The four primary provisions of the final rule are as follows:

Under the final rule, a “predispute arbitration agreement” is defined as: “an agreement between a covered person . . . and a consumer providing for arbitration of any future dispute concerning a consumer financial product or service described below.

1. The prohibition on class action waivers would apply to arbitration agreements with respect to:
   1. Most types of consumer “credit” governed by the Equal Credit Opportunity Act and Regulation B, including but not limited to consumer credit cards, lines of credit, small-dollar or payday loans, private student loans and certain auto loans;
   2. Checking and other deposit and share accounts subject to the Truth in Savings Act (TISA);
   3. Certain auto leases;
   4. Consumer debt relief services for all types of consumer debts (whether arising from secured or unsecured consumer credit transactions, or consumer debts that do not arise from credit transactions – such as medical or tax debts);
   5. Providing consumers with consumer reports and information specific to a consumer from consumer reports (such as by providing credit scores and credit monitoring);
   6. Remittance transfers subject to the Electronic Funds Transfer Act (EFTA);
   7. Transmitting or exchanging funds, including receiving currency, monetary value, or payment instruments from a consumer for purposes of exchanging or transmitting by any means, including, among other things, wire, facsimile, electronic transfer, the Internet, or through bill payment services or business that facilitate third-party transfers;
   8. Payment processing activities that involve accepting financial or banking data directly from the consumer for initiating a payment, credit card, or charge card transaction;
   9. Consumer check cashing, check guaranty, and check collection services; and
   10. Debt collection activities related to the types of consumer financial transactions listed above.  See Section 1040.3(a).
2. The rule also requires covered providers to include a specified plain-language provision in their arbitration agreements disclaiming the agreement’s applicability to class actions.

The CFPB’s final rule may be viewed at:  http://files.consumerfinance.gov/f/documents/201707_cfpb_Arbitration-Agreements-Rule.pdf

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Marketplace Lending is a term that has recently been applied to consumer and commercial lending using a technology platform to connect borrowers and lenders in a “smart” manner.  These new entities are generally not government regulated in the same way banks are, but do have state licensing requirements and if consumer or residential lending companies, for example, are subject to a wide range of federal law.  Borrowers are able to gain access to funds quickly and oftentimes at lower interest rates.  The funding sources vary from private investors to warehouse lines of credit.    Third party brokers, specialty lenders, lead generators and other players are penetrating the market.  We place marketplace platforms with traditional bank partners who wish to expand their fintech presence.

The conventional thinking is that marketplace lending platforms are user friendly and require less state and federal compliance which might not always be true and correct.   Structuring a collaboration, although creative from the legal viewpoint,  can give rise to a myriad of regulations and corporate cultural differences,  especially if we are working with consumer loan products.

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The  January 2017 Memo  states in relevant part, “[S]end no regulation to the Office of the Federal Register (the ‘OFR’) until a department or agency head appointed or designated by the President after noon on January 20, 2017, reviews and approves the regulation.”  Withdraw final but unpublished regulations: “With respect to regulations that have been sent to the OFR but not published in the Federal Register, immediately withdraw them from the OFR for review and approval.”  Delay the effective date of published but not yet effective regulations: “With respect to regulations that have been published in the OFR but have not taken effect,  temporarily postpone their effective date for 60 days from the date of this memorandum”. Following the delay, regulations that “raise no substantial questions of law or policy” would be allowed to take effect.  For those regulations that do raise such questions, the agency or department “should notify the OMB Director and take further appropriate action in consultation with the OMB Director.” Rulemakings subject to statutory or judicial deadlines are exempt, and the OMB Director has the authority to grant further exemptions for “emergency situations or other urgent circumstances relating to health, safety, financial, or national security matters, or otherwise.”

What is the effect of the January 2017 Memo on the Consumer Financial Protection Bureau (“CFPB”)? 

It does not appear that the January 2017 Memo directly applies to the CFPB, which was established as an independent agency by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).   However, please note that in the fall, 2016,  a panel of the D.C. Circuit concluded, in part,  in  CFPB v. PHH Corporation,  (the “PHH Case”)  that the CFPB Director was subject to “at will” removal by the President.   This initial  decision is currently stayed while the CFPB seeks reconsideration by the full D.C. Circuit, a process that is expected to take months to resolve. The decision in the PHH Case gives a good overview of how the CFPB was set up under the Dodd-Frank Act, where it receives its funding, etc.   Our understanding  is that the CFPB has not yet reached a conclusion regarding the application of the January 2017 Memo.  Of course, the CFPB could choose to comply voluntarily with this new requirement.   There have been reports and speculation  that Mr. Cordray may step down and a new director will be appointed by the Trump Administration.

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We offer a value-based consulting product to analyze goals, prepare a strategic plan and negotiate and document a transaction. I define marketplace lending as creating platforms to connect borrowers and lenders.

FinTech services are those using computer and other technology to enable banking and lending.  FinTech is used in the creation of the platforms.  The marketplace lender most often has an emphasis on new technology but when it enters the market, it has no expertise with state and federal lending law, including licensing issues.  Banks have regulatory expertise, but the systems are in constant need of modernization, updating loan products, etc.

I am working on an article “How to Successfully Strategic Alliances in Lending”  which gives an overview of the current state and federal law in this area and strategies to succeed.

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The Ninth Circuit Court of Appeals reversed and stated in relevant part that the violation of a statutory right is usually a sufficient injury in fact to confer standing, [Ninth Circuit Opinion] 742 F. 3d, at 412. The court recognized that the Constitution limits the power of Congress to confer standing.   But the court held that those limits were honored in this case because Robins alleged that “Spokeo violated his statutory rights, not just the statutory rights of other people,” and because his “personal interests in the handling of his credit information are individualized rather than collective.”  The court thus concluded that Robins’ alleged violations of [his] statutory rights [were] sufficient to satisfy the injury-in-fact requirement of Article III.

The Supreme Court granted certiorari and determined that Ninth Circuit failed to address the totality of standing requirements for a federal action. Citing Lujan v Defenders of Wildlife, 504 U.S. 555, 559-560 (1992), the Supreme Court noted in order to satisfy the “constitutional minimum” for standing, a Plaintiff must: (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision. The Ninth Circuit, according to the Supreme Court, failed to properly review for the first factor, suffering an injury in fact.

Per the Supreme Court, for an injury to be an injury-in-fact, it must be “particularized,” i.e., it “must affect the plaintiff in a personal and individual way,” Pg. 7 of Opinion, referring to Lujan. The second necessity is that the injury-in-fact must be concrete. For an injury-in-fact to be concrete, it must actually exist, though, it need not be tangible. The injury must be something actually incurred by the complaining party, or a viable risk of real harm. An example provided by the Spokeo Court was Federal Election Comm’n v Akins, 524 US 11, 20-25 (1998) in which the Supreme Court confirmed that a group of voters’ “inability to obtain information” that Congress had decided to make public is a sufficient injury in fact to satisfy Article III. See Pg 10 of Opinion.

While the Court recognized the role of Congress in identifying injuries, it found that bare violations of procedural requirements, without showing harm, or risk of harm, are not enough to satisfy standing requirements. The Court provided “[f]or example, even if a consumer reporting agency fails to provide the required notice to a user of the agency’s consumer information, that information regardless may be entirely accurate. In addition, not all inaccuracies cause harm or present any material risk of harm.  The Court remanded the issue to the Ninth Circuit to determine if Robins sufficiently alleged a particularized and concrete injury in fact.

The Court emphasized that standing to file in the federal courts is found in Article III of the U.S. Constitution, despite any possible conflict with Congressional intent.  This is a case involving  an important industry federal law related to consumer reporting agencies and standards of conduct.   We will look for the Ninth Circuit’s decision on the issue of actual injury on remand.

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