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Podcast Episode: The Legality of Trump's Terminations Without Cause of Members and Commissioners of Federal “Independent” Agencies
Today's episode of the Consumer Finance Monitor podcast offers an in-depth analysis of the unitary executive theory and its implications for terminations by President Trump of the Democratic members/commissioners of several so-called independent Federal agencies. The episode features Lev Menand, an associate professor of law at Columbia Law School, who provides expert insights into financial institutions and administrative law and the validity of the Trump terminations. Professor Menand discusses the theory that President Trump may exercise complete control over independent federal agencies (which includes such terminations), despite statutes which permit terminations only for cause and a 1935 Supreme Court opinion in Humphrey's Executor which upheld the constitutionality of the “for cause” limitation on such terminations. Professor Menand also discusses (I) the stay orders issued by the Supreme Court which have frozen preliminary injunctions issued by lower courts in litigation initiated by the terminated individuals which required the reinstatement of Democratic members of two agencies who had been fired by Trump and (ii) the dictum in such stay orders saying that the reasoning behind the stay orders does not apply to the members of the Federal Reserve Board.
This episode builds on another podcast released by Consumer Finance Monitor on July 10 featuring Patrick Sobkowski of Marquette University.
Consumer Finance Monitor is hosted by Alan Kaplinsky, Senior Counsel at Ballard Spahr, and the founder and former chair of the firm's Consumer Financial Services Group. We encourage listeners to subscribe to the podcast on their preferred platform for weekly insights into developments in the consumer finance industry.
To listen to this episode, click here.
Consumer Financial Services Group
Podcast Episode: Student Lending Legislation and Litigation: 2025 Mid-Year Review
Today on our podcast, we're releasing a repurposed recording of our July 23, 2025, webinar titled “Student Lending Legislation and Litigation: 2025 Mid-Year Review.”
The webinar features esteemed partners John Culhane and Tom Burke, who dive into the intricacies of student lending litigation and regulatory developments. As a senior partner in the Consumer Financial Services Group, John Culhane shares his extensive knowledge on higher education finance, focusing on state legislation and private student loan litigation. Tom Burke, also a partner in the same group, brings his expertise in private class actions and state enforcement actions, providing insights into the One Big Beautiful Bill Act and its significant impact on federal loan servicers and discussing federal student loan litigation.
Consumer Finance Monitor is hosted by Alan Kaplinsky, Senior Counsel at Ballard Spahr, and the founder and former chair of the firm's Consumer Financial Services Group. We encourage listeners to subscribe to the podcast on their preferred platform for weekly insights into developments in the consumer finance industry.
To listen to this episode, click here.
Consumer Financial Services GroupTrump Administration Can Resume Plans to Fire More Than 1,400 CFPB Employees
The Trump Administration can, among other things, resume plans to begin firing more than 1,400 employees at the CFPB, two judges on the U.S. Court of Appeals for the District of Columbia ruled last Friday.
In a 2-1 majority opinion, the D.C. Circuit dissolved a preliminary injunction issued by District Court Judge Amy Berman Jackson. On March 28, Judge Jackson had issued an injunction that required the reinstatement with back pay of CFPB employees that had been terminated. At that time, she had also enjoined the CFPB from terminating any employees except for good cause related to the individual employee. In addition, she had required the CFPB to fully maintain the consumer complaint portal, ordered the defendants to reinstate all third-party contracts which had been earlier terminated, ordered the defendants to not enforce a February 10 stop-work order and required that the CFPB not destroy any records. Shortly thereafter, she had expanded the injunction to preliminarily preclude a Reduction-in Force (RIF), which would have left the CFPB with only about 200 employees.
While the D.C. Circuit dissolved the preliminary injunction, it delayed the mandate for its ruling until seven days after the disposition of any petition for a rehearing or the disposition of a petition for the full Court of Appeals to hear the case. The plaintiffs in the case, including the National Treasury Employees Union, the CFPB Employee Association, the Virginia Poverty Law Center, the NAACP, and the NCLC will have until September 29 (45 days after the judgment of the Court of Appeals on August 15) to file a petition for rehearing before the same panel, which is unlikely, or a petition for rehearing en banc (which is likely). A petition for rehearing en banc seems more likely, as there are 11 judges on the D.C. Circuit Court of Appeals, seven of whom were appointed by Presidents Obama and Biden, and only six votes are needed to grant a rehearing en banc.
The opinion was written by Judge Gregory Katsas and was joined in by Judge Neomi Rao. Judge Corneilia T.L Pillard dissented. Judges Katsas and Rao were appointed by President Trump and Judge Pillard was appointed by President Obama.
Absent a successful petition for a rehearing before the same panel, an en banc review, or the filing before the Supreme Court of a motion to stay the Court of Appeals order, the case will be sent back to the U.S. District Court for the District of Columbia for further proceedings.
The union and the other groups had filed suit, challenging the anticipated closure of the CFPB.
Judge Gregory Katsas disputed the notion that the administration essentially was shutting down the agency.
“For its part, the government does not claim the power to ‘shut down' the CFPB,” ”Nor could it,” Katsas wrote.
The attempted firings followed a memo by CFPB Chief Legal Officer Mark Paoletta stating that the bureau was rescinding its existing enforcement and supervisory priority documents. The agency, he said, would focus its enforcement and supervision priorities on pressing threats to consumers, in particular servicemembers, their families, and veterans.
Katsas noted that the plaintiffs did not point to any definitive statement regarding an agency shutdown, but instead wanted to infer one from various specific acts taken to downsize the CFPB.
He concluded that the agency leadership's actions reflected a new presidential administration and new Acting Director trying to assess all agency activities, and that federal law gives the CFPB wide discretion in deciding how to operate.
“If the plaintiffs' theory were viable, it would become the task of the judiciary, rather than the Executive Branch, to determine what resources an agency needs to perform its broad statutory functions,” Katsas wrote. Katsas concluded that the steps taken by the new leadership of the CFPB were too preliminary in nature and did not constitute final agency action under the Administrative Procedure Act. Katsas also concluded that there was no legal basis for an implied equitable claim under the Constitution.
In her dissent, Pillard made it clear she believes the CFPB's leadership was shutting down the agency.
“It is emphatically not within the discretion of the President or his appointees to decide that the country would benefit most if there were no Bureau at all,” she wrote. “Congress made the contrary decision in legislation establishing the CFPB, and the power to repeal that law lies with the legislative branch.”
She said the courts have the power to intervene in such cases.
Alan S. Kaplinsky & John L. Culhane, Jr.Regulatory Requirements Related to Adverse Action Notifications
As part of the Federal Reserve Board's Outlook Live Webinar series, on July 17, 2025, examiners from the Minneapolis and Chicago Federal Reserve Banks hosted a webinar to discuss the regulatory requirements related to adverse action notifications under the Equal Credit Opportunity Act (ECOA), as implemented by Regulation B, and the Fair Credit Reporting Act (FCRA). We thought the information that was presented would be helpful to our clients and friends who are just getting acquainted with these issues and would be a good refresher for our clients and friends who are longtime practitioners in consumer financial services law.
An overview of the triggers and substance of these adverse action notices can be found here.
In their presentation, the examiners offered insight into the most common notice violations. For Regulation B notices, they noted that creditors frequently fail to either provide accurate, or sufficiently specific, reasons for the action taken. They advised that general explanations such as, “credit score below bank policy,” or “outside of risk tolerance” are not specific enough. As a general point of reference, they recommended reviewing Sample Form C-1 in Regulation B that contains a non-exhaustive list of 23 reasons for adverse credit actions.
The examiners did recommend providing up to four reasons for any adverse action. (The Commentary to Regulation B states that disclosure of more than four reasons is not likely to be helpful to the applicant.)
Additionally, they noted that another common violation of Regulation B is that creditors frequently fail to provide timely notice for incomplete applications. This is largely due to applications not being identified as incomplete or failing to provide either a standard adverse action notice or notice of incompleteness.
With regard to the FCRA, they pointed out that creditors most commonly fail to disclose credit score information. The examiners reported that this often happens because creditors either (a) incorrectly assume that credit score information must only be disclosed if a credit score is the sole, or primary basis for an adverse action; or (b) only make credit score disclosures where a minimum credit score is established. Credit score disclosures must be made if the score is a factor in the adverse decision, regardless of the weight of influence.
To remediate these issues, the examiners suggested:
- implementing policies and procedures with sufficient detail to ensure adequate documentation of reasons for denial in making credit decisions;
- ensuring that updates for automated disclosure systems are received, tested, and correctly implemented;
- maintaining a strong training program, for both current regulations and any recent changes, including training for underwriters to document reasons for denial and loan staff on how and when to generate adverse action notices; and
- implementing internal controls such as secondary review of all adverse action notices, a consistent process for delivering a combined adverse action notice to all consumer applicants, and regular and ongoing tracking of application status.
Although the examiners did not focus on this, we note that there are additional credit score disclosure requirements that apply to any person who makes or arranges loans and who uses a consumer credit score in connection with an application initiated or sought by a consumer for a closed-end loan or the establishment of an open-end loan for a consumer purpose that is secured by one-to-four units of residential real property. Creditors and compliance personnel sometimes overlook these disclosure requirements because they appear in Section 609(g) of the FCRA, rather than in Section 615 of the FCRA.
The webinar provided a number of useful hypothetical scenarios to test one's understanding of regulatory requirements under the ECOA. We think the following scenarios were particularly instructive. (We have made some minor editorial changes and added commentary to some of these scenarios).
Scenario #1
A customer asks a lender for car loan rates. The loan officer asks the customer for the make, model, and year of the vehicle and provides the customer with rates. Which of the below accurately describes this customer's interaction with the creditor?
- Preapproval
- Prequalification
- Inquiry
- Application
Answer: C. Inquiry. Regulation B (comment 2(f)-4) provides examples of inquiries that are not applications, including a situation where a consumer calls to ask about loan terms and an employee explains the creditor's basic loan terms, such as interest rates, loan-to-value ratio, and debt-to-income ratio.
Scenario #2
A bank reduces a customer's credit limit on their line of credit due to the customer being delinquent on the credit account. Must the bank send an adverse action notice to the customer?
Answer: No. Regulation B (1002.2(c)(2)(ii)) states that the term “adverse action” does not include “any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account.” If the bank reduced the customer's credit limit because the customer moved out of the bank's service area, for example, an adverse action notice would be required. Regulation B (1002.2(c)(1)(ii)) defines an “adverse action” to include “a termination of an account or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor's accounts”.
Scenario #3
An applicant inquires with a bank about a home loan, including how much she may qualify for and loan program options. As a part of the inquiry, the applicant's credit is pulled. The bank sees a recent bankruptcy on her credit report and tells the applicant that it will not be able to approve a home loan because of the bankruptcy. Which of the below accurately describes this customer's interaction with the creditor?
- Preapproval
- Prequalification
- Inquiry
- Application
Answer: D. Application. Regulation B (comment 9-5) states that if in giving information to the consumer the creditor also evaluates information about the consumer, decides to decline a request, and communicates this to the consumer, the creditor has treated the inquiry or prequalification request as an application. We note that in this situation the creditor would need to provide an adverse action notice under both the ECOA and FCRA.
Scenario #4
A bank denies a line of credit application because the customer's debt-to-income ratio exceeds the bank's established limit. Which of the following denial reasons is sufficiently specific?
- Income insufficient for amount of credit requested
- Excessive obligations in relation to income
- Poor credit performance with us
- Value or type of collateral not sufficient
- Income insufficient for creditor's internal standards or policies
Answer: B. Excessive obligations in relation to income. Answers A, C, and D do not accurately indicate the principal reason for the adverse action. Answer E is insufficient. Regulation B (1002.9(b)(2)) specifies that “statements that the adverse action was based on the creditor's internal standards or policies or that the applicant, joint applicant, or similar party failed to achieve a qualifying score on the creditor's credit scoring system are insufficient”.
Scenario #5
The bank denies a loan application because a customer had a charged-off credit card from another institution (caused by nonpayment). How can the bank meet the regulatory requirement that the statement of action taken be specific and indicate the principal reasons for the adverse action?
- The bank can select the “foreclosure or repossession” reason listed on the model form.
- The bank can select the “poor credit performance with us” reason listed on the model form.
- The bank can select the “collection action or judgment” reason listed on the model form.
- The bank can manually add a “charge-off” reason and use it when applicable.
Answer: D. The bank can manually add a “charge-off” reason and use it when applicable. Institutions would utilize the “other, specify” reason on the model form when the other listed reasons do not accurately describe the reason for adverse action. Regulation B (Appendix C-4) states that “if the reasons listed on the forms are not the factors actually used, a creditor will not satisfy the notice requirements by simply checking the closest identifiable factor listed.” Bank management should train its staff on which reasons to use and when. Bank management should also implement reviews of adverse action notices that include an assessment of whether the bank accurately disclosed the reason(s) for adverse action.
Scenario #6
An applicant inquires with a bank about a car loan, including how much she may qualify for. The lender tells the applicant the loan amount and rate for loan products the bank offers and explains the process of applying, including the information needed to make a credit decision. Which of the below accurately describes this customer's interaction with the creditor?
- Preapproval
- Prequalification
- Inquiry
- Application
Answer: B. Prequalification (really a prequalification request) or C. Inquiry. As explained in Regulation B (comments 2(f)-3 and 9-5), an inquiry or prequalification request becomes an application if the creditor evaluates information about the consumer and decides to decline the request. In this scenario, the creditor has not evaluated any information or advised the consumer of a credit decision.
Additional resources on the FCRA and ECOA adverse action notices can be found linked in the presentation materials available here.
Federal Judge Dismisses High-Profile Case Involving Allegations of Racial Discrimination in Appraisals
A federal judge has dismissed a high-profile case involving allegations that a home appraiser was racially biased in his appraisal.
U.S. District Judge Stephanie A. Gallagher of the U.S. District Court for the District of Maryland ruled that Nathan Connolly and the estate of Shani Mott, who passed away in March of 2024, failed to provide an appraisal expert to support their claims against Shane Lanham and his company, 20/20 Valuations, LLC.
“An expert is necessary to explain the proper methodology for an appraisal and to assess whether the Defendants complied with industry standards,” the judge ruled. “Defendants have put forth such an expert, and Plaintiffs have not.”
She added, “Because the Plaintiffs have failed to create a genuine issue of material fact as to whether Defendants' legitimate nondiscriminatory reason [for the basis of the appraised value] was pretextual, summary judgment must be granted in Defendants' favor on all counts.”
Connolly and Mott, a Black couple, purchased their home in Baltimore in 2017 for $450,000. Four years later, after investing in home improvements, the couple sought to refinance their mortgage through loanDepot.com. An appraisal management company hired Connolly and his firm to conduct an appraisal. In the end, Connolly appraised the couple's home for $472,000 and their refinancing application was denied
In January, 2022, seven months after the first appraisal, another appraiser valued the house at $750,000. For that appraisal, the couple reportedly removed all evidence that a Black family lived in the home.
The couple filed suit against Lanham, alleging that he dramatically undervalued their home because of their race and because of their home's location, adjacent to the only area of a generally white neighborhood with a significant Black population. The case received a great deal of media attention, including a story in the New York Times and one on ABC News.
Lanham contended that his appraisal was conducted in a fair and reasonable manner and aligned with professional norms and standards. A particular factor in Lanham's valuation was the location of the home on a busy road.
Lanham produced two expert witnesses with, collectively, over 50 years of appraisal experience, to support his position, according to the judge.
Connolly and Mott, on the other hand, relied on Dr. Junia Howell, a sociology professor at the University of Chicago, to support their claims. Judge Gallagher excluded portions of Dr. Howell's testimony, saying she is not an appraiser and has no experience conducting appraisals.
“Her analysis does not—and could not—rebut Defendants' position that their appraisal was fair, reasonable, and well explained, nor does it affirmatively show that the appraisal was the result of intentional racial discrimination,” the judge ruled.
She added, “Without the foundation in appraisals necessary to explain the significance of these distinctions, this Court has no way to place them in context.”
In a related development, the Department of Housing and Urban Development and the Office of Management and Budget have disbanded the Biden-era Property Appraisal and Valuation Equity (PAVE) task force. The group had been formed to investigate discrimination in the appraisal industry.
“Established in 2021, the PAVE task force exemplified government overreach by increasing bureaucracy using various tools aimed at addressing so-called systemic biases in the home appraisal process,” Trump Administration officials said.
They added, “The termination of specific policies eliminates unnecessary regulatory hurdles imposed on lenders, appraisers, and other program participants, which will allow HUD's Federal Housing Administration (FHA) to better serve American homebuyers and homeowners.”
John L. Culhane, Jr. & Richard J. Andreano, Jr.FDIC Clarifies That CIP Rule Does Not Preclude Using Pre-Populated Customer Information
On August 5, 2025, the Federal Deposit Insurance Corporation (FDIC) issued FIL-39-2025 to state that an FDIC-supervised institution can use pre-populated customer information to satisfy the requirements of the Customer Identification Program Rule, implementing part of the USA PATRIOT Act (CIP rule).
The CIP rule requires financial institutions to collect information (name, address, date of birth, and taxpayer identification number) from persons opening accounts and to verify the person's identity. The FDIC opined that the requirement to collect identifying information from the customer under the CIP rule does not preclude the use of pre-filled identifying information and that the FDIC would consider such pre-filed information as having been obtained from the customer for purposes of the CIP rule.
FDIC examiners will consider the pre-filled information as information from the customer provided that (1) the customer has an opportunity and the ability to review, correct, update, and confirm the accuracy of the information, and (2) the financial institution's processes for opening an account that involves pre-filled information allow the institution to form a reasonable belief as to the identity of its customer and are based on the institution's risk assessment, including the risk of fraudulent account opening or takeover.
In June, the FDIC, OCC and NCUA with the consent of the FinCEN, issued an exemption allowing financial institutions to obtain taxpayer identification numbers from a third-party rather than from the customer.
Kristen E. Larson & Ronald K. VaskeTrump Issues Executive Order Prohibiting ‘Debanking'
President Trump has issued an Executive Order directing banking agencies to adopt policies to ensure that financial institutions do not use reputational risk as a basis for restricting access to banking services—a process known as “debanking.”
“Individuals, their businesses, and their families have been subjected to debanking on the basis of their political affiliations, religious beliefs or lawful business activities, and have suffered frozen payrolls, debt and crushing interest, and other significant harms to their livelihoods, reputations, and financial well-being,” Trump said, in the order. “Such practices are incompatible with a free society and the principle that the provision of banking services should be based on material, measurable, and justifiable risks.”
He continued, “It is the policy of the United States that no American should be denied access to financial services because of their constitutionally or statutorily protected beliefs, affiliations, or political views, and to ensure that politicized or unlawful debanking is not used as a tool to inhibit such beliefs, affiliations, or political views. Banking decisions must instead be made on the basis of individualized, objective, and risk-based analyses.”
The Executive Order stated that the term “federal banking regulators” refers to the Small Business Administration and federal member agencies of the Financial Stability Oversight Council with supervisory and regulatory authority over banks, savings associations and credit unions.
Trump, in the order, stated that financial institutions have engaged in unacceptable practices to restrict law-abiding individuals and businesses from access to financial services on the basis of their political beliefs or lawful business activities. He said some financial institutions targeted conservatives and those on the political right following the events at the U.S. Capitol on January 6, 2021.
He accused the federal government of flagging individuals who made purchases at stores, such as Cabela's and Bass Pro Shops. He added that people who made peer-to-peer payments that included such terms as “Trump” and “MAGA” also were targeted.
In addition, he referred to “Operation Chokepoint,” “a well-documented and systemic means by which Federal regulators pushed banks to minimize their involvement with individuals and companies engaged in lawful activities and industries disfavored by regulators based on factors other than individualized, objective, risk-based standards.”
The Executive Order sets several deadlines for financial institutions. The order stated that within:
- 180 days the Secretary of the Treasury and the Assistant to the President for Economic Policy must develop a comprehensive strategy for further combatting debanking.
- 120 days the banking regulators must identify financial institutions that currently or in the past have engaged in debanking and take “remedial action,” including fines, consent decrees or other disciplinary measures.
- 180 days the federal banking regulators must review their current supervisory and complaint data to identify institutions that have engaged in debanking.
- 180 days each federal banking regulator must remove the use of reputational risk from their guidance documents, manuals and other materials—except for those that require notice-and-comment rulemaking. The federal banking regulators also must consider rescinding or amending existing regulations that could result in politicized or unlawful debanking.
The Executive Order also sets deadlines for the Small Business Administration to ensure that the agency identifies any previous clients that were denied financial services as a result of debanking.
Banking regulators expressed support for the Executive Order.
Acting FDIC Chairman Travis Hill said his agency soon will issue a rulemaking that would prohibit examiners from criticizing institutions based on reputational risk. Hill said the rulemaking also would prohibit examiners from encouraging the closing of accounts based on political, social, religious or other views. He said the FDIC also plans to review whether supervised institutions have engaged in politicized or unlawful debanking.
Comptroller of the Currency Jonathan V. Gould said the OCC has already removed references to reputational risk from its handbooks and guidance documents. He said his agency will soon propose removing those references from regulations and will begin a review to assess the extent to which its supervised institutions have or are engaged in debanking and take remedial action, if appropriate.
Surprisingly, Gould did not mention that toward the end of President Trump's first term, then-Acting Comptroller of the Currency, Brian Brooks, issued a full-blown regulation about debanking and fair access which never became effective because it did not get published in the Federal Register after Joe Biden became President.
The Federal Reserve announced in June that reputational risk no longer would be a component of its examinations.
On Capitol Hill, Rep. Andy Barr, R-Ky., chairman of the House Financial Institutions Subcommittee, said he will introduce legislation to make Trump's Executive Order permanent.
Although there are serious questions about the legality of this Executive Order (which we will explore in another blog) we are counseling our banking clients to review, and if necessary, modify their policies and procedures applicable to all banking products, not just loans, to make sure they are fully compliant with the Executive Order.
Employee training manuals should also be reviewed for compliance with the Executive Order. Banks should also review their records which reflect adverse actions and refusals to open accounts and to provide banking services to make sure that those actions were compliant with the Executive Order. It should be noted that the Executive Order applies to all depository institutions, regardless of size.
We have been following the debanking issues for many years on our blog and podcast show. Click this link to listen to a podcast show consisting of a debate about the wisdom of a few state debanking statutes. Click this link to listen to a podcast about “Operation Chokepoint,” a former government initiative to discourage banks from doing business with payday lenders. We expect to soon produce a webinar about Trump's debanking Executive Order.
Alan S. Kaplinsky, John L. Culhane, Jr. & Ronald K. VaskeIs There Legal Authority for Trump's ‘Debanking' Executive Order?
As we previously reported, on August 7, 2025, President Trump issued an Executive Order (the “EO”) titled “Guaranteeing Fair Banking for All Americans” which, among other things, seeks to prohibit depository institutions and other companies from discriminating against potential and existing customers of any and all banking and other consumer financial services products and services (not just loans or extensions of credit) based on their political or religious beliefs or their conducting businesses as long as they are lawful.
While the Equal Credit Opportunity Act (“ECOA”) prohibits discrimination based on religion (and other grounds which are not germane to the EO) in connection with applications for loans and other extensions of credit (but not other products and services), it does not apply to discrimination based on political beliefs or the nature of the business in which the customer or proposed customer is involved. The EO boldly states that the statutory bases for prohibiting that type of discrimination and for prohibiting discrimination based on religion with respect to non-credit products (e.g., deposits) are the “unfairness” prongs of the UDAAP provision in the Dodd-Frank Act and Section 5 of the Federal Trade Commission Act (the UDAP provision).
Whoa! That's not so clear at all!
In March 2022, the CFPB amended the UDAAP section of its Exam Manual to encompass discriminatory conduct by banks and other companies supervised by the CFPB in connection with the offering and provision of all products and services, even where fair lending laws may not apply. Specifically, the CFPB directed its examiners to apply the “unfairness” standard under the Consumer Financial Protection Act (CFPA) to conduct considered to be discriminatory, whether or not covered by the ECOA (such as in connection with denying access to a checking account or payment services). Under the CFPA, an act or practice is “unfair” if (1) it causes or is likely to cause substantial injury to consumers, (2) the injury is not reasonably avoidable by consumers, and (3) the injury is not outweighed by countervailing benefits to consumers or competition.
In its press release accompanying the changes to the Exam Manual, the CFPB stated:
The CFPB will examine for discrimination in all consumer finance markets, including credit, servicing, collections, consumer reporting, payments, remittances, and deposits. CFPB examiners will require supervised companies to show their processes for assessing risks and discriminatory outcomes, including documentation of customer demographics and the impact of products and fees on different demographic groups. CFPB examiners will look at how companies test and monitor their decision-making processes for unfair discrimination, as well as discrimination under ECOA.
After failing in their attempt to get the CFPB to withdraw the amendments to the Exam Manual, the Chamber of Commerce and other trade associations sued the CFPB in Federal District Court in Alabama seeking injunctive relief and an order vacating and setting aside the amendments to the Exam Manual.
On September 8, 2023, the Court granted summary judgment in favor of the trade associations.
The Court observed that “‘the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.' That inquiry is ‘shaped, at least in some measure, by the nature of the question presented'—here, whether Congress meant to confer the power the agency asserts. Even if an agency's ‘regulatory assertions had a colorable textual basis,' a court must consider ‘common sense as to the manner' in which Congress would likely delegate the power claimed in light of the law's history, the breadth of the regulatory assertion, and the economic and political significance of the assertion.” [Footnotes omitted]
Based on these principles of statutory construction, the Court relied upon the “major questions doctrine” to reach its decision that the unfairness prong of UDAAP does not cover discrimination.
The major questions doctrine is a principle of statutory construction which states that courts will presume that Congress does not delegate to executive agencies issues of major political or economic significance. The “major questions doctrine” is derived from the Supreme Court opinion in FDA v. Brown & Williamson Tobacco Corp. (2000): “[W]e must be guided to a degree by common sense as to the manner in which Congress is likely to delegate a policy decision of such economic and political magnitude to an administrative agency.” It was relied upon in a recent Supreme Court opinion in State of West VA v. Environmental Protection Agency where the Court “recognize[d] that sweeping grants of regulatory authority are rarely accomplished through ‘vague terms' or ‘subtle device[s].' Courts must ‘presume that Congress intends to make major policy decisions itself, not leave those decisions to agencies.' If that major questions canon applies, ‘something more than a merely plausible textual basis for the agency action is necessary. The agency instead must point to clear congressional authorization for the power it claims.” The doctrine was also relied upon in Biden v. Nebraska where the Court likewise recognized that “the economic and political significance [of the agency's forgiveness of federal student loans] is staggering by any measure” and that “the basic and consequential tradeoffs” that are necessarily part of the action “are ones that Congress likely would have intended for itself.”
The Court had no difficulty identifying the “major question” here. “The choice whether the CFPB has authority to police the financial-services industry for discrimination against any group that the agency deems protected, or for lack of introspection about statistical disparities concerning any such group, is a question of major economic and political significance.” The economic impact was demonstrated by the substantial sums of money (“millions of dollars per year”) spent by companies on compliance. The political implications included the impact on state and federal powers, since the CFPB would be overriding state decisions on discrimination issues, as well as the “profound” implications regarding the scope of federal power with regard to protected classes, prohibited outcomes, and defenses to claims of misconduct.
Against that backdrop, the Court found nothing in the Dodd-Frank Act to support the CFPB's position. The Court agreed with the plaintiffs that discrimination and unfairness are treated as distinct concepts in the Act, noting, for example, the creation of a CFPB office devoted to “fair, equitable and nondiscriminatory access to credit” which references the Equal Credit Opportunity Act but makes no mention of unfairness and the statutory definition of unfairness which fails to mention discrimination. Looking to the text, structure of the Dodd-Frank Act, and the historical gloss on unfairness, the Court held that “the Dodd-Frank Act's language authorizing the CFPB to regulate unfair acts or practices is not the sort of ‘exceedingly clear language' that the major questions doctrine demands ….”
The CFPB appealed the judgment against it to the Fifth Circuit. However, shortly after the leadership of the CFPB changed under the Trump administration, the CFPB dropped the appeal. While this judgment doesn't apply to the FTC or the federal banking agencies, the logic of the opinion applies to Section 5 of the FTC Act which is the other statute that Trump relies upon in his EO.
Trump's EO is on even shakier ground today because, after the District Court issued its opinion in September 2023, the Supreme Court overruled the Chevron case and, as a result, courts should give no deference to Trump's interpretation (or any agency's interpretation acting at the direction of Trump) of the CFPB's UDAAP authority and Section 5 of the FTC Act as authorizing the EO.
The only way that the Trump Administration can lift the cloud of uncertainty hanging over the legality of the EO is for Congress to enact legislation essentially codifying the EO. Bills are already pending which would accomplish exactly that result. However, it is uncertain whether the Senate will be able to muster 60 votes in favor of passage of either bill.
Based on the Trump administration's track record of not adhering to laws that are much more clear than the EO, I would not expect Trump to repeal the EO based on the possible lack of statutory authority. That being the case, we are encouraging our clients to conduct a thorough review of their policies and procedures and adverse actions taken by them in response to applications and requests for their services and products. That review should also include adverse actions taken with respect to existing customers.
Putting aside the legal uncertainty as to whether there is statutory authority for the EO, there are other important questions raised by the EO as to whether it is sound policy. There is also uncertainty as to precisely what adverse actions it covers. For example, what constitutes a “lawful business?” Often, there are grey areas in determining whether a business is “lawful.” In order to ascertain whether a business is lawful, it will often be necessary to conduct extensive due diligence in areas where the bank or company lacks expertise (think crypto). In such a situation, must the bank or company hire expensive outside experts to conduct such reviews. Who will pay for these expenses? Must a review be done of federal law and the laws of all states where the potential client conducts business? Is the business still a “lawful” business if it lacks an appropriate license in one or more states or if it is violating a federal or state consumer protection requirement? And, bear in mind that the EO applies to businesses of all sizes. Hopefully, the Secretary of the Treasury will answer some or all of these questions.
Alan S. KaplinskyFTC to Discuss Recent Consumer Finance Developments (Excluding Antitrust) at Ballard Spahr Webinar
If you are subject to enforcement by the FTC (excluding antitrust laws), you will not want to miss this webinar on September 9 at Noon, ET. This, of course, includes non-bank fintechs.
As has been the case in prior years, we are delighted to once again have as our guest speaker Malini Mithal, Associate Director of the FTC's Division of Financial Practices. Malini will be discussing enforcement actions described in the webinar invite linked here.
John Culhane will also present at the webinar which will be moderated by Alan Kaplinsky, founder and former practice group leader for 25 years and now Senior Counsel of the firm's Consumer Financial Services Group.
Consumer Financial Services GroupFHFA Directs Fannie Mae, Freddie Mac to Develop Plans to Use Cryptocurrency as Assets Without Conversion to Dollars
The FHFA has directed Fannie Mae and Freddie Mac to prepare proposals for consideration of cryptocurrency as an asset for reserves in their single-family risk assessments, without a conversion to dollars.
“Cryptocurrency is an emerging asset class that may offer an opportunity to build wealth outside of the stock and bond markets,” FHFA Director William J. Pulte wrote in a statement posted on social media.
Cryptocurrency has not typically been considered in the mortgage risk assessment process for loans delivered to Fannie Mae and Freddie Mac without converting the cryptocurrency into dollars.
“The FHFA has now determined that the consideration of additional borrower assets in the Enterprises' single-family mortgage loan assessments may enable the Enterprises to assess the full spectrum of asset information available for reserves and to facilitate sustainable homeownership to creditworthy borrowers,” Pulte wrote.
He directed Fannie Mae and Freddie Mac to only include cryptocurrency assets that can be evidenced and stored on a U.S. regulated centralized exchange.
He added that each Enterprise must consider additional risk mitigants based on their own assessments, including adjustments for market volatility and ensuring risk-based adjustments to the share of reserves comprised of cryptocurrency.
Pulte said the Enterprises must consider additional risk mitigants based on their own assessment, including adjustments for market volatility and ensuring sufficient risk-based adjustments to the share of reserves comprised of cryptocurrency.
He said that any changes must be approved by the boards of directors of the Enterprises before they are submitted to the FHFA.
In a related development, Sen. Cynthia Lummis, R-Wy. has introduced the 21st Century Mortgage Act, which would require government-sponsored enterprises to consider digital assets when assessing single-family mortgage eligibility. She said her legislation would codify Pulte's plan by prohibiting the forcing of crypto assets into dollars.
“We're living in a digital age, and rather than punishing innovation, government agencies must evolve to meet the needs of a modern, forward-thinking generation,” Lummis said.
Democratic Senators were much more skeptical of the proposal, sending Pulte an eight-page letter that includes a series of questions about the plan.
“Expanding underwriting criteria to include the consideration of unconverted cryptocurrency assets could pose risks to the stability of the housing market and the financial system,” Senate Banking, Housing, and Urban Affairs ranking Democrat, Sen. Elizabeth Warren, D-Mass., and Sens. Jeff Merkley, D-Ore; Chris Van Hollen, D-Md; Mazie Horono, D-Hi; and Bernie Sanders, I-Vt., wrote in the letter.
They continued, “To the extent that historical volatility and liquidity persists even as the market matures, a borrower using crypto faces an increased risk that they may not be able to exit a crypto position and convert to cash at a price that would allow them to buffer against risk of mortgage default. Crypto is also subject to heightened risks of loss due to scams, cyber hacks, or physical theft, which could leave homeowners vulnerable to losing their crypto assets with little hope of recovery.”
They ask for detailed information about how the Enterprises will develop their proposals, the FHFA's assessment of possible risks and benefits and how the agency plans to gather stakeholder feedback.
The Senators said that it is crucial that while Pulte said that he issued the order following significant studying, the letter includes no information about the process the Enterprises will use to develop their proposals, the FHFA's assessment of possible risks and benefits or how it will gather stakeholder feedback.
They also pointed out that Pulte's wife holds up to $2 million in crypto assets, raising allegations of a possible conflict of interest.
John L. Culhane, Jr. & Ronald K. Vaske
AI in the Financial Services Industry
The recent American Association of Residential Mortgage Regulators Annual Conference included a presentation highlighting the rising use of Artificial Intelligence (“AI”) in the Financial Services industry. As this will clearly be an ongoing focus of all regulators, not just residential mortgage regulators, we thought a short summary of the presentation, and some or our reactions to the presentation, might be of interest.
The term AI has been used to encompass a wide array of technology aimed at approximating aspects of human cognition. The presentation focused on Generative AI (“GenAI”), a subset of AI techniques that involves generating new data or content. The financial industry's adoption of GenAI has evolved as firms utilize more advanced levels of technology and automation to deliver services. The U.S. Government Accountability Office published a report in May 2025 highlighting current use cases for leveraging AI in finance, including executing automatic trades, evaluating creditworthiness, and identifying potential customer risks. In a survey of 420 global financial services businesses, Temenos, a leading banking technology provider, found that 75% of banks are exploring generative AI deployment, approximately half of which have already deployed or are in the process of deploying it.
Incorporating AI presents several opportunities. For companies, leveraging these technologies can raise profitability by lowering costs for products and services. On the consumer side, AI adoption can lead to greater convenience and financial inclusion by making platforms more accessible.
The presenters highlighted how AI could be used to improve efficiencies in originating a mortgage loan. For example, at the origination stage, chatbots can be used to answer customer questions and draft personalized loan offers. During underwriting, AI can be used to extract relevant data to assess default risk. Lastly, AI technology can expedite closing by summarizing documents. With the presenters having called attention to these scenarios, we would note that residential mortgage regulators can be expected to carefully examine these uses of generative AI.
While the opportunities are plentiful, regulators and industry are currently working together to identify, address, and mitigate risks. The presenters organized risks associated with incorporating generative AI into five broad categories: Data-Related Risks, Testing and Trust, Compliance, User Error, and AI Attacks. Within each category, they summarized the primary concerns as follows:
- Data-Related Risks: Confidentiality, Data Quality, and Intellectual Property Violations
- Testing and Trust: Accuracy, Bias, and Lack of Transparency
- Compliance: Privacy, Regulatory, and Ethics
- User Error: Lack of Expertise, Lack of Supervision, and Failure to Understand Capability
- AI/ Machine Learning (ML) Attacks: Data Privacy Breach, Training Data Poisoning, and Adversarial Inputs
Financial institutions are urging regulators to establish data privacy standards for internal AI models and provide guidance on how to avoid privacy violations and data bias. The Congressional Research Service has previously described the legal and regulatory framework applicable to financial institutions and activities as “‘technology neutral,' meaning they do not take into consideration the specific tools or methods used by institutions.” For example, in their article on Artificial Intelligence and Machine Learning in Financial Services, they assert that “lending laws apply to lending whether the lender uses a pencil and paper or a cutting-edge AI-enabled model.” However, concerns remain regarding how specific laws, such as the Equal Credit Opportunity Act (ECOA) and Fair Credit Reporting Act (FCRA) apply when mitigating discrimination in AI.
In 2023, the Biden administration issued an Executive Order on “Safe, Secure, Trustworthy Development and Use of Artificial Intelligence.” The Order directed the Consumer Financial Protection Bureau (“CFPB”) to issue guidance on how ECOA, the Fair Housing Act, and Consumer Finance Protection Act (“CFPA”) apply to credit transactions through digital platforms. That September, the CFPB published circular 2023-03 addressing whether creditors may rely on the checklist of reasons provided in CFPB sample forms for adverse action notices when using artificial intelligence or complex credit models. Although this guidance has since been withdrawn, the Bureau emphasized that providing specific reasons for adverse actions is “particularly important when creditors utilize complex algorithms.”
The Bureau went on to warn that consumers “may not anticipate that certain data gathered outside of their application or credit file and fed into an algorithmic decision-making model may be a principal reason in a credit decision, particularly if the data are not intuitively related to their finances or financial capacity.” For example, if a creditor decides to lower the limit on, or close, a consumer's credit line based on behavioral data, such as the type of establishment at which a consumer shops or the type of goods purchased, it would likely be insufficient for the creditor to simply state “purchasing history” as the principal reason for adverse action. Instead, they advised, that the creditor would likely need to disclose more specific details about the consumer's purchasing history or patronage that led to the reduction or closure, such as the type of establishment, the type of goods purchased, or other relevant considerations.
In July of this year, the Trump Administration published “America's AI Action Plan.” While the previous administration appeared to take a more cautionary approach, this Action Plan seeks to “cement U.S. dominance in artificial intelligence.” The plan does not mention Consumer Finance, but the push for enabling innovation and adoption signals a deeper integration of AI into all industries moving forward. Our summary of the plan can be found here.
At least one state regulator has made the decision to stand by the CFPB's previous guidance, as we noted in our blog here. In relevant part, the Massachusetts Attorney General recently reached a $2.5 million dollar settlement with Earnest Operations LLC (“Earnest”), a Delaware- based student loan company. The AG alleged that Earnest's use of AI models to make lending decisions violated consumer protection and fair lending laws. She argued that training their algorithmic models based on arbitrary, discretionary human decisions and including the federal student loan Cohort Default Rate in its data set resulted in disparate impact in approval rates and loan terms, specifically disadvantaging Black and Hispanic applicants. Under the terms of the settlement, among other things, Earnest will implement a detailed corporate governance structure and develop written policies to ensure responsible and legally compliant use of AI.
This decision highlights the importance of evaluating what governance approach companies use to implement effective and ethical AI deployment. In that regard, a 2025 KPMG Report surveyed Generative AI use among over 90 US board members. Seventy percent of board members reported developing responsible use policies for employees. Other popular initiatives included implementing a recognized AI risk and governance framework, developing ethical guidelines and training programs for AI developers, and conducting regular AI use audits.
The presenters provided the following list of best practices and considerations for developing AI governance tools:
- Defining what exactly is AI in your organization
- Developing a comprehensive Risk Management Framework
- Requiring disclosures of when/ where GenAI is being used
- Reviewing AI models for explainability
- Implementing a tiered Authorized Use policy
- Providing AI use training to employees
- Establishing vetting standards to improve vendor management
Please contact us if you have specific questions about the presentation or about GenAI or AI governance. We also invite you to check out Hybridizer, for the latest privacy law developments and actions.
Federal Banking Regulators Issue Statement on Banks' Crypto-Asset Activities
Federal banking regulators have issued a joint statement in an effort to provide clarity on banks' engagement in crypto-asset related activities.
The statement does not create any new supervisory requirements but warns financial institutions that they must be particularly diligent in dealing with crypto-asset safekeeping.
“Given the virtual nature of crypto-assets, and the potentially increased operational risks associated with crypto-asset safekeeping, a banking organization's cybersecurity environment should be a key focus of risk management,” the agencies said.
The statement continues, “Crypto-asset safekeeping may involve elevated levels of compliance and legal risks due to the evolving regulatory landscape.”
The document states that a banking organization that is considering providing safekeeping for crypto-assets should consider the evolving nature of the market, including the technology associated with the assets and implement a risk governance framework that adapts to relevant risks.
“Providing crypto-asset safekeeping services may entail significant resources and attention, such as developing or procuring new technology, establishing a strong control environment, and ensuring staff have appropriate technical expertise,” according to the statement. “In addition, crypto-assets may experience price volatility, which could affect the demand for safekeeping services and the value of assets held.”
In addition, rapid evolution in the market could affect the technology used for safekeeping services.
The agencies said that sound practices generally include a comprehensive analysis of each crypto-asset before safekeeping it.
They said that as with all new products, services and activities, banking organizations should consider potential risks before offering crypto asset safekeeping.
They said that an effective risk assessment should consider such things as the banking organization's:
- Core financial risks given the strategic direction and business model.
- Ability to understand a complex, evolving and potentially unfamiliar asset class. This includes keeping abreast of industry leading practices.
- Ability to guarantee a strong control environment.
- Contingency plans to address any unanticipated challenges.
The agencies said that considering the complexities of crypto-asset safekeeping, a banking organization's board, officers and employees should have the necessary knowledge to establish adequate operational capacity and appropriate controls.
“Sound practices typically include performing a comprehensive analysis of each crypto-asset before safekeeping that crypto-asset, including for example, by identifying vulnerabilities and dependencies that could create material risks to the banking organization's safety and soundness,” the policy statement said.
As with other banking activities, crypto-asset safekeeping relationships are subject to the applicable Bank Secrecy Act/anti-money laundering requirements, as well as countering the financing of terrorism and Office of Foreign Assets Control.
In certain cases, a banking organization may choose to contract with third party custodians or other service providers. Subject to the terms and conditions of the customer agreement, a banking organization is responsible for the activities performed by the third party.
John D. Socknat & Ronald K. Vaske2025 HR Legal Summit: Sessions and Speakers Announced
Ballard Spahr LLP's Labor and Employment Group, in collaboration with the Southeastern Pennsylvania Chapter of SHRM (SEPA SHRM), is pleased to present our sessions and speakers for the upcoming HR Legal Summit. This program is designed for HR professionals and in-house counsel to stay informed on legal trends and developments, ensuring compliance and effective management of workplace issues.
Prioritize your professional development and register today!
Thursday, September 18, 2025
8:00 AM – 4:30 PM ET
Presidential Caterers
2910 Dekalb Pike
East Norriton, PA 19401
Take advantage of Early Bird Pricing until August 15, 2025.
Sessions and Speakers
Collaborative Partnerships: HR, the Business, and the
Law
Brian Pedrow
Workplace Harassment: New Claims for a New
Era
Denise Keyser
Navigating the Accommodation Landscape: Practical
Guidance for HR Professionals
Christine Thelen
Workforce Reorganization and RIFs: The Right Approach to
Right-Sizing
Charles Frohman
Trump Labor Board: As the Pendulum Swings
Louis Chodoff & Rebecca Leaf
Empowered Separations: HR Strategies for Turning Firings
into Opportunities
Sean Jackson & Shirley Lou-Magnuson
CLE Credits: This program is approved for 4.5 (incl. 1.0 PA Ethics; and 1.0 CA & NY Elimination of Bias) CLE credits in CA, NY, & PA; and 5.7 (incl. 1.2 Ethics) NJ. Uniform Certificates of Attendance will also be provided for the purpose of seeking credit in other jurisdictions.
HRCI and SHRM credits are also available.
For more information about the conference or sponsorship opportunities, please contact Laurie Sample at sepa-administrator@sepashrm.org or visit the 2025 HR Legal Summit Event Page.
Brian D. Pedrow, Denise M. Keyser, Christine Thelen, Charles Frohman, Louis L. Chodoff, Rebecca A. Leaf, Sean Jackson & Shirley S. Lou-MagnusonBallard Spahr Event: Wage and Hour Update for Business
Arizona employers are being sued by individuals and groups of employees for alleged overtime and wage and hour violations. Please join us to learn how to protect your company from these expensive lawsuits, and prepare for government investigations.
This seminar will update attendees on:
- The marked increase of litigation over wage and hour issues and how your company can avoid being sued
- How employers can efficiently review their classifications of employees as exempt or non-exempt from overtime
- Address recordkeeping requirements for overtime and hours worked
- How to effectively track hours for remote and hybrid worker
- Avoiding and responding to state and federal investigations and considering self-reporting programs
Thursday, October 30, 2025
7:30 AM – 9:00 AM
Arizona Biltmore Golf Club
2400 Biltmore Estates Drive
Phoenix, AZ 85016
Program Details
7:30 AM – 8:00 AM | Registration and Breakfast
8:00 AM – 9:00 AM | Program
CLE Credit: This program is approved for 1.0 CLE credits in CA, NJ, NY, & PA. 1.0 HRCI & SHRM credits are pending. The State Bar of AZ does not approve or accredit CLE activities for the MCLE requirement. This activity may qualify for up to 1.0 hours toward your annual CLE requirement for State Bar of AZ. Uniform Certificates of Attendance will be provided for the purpose of seeking CLE credit in other jurisdictions.
For more information, contact Meg Connolly at connollymr@ballardspahr.com.
Jay Zweig & Melissa CostelloLooking Ahead
The GENIUS Act and the Future of Stablecoins: What Banks and Fintechs Need to Know
A Ballard Spahr Webinar | September 3, 2025, 12 PM ET
Speakers: Alan S. Kaplinsky and Peter Jaslow
Recent Consumer Financial Services Developments at the Federal Trade Commission
A Ballard Spahr Webinar | September 9, 2025, 12 PM ET
Speakers: Alan S. Kaplinsky and John L. Culhane, Jr.
MBA – Human Resources Symposium 2025
September 9-10, 2025 | MBA HQ, 1909 M St NW, Floor B1, Washington, D.C.
Labor Law Issues in 2025 and Beyond: New Rules, New Challenges
September 9, 2025 – 10:30 AM ET
Speaker: Meredith S. Dante
Loan Originator Compensation: Where We Stand Today and Where We Could be Headed
September 9, 2025 – 1:00 PM ET
Speaker: Richard J. Andreano, Jr.
MBA – Compliance and Risk Management Conference
September 28-30, 2025 | Grand Hyatt, Washington, D.C.
COMPLIANCE CONVERSATIONS TRACK: Loan Originator Compensation
September 28, 2025 – 2:15 PM ET
Speaker: Richard J. Andreano, Jr.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
