United States: Financial Services 2017 Year-End Report

Industry Developments

Henson v. Santander Consumer USA Inc., No. --- U.S. ---, 137 S.Ct. 1718 (2017)

In 2017, consumers initiated nearly 10,000 lawsuits alleging violations of the Fair Debt Collection Practices Act (FDCPA). See WebRecon LLC, Stats for November 2017: Bizarro Stats, www.webrecon.com (2017) (reporting that consumers initiated 9,072 FDCPA lawsuits through Nov.

30, 2017). The prevalence of FDCPA lawsuits may decline, however, following the U.S. Supreme Court's decision in Henson v. Santander Consumer USA Inc.

In June, the Supreme Court decided the issue of who qualifies as a "debt collector" under the FDCPA. In his first authored decision as a member of the high court, Associate Justice Neil Gorsuch wrote a unanimous opinion holding that an entity may collect debts that it purchased on its own behalf without automatically triggering the FDCPA.

In reaching this decision, the Court looked to the FDCPA's definition of the term "debt collector." Under the statute, a debt collector is anyone who "regularly collects ... or attempts to collect ... debts owed or due ... another." 15 U.S.C. § 1692a(6). Respondent Santander Consumer USA (Santander) purchased debts in default from an automobile loan originator and then sought

to collect on those recently acquired debts. The dispositive question in the case was whether Santander, as the new owner of those debts, qualified as a debt collector.

Focusing on the statutory language, the Court reasoned that the FDCPA targeted third-party collection agents working for a debt owner, not a debt owner seeking to collect debts for itself. The Court elaborated that the FDCPA did not apply to Santander because the statutory definition made no distinction between various classes of debt owners, i.e., loan originators as opposed to debt purchasers. The Court also rejected the petitioners' public policy arguments, reasoning that those arguments essentially asked the Court to rewrite a constitutionally valid statute.

En Banc D.C. Circuit Reviews PHH Decision

In February 2017, the D.C. Circuit granted the CFPB's motion for a rehearing en banc and vacated the October 2016 decision by a three-judge panel of the court that ruled, among other things, that the CFPB's structure was unconstitutional to the extent that its single director was removable only for cause. On May 24, 2017, the D.C. Circuit heard oral arguments from PHH Corp., the

Department of Justice and the CFPB on the central issue of whether the CFPB's structure violates the U.S. Constitution. During oral argument, minimal time was spent examining the Real Estate Settlement Procedures Act (RESPA) and statute of limitation rulings from the three-judge panel.

The D.C. Circuit issued a decision on Jan. 31, 2018, upholding the CFPB's single-director structure. The next steps in the litigation are uncertain, although further appeal to the U.S. Supreme Court is anticipated. We also mention two noteworthy developments around the time of the en banc decision. First, in November 2017, Director Richard Cordray stepped down as the head of the CFPB. Second, in January 2018, the Supreme Court granted certiorari in Lucia v.

SEC – a case cited by the D.C. Circuit in February when it agreed to rehear the PHH matter – to determine whether the Securities and Exchange Commission's (SEC's) administrative law judges (ALJs) serve in violation of the Appointments Clause of the U.S. Constitution. The Lucia case is potentially significant given that prior to the case reaching the D.C. Circuit, the original ruling

CFPB Arbitration Agreement Rule

On May 24, 2016, the CFPB published its proposed rule on arbitration agreements in the Federal Register.1 While the rule's notice-and-comment period ended on Aug. 22, 2016, the CFPB did not publish its final rule until July 19, 2017.2 Under the rule, covered providers of certain consumer financial products and services were prohibited from utilizing predispute arbitration agreements to prevent consumers from "filing or participating in a class action with respect to the covered consumer financial product or service."3 Covered providers also were required to insert language stating such a limitation in their arbitration agreements.4 In addition, covered providers that participated in arbitral proceedings pursuant to a predispute arbitration agreement would be required to furnish particular information regarding those arbitrations.5 The CFPB championed the rule as providing consumers with sufficient opportunities to seek relief from providers' legal violations as well as to provide greater transparency into the arbitration of consumer disputes.6 The rule became effective on Sept. 18, 2017, but would have applied only to predispute arbitration agreements entered into after March 19, 2018.7

Unhappy with the implications of the arbitration agreements rule, the Republican-dominated House of Representatives utilized the Congressional Review Act (5 U.S.C. 801 et seq.) to easily pass House Joint Resolution 111 (231190) on July 25, 2017, disapproving the rule.8 The Senate followed suit by passing the resolution on Oct. 24, 2017, but not without the help of Vice President Mike Pence's deciding vote.9 Congress presented the joint resolution to President Donald Trump on Oct. 25, 2017, and it was signed into law on Nov. 1, 2017.10 The CFPB arbitration rule was nullified, and then-CFPB Director Cordray removed the rule from the Code of Federal Regulations on Nov. 22, 2017.11


1 CFPB Arbitration Agreements, 81 Fed. Reg. 32829 (proposed May 24, 2017) (to be codified at 12 C.F.R. pt. 1040).

2 CFPB Arbitration Agreements, 82 Fed. Reg. 33210 (July 19, 2017) (to be codified at 12 C.F.R. pt. 1040).

3 Id.

4 Id.

5 Id.

6 CFPB Arbitration Agreements, 81 Fed. Reg. 32830 (proposed May 24, 2017) (to be codified at 12 C.F.R. pt. 1040).

7 CFPB Arbitration Agreements, 12 C.F.R. § 1040 (2017).

8 H.R.J. Res. 111, 115th Cong. (2017) (enacted).

9 H.R.J. Res. 111, 115th Cong., 163 Cong. Rec. S6760 (daily ed. Oct. 24, 2017) (enacted).

10 Act of Nov. 1, 2017, Pub. L. No. 115-74, 131 Stat. 1243.

11 CFPB Arbitration Agreements, 82 Fed. Reg. 55500 (Nov. 22, 2017) (to be codified at 12 C.F.R. pt. 1040

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