlement, Townstone is prohibited from taking any actions in connection with offering or providing mortgage loans that violate the ECOA and was required to pay a $105,000 penalty to the CFPB’s victims’ relief fund.
Now, the bureau is seeking to reverse the settlement.
In a release announcing the filing to vacate the settlement, the CFPB stated that the bureau under former Director Rohit Chopra used a “redlining screen” based on an arbitrary number of mortgages. . “[The] CFPB [then] set out to destroy a small Midwest firm with about ten employees and a radio program called Townstone Financial,” the bureau said. “After a thorough review, the CFPB is seeking to make Townstone whole by returning the six-figure penalty they were forced to pay.”
Acting CFPB Director Russ Vought stated that “CFPB abused its power, used radical ‘equity’ arguments to tag Townstone as racist with zero evidence, and spent years persecuting and extorting them – all to further the goal of mandating DEI in lending via their regulation by enforcement tactics.”
CFPB Senior Advisor Dan Bishop added that “This was a flagrant misuse of government resources to destroy a small business that did nothing wrong.” He continued, “For the crime of protected political speech, this firm was targeted and harassed for years by this rogue agency. We are righting this wrong and protecting the First Amendment.”
Vought hinted that the agency may take similar actions in the future. “The more we uncover at CFPB, the more we see how this agency was weaponized against targeted Americans,” he said.
Richard J. Andreano, Jr. and John L. Culhane, Jr.
HUD Reverses Course and Eliminates Eligibility of Nonpermanent U.S. Residents for FHA Loans
In the waning hours of the first Trump administration the U.S. Department of Housing and Urban Development (HUD) announced that effective January 19, 2021 individuals who are classified under the “Deferred Action for Childhood Arrivals” program (DACA) with the U.S. Citizenship and Immigration Service (USCIS) and are legally permitted to work in the U.S. are eligible to apply for FHA mortgages. The second Trump administration has now reversed course by issuing Mortgagee Letter 2025-09 limiting the eligibility for FHA mortgages to individuals who hold permanent lawful resident status in the U.S. The provisions of the Mortgagee Letter may be implemented immediately but must be implemented for FHA case numbers assigned on or after May 25, 2025.
In the Mortgagee Letter, HUD states:
The administration has reaffirmed its commitment to safeguarding economic opportunities for U.S. citizens and lawful Permanent Residents while ensuring that federal benefits, including access to FHA-insured Mortgages, are reserved for individuals who hold lawful Permanent Resident status. Currently, nonpermanent residents are subject to immigration laws that can affect their ability to remain legally in the country. This uncertainty poses a challenge for FHA as the ability to fulfill long-term financial obligations depends on stable residency and employment.
The change in policy was accomplished through the removal of provisions addressing the eligibility of nonpermanent residents from HUD Handbook 4000.1. The Mortgagee Letter also has provisions addressing the eligibility for FHA mortgages for individuals who are citizens of the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau, and makes related revisions to certain portions of the Handbook. The provisions of the Mortgagee Letter apply to all FHA Title II Single Family forward and Home Equity Conversion Mortgage (i.e., reverse mortgage) programs.
The change may invite challenges, particularly as it relates to individuals with DACA status. Numerous cases have been filed against financial institutions asserting that the failure to offer unsecured and secured consumer loans to DACA recipients and other nonpermanent residents constitutes discrimination on the basis of immigration status in violation of Section 1981 of the Federal Civil Rights Act, 42 U.S.C. § 1981 (as well as the California Unruh Civil Rights Act). These cases have involved credit cards, auto loans, student loans, and loan refinancing. The Mexican American Legal Defense and Educational Fund (MALDEF) reports that since 2017 it has brought some 21 lawsuits over these issues. An important distinction with regard to FHA mortgage loans is that lenders must follow FHA guidelines for loans to be eligible for FHA insurance.
Richard J. Andreano, Jr. and John L. Culhane, Jr.
President Trump Fires Democratic Members of FTC
President Trump on Tuesday fired the remaining two Democratic members of the FTC, leaving only two Republicans on the commission.
The commissioners, Alvaro Bedoy and Rebecca Slaughter, announced their dismissals on social media. Both called their dismissals illegal, since the FTC is supposed to be an independent agency. Both of them called their firings illegal and Bedoy already has said he would challenge his dismissal in court.
Under the FTC Act, the President may only remove a commissioner for “inefficiency, neglect of duty or malfeasance in office.” FTC commissioners are protected from removal over policy differences by the 1935 decision of the Supreme Court in Humphrey’s Executor v. United States.
However, the White House has said the president has total control over executive agencies.
Presumably in litigation the president will rely on the decision of the Supreme Court in Selia Law v. CFPB, holding the same “for-cause” removal provision applicable to the CFPB director to be unconstitutional, and the concurring opinions by Justices Thomas and Gorsuch calling for Humphrey’s Executor to be overturned.
Bedoya said he will file suit challenging his dismissal.
FTC Chair Andrew Ferguson supported President Trump’s authority to fire FTC commissioners:
“President Donald J. Trump is the head of the executive branch and is vested with all of the executive power in our government,” Ferguson said in a statement. “I have no doubts about his constitutional authority to remove Commissioners, which is necessary to ensure democratic accountability for our government.”
The firing of the two Democrats leaves the five-member commissioners with two Republican members. Former commission chair, Democrat Lina Khan, resigned in January.
FTC members serve seven-year terms. Bedoya has served since May 2022, and had four years left in his term. Slaughter originally was nominated in May 2018 by President Trump in his first term; she filled an unexpired term on the commission. President Biden nominated her for a full term in February 2023.
On March 12 the Senate Commerce Committee voted to approve the nomination of Mark Meador to fill the third Republican slot, but he has yet to be confirmed.
Since there are two other instances already in which President Trump has terminated board members of agencies without cause, and those members already have brought lawsuits seeking reinstatement, it seems likely that this issue will be resolved by the Supreme Court. In the meantime, the two Republican members of the FTC will determine what regulations, if any, to finalize and what enforcement actions to pursue.
John L. Culhane, Jr., Richard J. Andreano, Jr., and Alan S. Kaplinsky
Senate Adopts Resolution to Nullify the CFPB Overdraft Rule
The Senate on March 27 adopted a resolution that would nullify the CFPB’s overdraft rule.
The Senate adopted S. J. Res. 18 by a vote of 52-48, with Senator John Hawley, (R-Mo.), the only Republican voting against repeal.
The House Financial Services Committee already has adopted a companion resolution; it now goes to the House floor. If adopted by the House it then would go to President Trump for his signature.
The resolutions seek to nullify the overdraft rule using the Congressional Review Act, which allows the resolutions to be adopted by a simple majority in each House, without the threat of a Senate filibuster.
If allowed to go into effect on Oct 1, as issued, the CFPB rule would limit overdraft fees to $5 at financial institutions with more than $10 billion in assets, unless they set a cap that covers their actual costs or they treat the payment of an overdraft as a loan and give appropriate disclosures under the Truth in Lending Act and Regulation Z.
In floor debate on the resolution, Senator Chris Van Hollen, (D-Md.), said some banks have built an entire system to try to maximize the amount they get from consumers’ overdraft fees. “If you look collectively at the banking system, this is a $5 billion-a-year rip-off,” he said.
However, Senate Banking Committee Chairman Tim Scott, (R-S.C.), said the overdraft rule would result in financial institutions eliminating overdraft programs, adding that the programs are essential for some consumers, “You start eliminating the possibility of people working paycheck to paycheck to make the decision to continue to use their resources in the most effective way,” he said.
Consumer Financial Services Group
Our podcast show today features Professor Dan Awrey of Cornell Law School, and Matt Lambert, Deputy General Counsel of the Conference of State Bank Supervisors (CSBS) who discuss the pros and cons of Congress enacting a statute, which would require federal charter for non-banks engaged in the payments business. At present, such nonbanks are generally required to be licensed by state departments of banking under money transmitter laws.
On November 14 of last year, on our podcast show, Professor Awrey discussed his working paper “Money and Federalism” in which he advocates for the enactment of Federal legislation creating a Federal charter for nonbanks engaged in the payments business, like PayPal and Venmo. The article may be accessed online at SSRN and will likely be published in a law review at some time in the future. The abstract of Professor Awrey’s article states, in relevant part:
The dual banking system is now under stress. The source of the stress is a new breed of technology driven financial institutions licensed and regulated almost entirely at the state level that provide money and payments outside the perimeter of both conventional bank regulation and the financial safety net. This article examines the rise of these new monetary institutions, the state-level regulatory frameworks that govern them and the nature of the threats they may one day pose to monetary stability.
It also examines the legal and policy cases for federal supremacy over the regulation of these new institutions and advances two potential models, one based on complete federal preemption, the other more tailored to reflect the narrow yet critical objective of promoting public confidence and trust in our monetary system.
The CSBS on November 12 of last year published an article on its website entitled “The Reality of Money Transmission: Secure, Convenient, and Trusted under State Supervision” in which it purported to dispel several myths about state money transmitter and money services statutes.
CSBS stated:
Recent statements about money transmission in the United States have perpetuated myths about consumer protections and the safety and soundness of this vibrant, secure, and trusted part of our country’s payments ecosystem.
It is time that we dispel some of these myths by explaining the realities of the state-developed, nationwide framework for regulation, licensing, and supervision of money transmission.
While targeted reforms made through cooperation between the states and federal government may be appropriate, a complete overhaul of an established, secure, convenient, and stable money transmission ecosystem is an unwarranted federal overreach.
Because of these sharp differences of opinion between Professor Awrey and CSBS, we decided to invite Professor Awrey and Matt Lambert to be our guests on this show and to discuss the following issues:
- The historical background to and rationale for state money transmitter laws
- How the National Multistate Licensing System (NMLS) and state supervision work today
- The emergence of new business models: e.g. PayPal, Stripe, Crypto
- A brief history of recent federal proposals: from the OCC fintech charter to the current stablecoin bills
- How state legislatures and regulators have responded to the emergence of new business models (e.g. model act amendments and adoption, new chartering frameworks)
- Where the federal government can meaningfully improve on these state level responses (standardization, bankruptcy protection, payment network access, systemic risk regulation, international coordination)
- Where state regulators have a comparative advantage (novel chartering, supervision)
- Where we think the nonbank payment industry and regulation are heading in 2025 and beyond
Alan Kaplinsky, Senior Counsel and former practice group leader of the Consumer Financial Services Group, hosts the podcast show.
To listen to this episode, click here.
Consumer Financial Services Group
Podcast Episode: How to Use the Restatement of Consumer Contracts: A Guide for Judges
Today’s podcast show features a discussion with Professor Gregory Klass of Georgetown University Law School about an article he co-authored with Professor Ian Ayres, entitled “How to Use the Restatement of Consumer Contracts: A Guide for Judges.” The article will be published this year in the Harvard Business Law Review (volume 15), and is available here.
The abstract of the article states:
“In the absence of major legislation or regulatory action, U.S. consumers will continue to look to courts and the common law for protection when businesses engage in unfair and deceptive contracting practices. In May 2022, the American Law Institute approved the Restatement of the Law, Consumer Contracts. This new Restatement provides a valuable resource for courts tasked with deciding the legal effects of standard terms that businesses draft and consumers do not read. This essay identifies six pieces of the new Restatement we believe courts should pay special attention to and discusses the importance of each. It also charts several ways courts might go beyond the new Restatement to protect consumers against abusive contracting practices. Unless and until legislators and regulators step in, U.S. courts should continue to reshape the common law to address risks that new technologies of contracting create.”
We discuss the following questions related to this Restatement:
- The history and scope of the Restatement of Consumer Contracts project
- Why was there perceived to be a need for a separate restatement for consumer contract law when there has been a Restatement of Contracts for many decades?
- Was it wise to publish a Restatement of Consumer Contracts as opposed to a Statement of Principles since the document to a large extent focuses on what the law should be, rather than on what the law is?
- The identification of several parts of the Restatement to which Professor Klass believes the courts should pay special attention:
a. The “reasonable expectations” rule in Section 4;
b. The unconscionability defense in Section 6;
c. The deception defense in Section 7; and,
d. The Parol Evidence rule
Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, Alan Kaplinsky, hosts the discussion.
To listen to this episode, click here.
Consumer Financial Services Group
On March 19, 2025, the U.S. Equal Employment Opportunity Commission (EEOC) and the U.S. Department of Justice (DOJ) announced the release of two technical assistance documents, which are “focused on educating the public about unlawful discrimination related to ‘diversity, equity, and inclusion’ (DEI) in the workplace.” The EEOC and the DOJ released a joint one-page technical assistance document titled “What To Do If You Experience Discrimination Related to DEI at Work,” and the EEOC also released a longer question-and-answer technical assistance document titled “What You Should Know About DEI-Related Discrimination at Work“ (collectively, the Guidance).
EEOC Acting Chair Andrea Lucas stated “[t]hese technical assistance documents will help employees know their rights and help employers take action to avoid unlawful DEI-related discrimination.” Deputy Attorney General Todd Blanche added “[t]he technical assistance document provides clear information for employees on how to act should they experience unlawful discrimination based on DEI practices.” The Press Release notes that, while DEI initiatives have become increasingly prevalent in large and prominent businesses, universities, and cultural institutions, its widespread adoption does not change the long-standing legal prohibition against employment discrimination based on protected characteristics. Applying those statutory prohibitions, established case law, and prior EEOC rules, the Guidance reflects the most detailed public explanation offered by the Trump administration to date of its view as to how DEI actions may run afoul of the nation’s antidiscrimination laws.
The Guidance, which is framed as advice to individuals who may have experienced DEI-related discrimination in the workplace, explains the procedural steps necessary to bring a DEI-related claim before the EEOC and in federal court, before pivoting to an analysis of how DEI programs and practices may violate the law. Key points in that analysis include:
- Tying DEI Initiatives to Title VII. The Guidance notes that Diversity, Equity and Inclusion (DEI) is a broad term that is not defined in Title VII of the Civil Rights Act of 1964 (Title VII). According to the Guidance, DEI initiatives, policies, programs, or practices may be unlawful under Title VII “if they involve an employer … taking an employment action motivated—in whole or in part—by an employee’s or applicant’s race, sex, or another protected characteristic.”
- Title VII Protections Apply to All Workers. The Guidance emphasizes that “Title VII’s protections apply equally to all workers,” not just to minority groups and women, and “[d]ifferent treatment based on race, sex, or another protected characteristic can be unlawful discrimination, no matter which employees or applicants are harmed.” It confirms that Title VII does not just protect employees from discrimination; it also protects applicants (potential and actual), training or apprenticeship program participants, and in some cases, interns.
- Equal Footing for “Reverse Discrimination” Claims. “The EEOC’s position is that there is no such thing as ‘reverse’ discrimination; there is only discrimination.” The EEOC does not require a higher burden of proof for “reverse” discrimination claims.
- Unlawful DEI-Related Disparate Treatment. The Guidance states that DEI initiatives, policies, programs, or practices may be unlawful under Title VII where such initiative, policy, program, or practice “involves an employer . . . taking an employment action motivated—in whole or in part—by race, sex, or another protected characteristic.” The Guidance notes that Title VII’s prohibition against discrimination applies to a wide variety of employment actions, including DEI-related disparate treatment in: hiring; firing; promotions; demotions; compensation; fringe benefits; job duties or work assignments; selection for interviews (including placement on or exclusion from a “slate” or pool of candidates); and access to or exclusion from training, mentorship, sponsorship, workplace networking or networks, and internships, including fellowships and “summer associate” programs.
- Limiting, Segregating, or Classifying Workers Related to DEI. Title VII prohibits employers from “limiting, segregating, or classifying employees based on race, sex, or other protected characteristics in a way that affects their status or deprives them of employment opportunities.” According to the Guidance, this includes:
- DEI-Related Training May Give Rise to Hostile Work Environment Claims. Title VII prohibits workplace harassment, which may occur when an employee is subjected to unwelcome remarks or conduct based on race, sex, or other protected characteristics. The Guidance states that diversity or other DEI-related training may create a hostile work environment where an employee can plausibly allege or prove that the training was discriminatory in content, application, or context.
- Only “Some” Harm Required for Discrimination Claims. The Guidance, citing the Supreme Court’s opinion in Muldrow v. City of St. Louis, Missouri, et al., states that employees need only show “some injury” or “some harm” affecting the “terms, conditions, or privileges” of employment to allege a colorable claim of discrimination.
- No “Sole Reason” or “Deciding Factor” Requirement. A Title VII protected characteristic need not be the “sole” reason or the “but-for” deciding factor for the employer’s decision or action. An unlawful employment action is still unlawful even if the protected characteristic was just one factor among others that contributed to the employer’s decision or action.
- No Business Necessity or Customer/Client Preference Exceptions. Employers violate Title VII if they take an employment action motivated, in whole or in part, by race, sex, or another protected characteristic. Discrimination cannot be justified based on client, customer, or coworker preferences or requests.
- Protections for Employees Who Oppose Unlawful DEI. Title VII protects employees who engage in protected activity from retaliation which, according to the Guidance, could include employees who object to or oppose DEI-related employment discrimination. The Guidance states that opposition to a DEI training may constitute protected activity if the employee provides a “fact-specific basis” for their belief that the training violates Title VII.
Limiting membership in workplace groups (such as Employee Resource Groups, Business Resource Groups, or other employee affinity groups) to certain protected groups; and
Separating employees into groups based on race, sex, or another protected characteristic when administering DEI or other trainings, or other privileges of employment, even if the separate groups receive the same programming content or amount of employer resources.
This Guidance comes approximately two months after President Trump issued Executive Order 14173 (Ending Illegal Discrimination and Restoring Merit-Based Opportunity) and Executive Order 14151 (Ending Radical and Wasteful Government DEI Programs and Preferencing) (collectively, the DEI Executive Orders). The DEI Executive Orders did not define what constitutes “illegal” or “unlawful” diversity, equity, and inclusion (DEI) or diversity, equity, inclusion, and accessibility (DEIA), and they have been challenged in court on that basis. Although the Guidance still contains significant gray areas, it reflects an attempt by the EEOC and the DOJ to start defining the line between lawful and unlawful DEI in the workplace. How courts will address the Guidance in litigation, whether initiated by the government or private parties, remains to be seen.
The release of this Guidance should serve as an additional prompt for employers and recipients of federal funding to conduct a privileged review of their DEI initiatives, policies, programs, and practices for compliance with Title VII.
Ballard Spahr’s Labor and Employment Group has robust experience in advising private sector and educational clients in navigating the new landscape when it comes to diversity, equity, and inclusion initiatives and programs, including conducting privileged reviews of client’s DEI policies, programs, and initiatives, and we are actively tracking all DEI-related legal developments. Please contact us if we can assist you in this rapidly evolving area.
Alayna M. Piwonski and Charles Frohman
Republican Senators Seek to Use CRA to Void Medical Debt Rule
Republican senators have introduced a Congressional Review Act resolution to nullify the rule that bans banks and credit unions from including medical debt on credit reports and generally prohibits the use of medical information in credit decisions.
That CFPB rule was issued on January 7, 2025, less than two weeks before President Biden left office.
Senator Mike Rounds, (R-S.D.) introduced S. J. Res 36, which also is cosponsored by Senate Banking Committee Chairman Senator Tim Scott, (R-S.C.). The resolution, filed under the CRA, may be passed by a simple majority in the House and Senate. It would not be subject to a filibuster in the Senate.
“The CFPB going beyond their statutory authority to eliminate all medical debt from credit reports is irresponsible and a clear example of regulatory overreach,” Rounds said. “This rule gives credit card companies a less clear credit picture of who they’re lending money to, which could lead to banks limiting access to capital for consumers.”
He said the rule goes beyond the CFPB’s rulemaking authority by banning practices that were expressly permitted under the Fair Credit Reporting Act, he added.
Representative Ralph Norman, (R-S.C.), has introduced H.J. Res 74, a companion resolution in the House. That legislation also seeks to nullify the rule.
“Medical debt is a serious challenge for many Americans, but this rule will do nothing to address the underlying issues,” Scott said. “Instead, it will reduce access to credit and important health care services for those most in need.”
The rule also is the subject of two lawsuits.
In the first suit, filed in the U.S. District for the Eastern District of Texas, the Consumer Data Industry Association (CDIA) and the Cornerstone Credit Union League, said the CFPB exceeded its authority in issuing the rule. The CDIA, headquartered in Washington, D.C., represents national and regional credit bureaus. The Cornerstone Credit Union League, headquartered in Plano, Texas, represents almost 600 credit unions, including those in Texas.
In their suit, the groups contended that “In the waning days of the Biden administration, the CFPB upends the carefully balanced framework established by Congress with a Final Rule that plainly exceeds its statutory authority.”
In the second suit, filed in the U.S. District Court for the Southern District of Texas, ACA International, an association representing third-party collection agencies, law firms, asset buying companies, creditors, and vendor affiliates, headquartered in Minneapolis, Minnesota, and Specialized Collection Services Inc., a woman-owned small collection agency specializing in the collection of medical debt, with a principal place of business in Harris County, Texas, also contend that the CFPB has exceeded its authority in issuing the rule.
The CFPB is taking advantage of peoples’ frustration with medical bills, according to the groups. “A federal agency with no health care experience is exploiting this frustration by making a politically motivated regulation that prevents credit reporting agencies from showing accurate medical debts on credit reports,” they asserted in the suit. “No agency has the power to do that.”
The groups give several reasons for asking that the rule be blocked, including that, “The Final Rule is not based on reasoned decision-making, but rather political ideology.”
House Financial Institutions Subcommittee Chairman Representative Andy Barr, (R-Ky.), said last week that his subcommittee will place a high priority on changing the CFPB’s structure and funding.
“Today, we’ll propose transitioning the CFPB to a bipartisan commission and bringing it under congressional appropriations,” Barr said, as he opened a subcommittee hearing on oversight of the agency.
“Nowhere has overregulation and overreach been more evident than at the Consumer Financial Protection Bureau, which became the most unchecked and unaccountable agency in the entire federal government under the previous administration,” Barr said.
Barr did not say when his subcommittee or the full Financial Services Committee will mark up legislation containing his proposals.
The future of the CFPB is uncertain. The Trump administration initially indicated that it intended to abolish the bureau, but later said that it would not be disbanded.
Subcommittee ranking Democrat Representative Bill Foster, (D-Ill.), said the legislation that Barr proposed would not accomplish its goals.
“These are not reforms,” he said. “They are attacks on the bureau’s congressionally mandated duties.”
In oral and written testimony, hearing witnesses disagreed over the bureau’s operations and whether legislation is needed to make changes at the CFPB.
Bryan Schneider, a partner at Manatt, Phelps and Phillips and former Associate Director for Supervision, Enforcement, and Fair Lending at the CFPB during the first Trump administration, attacked the single-director structure of the agency.
He said the bureau’s work “occurs within an agency whose very structure seems designed to subvert constitutional principles; it will, in its current form, likely never be able to fulfill its dual mandate of consistent regulation and enforcement coupled with market stability.”
He called on the CFPB to conduct a thorough examination of the multi-year “blizzard” of guidance, blog posts, interpretations, manual amendments, and speeches it has issued.
Schneider said that a new Senate-confirmed bureau director also should conduct a review of agency spending. He added that since 2020, the CFPB’s annual transfer of funds from the Federal Reserve has increased 36 percent and its headcount has increased 17 percent. “It is not clear that these dramatic increases are necessary or sustainable,” Schneider testified. “Furthermore, it is not clear that these additional resources have been appropriately allocated.”
He noted that the CFPB’s budget is not subject to any congressional oversight. “As a result, it goes without saying, the CFPB’s priorities are in no meaningful way subject to the priorities of the American people represented in Congress,” he added.
However, a former CFPB official in the Biden administration criticized the House subcommittee and the Trump administration for its attitude toward the bureau.
There is a “profound disconnect between a hearing that purports to be about ‘consumer protection’ and the devastation that this administration’s actions and legislative agenda will unleash for working people,” said Seth Frotman, the former CFPB General Counsel and Senior Director to former bureau director Rohit Chopra.
Frotman said the CFPB’s work “came to a screeching halt” when the Trump administration took over the CFPB. “They have taken Wall Street’s cops off the beat, tearing the signs off the CFPB building and granting shameless pardon after shameless pardon to companies that ripped off their own customers,” Frotman told the subcommittee.
He said that nearly a dozen enforcement actions have been dropped.
Another witness, David Pommerehn, the Consumer Bankers Association’s Senior Vice President, General Counsel, and Head of Regulatory Affairs also called on Congress to transform the bureau into a five-member commission.
“The lack of long-term consistency in the rules and actions taken by the Bureau adversely affects consumers and the financial services industry by making it difficult for institutions to innovate new products and services and to meet consumers’ evolving needs,” Pommerehn said.
Ana Fonseca, President and CEO of Logix Federal Credit Union in California said she is concerned that her credit union will reach the “arbitrary” $10 billion threshold “that subjects us to greater CFPB scrutiny [and that] has a cost that takes millions of dollars away from programs to serve our members”.
Fonseca, who represented America’s Credit Unions, added, “We expect to cross this threshold in 2026, and it will pose additional costs and challenges, despite us maintaining the same focus we have always had on serving our members and helping them thrive.”
Consumer Financial Services Group
Navigating State AG Investigations: A Playbook For Financial Services Companies
A Ballard Spahr Webinar | April 22, 2025, 2 PM ET
Speakers: Mike Kilgarriff, Henry E. Hockeimer, Jr., Adrian R. King, Jr., Jenny N. Perkins, and Joseph J. Schuster
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