CFPB and Conference of State Bank Supervisors Sign Framework for Coordinating Supervision and Enforcement

The Consumer Financial Protection Bureau (CFPB) announced on May 21 that it has established a "framework" with the Conference of State Bank Supervisors (CSBS) for coordination among the CFPB and state regulators on supervision and enforcement matters.

The framework states that it is "intended to establish a process for coordinated federal/state consumer protection supervision and enforcement of entities providing consumer products or services that are subject to concurrent jurisdiction of the CFPB and one or more [state financial regulatory authorities]." It further states that it is "not a binding agreement" and instead is "a guide for effective and efficient coordination and collaboration of supervisory and enforcement activities."

The framework implements a provision of the 2011 memorandum of understanding (MOU) between the CFPB and CSBS regarding information sharing in which the parties agreed to work together to efficiently use federal and state resources, "including through the development of a framework for coordinating supervisory activities." The MOU was supplemented by a 2012 Statement of Intent detailing the types of information the CFPB planned to share with state regulators and the cooperative actions the CFPB planned to take.

According to a CFPB press release, the CSBS was "acting on behalf of state financial regulatory authorities" in agreeing to the framework. However, as the CSBS notes in its own press release, the CFPB's nonbank jurisdiction "spans an array of industries that fall outside of the jurisdiction of CSBS members." It is presumably for that reason that the framework contemplates that, in addition to the CSBS, it will be signed by "State Banking Commissioners or Other Appropriate State Officials."

The framework includes the following:

  • State regulators are to form a "State Coordinating Committee" responsible for state coordination with the CFPB on the supervision of nonbank entities.
  • The process for examinations of depository institutions (meaning insured state-chartered depository institutions or credit unions with more than $10 billion in assets or their affiliates) and nonbanks includes provisions dealing with coordination of examination scheduling and development of a comprehensive plan for coordinated supervision that includes an examination plan. Examination plans are to include a "single entry or information request letter, where appropriate."
  • The CFPB and state regulators are to "share information and consult one another" regarding corrective action "in all cases where permitted by applicable law," with such sharing or consultation to occur when possible "in a reasonable time" before corrective action is taken. However, the framework expressly provides that the CFPB and a state regulator do not need to have the other's approval before initiating an enforcement action.

Despite the CFPB's statements in its press release about its "strong partnership" with state regulators and the framework representing an expansion of its efforts to coordinate with state regulators, Bloomberg reports that the uncertainty surrounding Director Richard Cordray's recess appointment may be slowing the CFPB's interactions with state regulators. The report discusses comments by Indiana Attorney General Greg Zoeller that the CFPB's plans to coordinate enforcement with state AGs have stalled as a result of the uncertainty. Mr. Zoeller reportedly said that such uncertainty is deterring state AGs from exercising their authority under the Dodd-Frank Act to enforce federal consumer financial laws.

- John D. Socknat


CFPB Launches Spanish Language Website

The CFPB has launched a Spanish language website. In response to research showing that 75 percent of Latinos who are online access the Internet from a mobile device, the Bureau designed the website so that it works on mobile devices as well as on computers.

The website allows users to access Spanish language versions of the CFPB's online consumer complaint system and answers to consumers' frequently asked questions. The CFPB also takes complaints over the telephone in Spanish and in more than 180 other languages.

“The CFPB is dedicated to being as accessible as possible for the greatest number of consumers,” said CFPB Director Richard Cordray. “CFPB en Español can be a trusted resource for Spanish-speaking consumers looking for clear information on consumer financial products and services.”

The CFPB plans to continue building and improving its Spanish language website in the coming months.

- Barbara S. Mishkin


Office Leases: Negotiating Key Terms in Letters of Intent
Guest Column from Ballard Spahr's Leasing Group

Editor's Note: Mortgage banking companies are often tenants leasing or subleasing office space, usually in multiple locations. In this edition of Mortgage Banking Update, we are introducing the first in a series of articles by attorneys in Ballard Spahr's Leasing Group that will explain the commercial leasing process and explore issues such as how a lease affects ongoing operations, how to plan for changing needs, the impact of foreclosure and bankruptcy, and how to get out of a lease. In this article, Alicia B. Clark, an attorney in the firm's Denver office, discusses the benefits of negotiating key lease terms in a letter of intent.

There are many different reasons a business may need a new office lease, including the upcoming expiration of its current lease, the desire to increase or decrease the size of its existing space, or the need to relocate or expand to a different geographic location. This article explores issues to consider in the early stages of negotiating a new lease.


A tenant has the most leverage to negotiate favorable lease terms with an existing or new landlord when there is sufficient time built into the leasing process. If a tenant plans well in advance of its move-in or expiration date, it will have the best leasing opportunities. While it may be difficult for some tenants to focus resources on space planning needs that seem far into the future, early planning should pay off with stronger negotiating leverage and, therefore, more advantageous economic and legal terms of the lease.

Depending on the specifics of the deal, it is likely to take three to six months or longer for a tenant to negotiate a lease, build out the space, and relocate its business. Therefore, analysis on space and site needs and opportunities in the market must start well in advance of that time period―12 to 24 months before the target move date is not unreasonable.

Even a tenant who expects to renew an existing lease should gain an advantage in negotiating a renewal by starting the process early and learning what else is available in the market. A landlord that knows its tenant has viable options to move is more likely to offer competitive deal terms. Tenants who fall into the trap of thinking they will negotiate a lease extension with their existing landlord and do not leave sufficient time to move if needed may find themselves without other options or leverage to negotiate a favorable deal.

Letters of Intent

Once a tenant has narrowed its selection of spaces, which can include staying in its current premises or moving to a new location, it is often useful to negotiate the key lease terms in a non-binding letter of intent (LOI) to finalize the site selection process. Although an LOI should be non-binding, landlords will use it as the basis for preparation of the lease agreement.

A tenant will benefit from negotiating an LOI when it still has other options available and has not yet committed its time, energy, and money to a single site. In addition, negotiating a detailed LOI rather than going right to a definitive lease document often saves tenants time and money. A tenant can usually determine in the LOI process if it cannot reach agreement with a particular landlord on acceptable terms. Except for the terms that are negotiated into the LOI that are more balanced or pro-tenant, the landlord will produce a lease on its own form with landlord-favorable provisions. Negotiating key lease terms in an LOI usually results in a better initial lease document from the landlord, which will shorten the time required for the tenant's attorney to review, comment on, and negotiate the lease.

Basic Lease Terms

The LOI should set forth the basic lease terms that encompass both financial and non-monetary items. Such items include:

  • Landlord and tenant parties
  • Description/depiction of the premises to be leased, including location and size and whether premises will be re-measured after build-out
  • Lease and rent commencement dates, length of initial term, and any renewal options
  • Base rent, rent escalations, and rent during renewal terms
  • Additional rent requirements (e.g., percentage share of common area maintenance, taxes and insurance costs, separately charged utilities, and any caps on increases in controllable costs)
  • Security deposit and guarantor requirements
  • Free or discounted rent periods and scope (e.g., reduction of both base rent and additional rent)
  • Improvements to premises and landlord allowances (including for moving costs, tenant furniture, fixtures and equipment, and permitted rent reductions for unused money)

Additional Key Terms

The LOI also should address other terms that provide flexibility to the tenant over the lease term, deal with tenant-specific requirements, and otherwise are important to the tenant.

There are several ways to provide flexibility to the tenant, including the right to expand the premises in the event of future growth, give back space in the event of contraction, or terminate the lease early. The LOI should contain a right of first offer or right of first refusal for contiguous or other space in the building if it is available in order to address expansion potential. If a right to contract the leased premises or terminate the lease is important to a tenant, the LOI should specify the timing issues and any payments to the landlord upon exercise of these rights (e.g., reimbursement for unamortized leasing costs and termination fees). The LOI may also include the circumstances in which the tenant may assign the lease or sublease the premises without the landlord's consent and specific parameters for the landlord to consider when its consent is required.

The LOI may cover any other tenant-specific requirements, such as parking rights (and costs, if applicable), signage, permitted hazardous materials usage (e.g., in connection with a back-up generator), or a waiver of any landlord liens on tenant's equipment and property in the leased premises. The LOI should be tailored to the specific business needs of each tenant.

The early stages of a lease negotiation often provide the best opportunity for a tenant to negotiate beneficial lease terms. A suitably detailed LOI is an excellent tool for a tenant to confirm the key lease terms before committing to a specific space.

If you have questions about leasing matters, please contact Alicia B. Clark at 303.299.7341 or, or visit our website for more information on the Leasing Group.

IRS Approves New Rules To Minimize Taxes Related to M&A Transactions

The Internal Revenue Service recently adopted long-awaited regulations intended to provide a new means of minimizing taxes in M&A transactions. The newly adopted regulations took effect on May 15, 2013, under Section 336(e) of the Internal Revenue Code.

The Section 336(e) regulations provide a new election for the parties in M&A transactions to choose between paying tax on a sale of assets or on a sale of stock when stock is sold to an unrelated party or distributed to shareholders in a taxable transaction. The new rules supplement the longstanding Section 338(h)(10) regulations in enabling parties to minimize M&A-related taxes.

The new election will be available in transactions in which the purchaser is not a corporation (such as transactions involving a private equity fund buyer); such an election is not an option under Section 338(h)(10), which requires a corporate purchaser. Where a transaction involves a corporate purchaser, Section 338(h)(10) must still be used.

The regulations also make it easier to enter into "Morris Trust" transactions, in which a subsidiary is spun off without tax to shareholders as part of a prearranged plan to sell the parent company to a corporate or non-corporate buyer. A corporate tax will still be due from the parent corporation on the spin-off. The parties may elect, however, to calculate the tax as if the transaction were a sale of assets so that the buyer will not have to pay a second tax if it chooses to sell off part of the parent's assets after the acquisition.

Unlike the Section 338(h)(10) election, the 336(e) election is made through a binding agreement between the seller and the acquired corporation and the attachment of an election statement to the relevant returns. Because the Section 336(e) election does not require the consent of the purchaser, a buyer in a stock acquisition will need to require appropriate representations, warranties, and covenants from the seller as to whether the agreement and election will or will not be made.

If you have questions about the new Section 336(e) regulations, please contact Wayne R. Strasbaugh at 215.864.8328 or, Karen C. McConnell at 602.798.5403 or, or Craig Circosta at 215.864.8520 or

FTC Proposes Banning Telemarketer Use of Remotely Created Checks, Cash-to-Cash Money Transfers, and Similar Payment Methods

The Federal Trade Commission has proposed changes to its telemarketing sales rule (TSR) that would prohibit sellers and telemarketers from accepting or requesting remotely created checks or payment orders, cash-to-cash money transfers, and cash reload mechanisms as payment in inbound and outbound telemarketing transactions. Comments on the proposal are due by July 29, 2013.

The FTC's rationale for the ban is set forth in the proposal's supplementary information, which refers to the four methods as "novel payment methods." According to the FTC, consumers who are victimized by unscrupulous telemarketers using such methods do not have recourse to anti-fraud protections comparable to the dispute resolution rights and limits on liability for unauthorized transactions available for payments using credit or debit cards. As a result, the FTC believes it is necessary to ban use of these methods in all telemarketing transactions to achieve consumer protection against fraud caused by unscrupulous telemarketers.

To support the ban, the FTC further states that it has preliminarily determined that use of the four novel payment methods in telemarketing is an abusive practice under the TSR and an unfair practice in violation of Section 5 of the Federal Trade Commission Act. The FTC states this is because the substantial economic harm to consumers caused by such use (as demonstrated by the numerous enforcement actions cited by the FTC) is not outweighed by any countervailing benefits to consumers or competition.

In addition, the FTC finds that consumers cannot reasonably avoid the economic injury caused by such payment methods, for reasons that include consumers' inability to understand the effect of these methods on their consumer protections. Previously, the FTC had expressly permitted at least one payment method it now seeks to ban, remotely created checks, in telemarketing transactions.

  • The proposal invites comments responding to a list of eight general questions and 34 issue-specific questions about the ban and the other proposed amendments described below. The FTC said it hopes to receive information from commenters that will allow it to understand the potential impact of the ban on legitimate telemarketing businesses. The agency also indicated that it seeks to understand why any legitimate telemarketing transactions using the novel payment methods could not be conducted using alternative payment methods, such as Automated Clearinghouse (ACH) debits.
  • In addition to banning the novel payment methods, the proposal includes the following other amendments to the TSR:
  • The requirement that sellers and  telemarketers must obtain a consumer's "express verifiable authorization" to bill for a transaction involving payment by a method other than credit or debit card would be amended to make explicit that a verification recording must describe the goods, services, or charitable contributions for which payment authorization is sought.
  • The ban on advance fees for recovery of money lost in previous telemarketing transactions would be expanded to prohibit advance fees for recovering money lost in any kind of transaction.
  • The express written agreement and existing business relationship exceptions for outbound calls to consumers on the Do Not Call Registry would specify that the seller or telemarketer has the burden of demonstrating that the seller has obtained such an agreement or has such a relationship.
  • The business-to-business exemption from the "do not call" prohibition would make clear that it only covers calls to induce a sale to or a contribution from a business itself, and not calls to solicit purchases by or contributions from employees.
  • The prohibition against sharing the cost of Do Not Call Registry fees would make clear that the prohibition applies to persons who sign up to access the registry but, before actually accessing it, sell or transfer the registration for consideration to others wishing to share the cost of access.
  • The prohibition against sellers or telemarketers interfering with a consumer's right to be placed on an entity-specific "do not call" list would be amended to include specific examples of practices it prohibits, such as requiring a person to listen to a sales pitch before accepting a request to be placed on such a list. A related amendment would make clear that a seller or telemarketer will be disqualified from relying on the safe harbor for isolated or inadvertent violations of the "do not call" prohibition if the seller or telemarketer fails to obtain the information needed to honor a consumer's request to be placed on an entity-specific "do not call" list.

Ballard Spahr attorneys are available to advise on compliance with the TSR, as well as other applicable consumer financial services laws. The firm's attorneys can also review internal rules and provide guidance in conducting periodic audits to ensure the TSR is being followed.

- Barbara S. Mishkin


CFPB Issues Guidance on Uniform State Test for Mortgage Loan Originators

The CFPB has issued guidance providing that states may use the Uniform State Test (UST) developed by the Nationwide Mortgage Licensing System and Registry (NMLSR) to satisfy the testing requirement of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act).

The SAFE Act requires state-licensed mortgage loan originators to pass a "qualified written test" developed by the NMLSR. In addition to questions about other subjects, the test must include questions covering state laws and regulations. The CFPB's guidance confirms that this requirement can be satisfied through a UST rather than a separate test for each state covering the state's particular laws and regulations combined with a National Test Component developed by the NMLSR. According to the CFPB, a state can use a UST if "it adequately tests required laws and regulations."

As we have reported, 31 state regulators have already adopted (or announced that they are adopting) the UST. Although these agencies will no longer require a state-specific test component as a prerequisite for mortgage loan originator licensure, many states will continue to require state-specific education. It is expected that eventually nearly every state will adopt the UST.

- John D. Socknat


Second Ruling against NLRB Recess Appointments Raises More Questions for CFPB

A second circuit court ruling invalidating one of President Obama's recess appointments to the National Labor Relations Board could provide additional ammunition to anyone inclined to challenge the validity of his choice to lead the Consumer Financial Protection Bureau. In NLRB v. New Vista Nursing and Rehabilitation, a divided Third Circuit panel invalidated an NLRB order against New Vista. The panel held that Board member Craig Becker, who participated in the NLRB order, had been improperly appointed under the Recess Appointment Clause (RAC) of the Constitution on March 27, 2010, during a two-week Senate adjournment.

Earlier this year, the U.S. Court of Appeals for the D.C. Circuit concluded in Noel Canning v. NLRB that the President acted unconstitutionally when he made three "recess" appointments to the NLRB in 2012. Challenges to NLRB recess appointments are pending in other circuits as well, and the Solicitor General has filed a petition for certiorari in the D.C. Circuit case.

The decisions of both the D.C. Circuit and the Third Circuit panel also have implications for the CFPB, since its director, Richard Cordray, was similarly appointed during a Senate recess. Both decisions increase the likelihood that the U.S. Supreme Court will grant certiorari in Noel Canning, as well as the likelihood that CFPB actions will be challenged based on Mr. Cordray's appointment.

Both decisions hold that the RAC applies only to intersession recesses, not to intrasession recesses. There are, however, some key differences. First, New Vista deals with the recess appointment of a single NLRB member back in 2010, Noel Canning with the recess appointments of three NLRB members in 2012. Second, New Vista's holding is limited to the meaning of "the Recess of the Senate" in the RAC. Noel Canning also held, as a separate basis for invalidation, that the word "happen" requires that the vacancy arise during the intersession recess in which the appointment is made.

Third, while both courts held that "the Recess of the Senate" refers solely to an intersession recess, the reasoning is somewhat different. The D.C. Circuit found it significant that language used by the founding fathers refers to "the" Recess rather than "a" Recess. The court contrasted this with several places where the word "adjournment" appeared in the Constitution, none of which was preceded by the word "the." The Third Circuit, in contrast, found the use of that word inconclusive. In addition, it found other Constitutional provisions such as the "Adjournment Clause" irrelevant to the interpretation of the RAC.

Both courts, however, found significance in what constitutes "the Recess" in the context of a "Session." Both found untenable a construction that sometimes permitted intrasession recesses to count and sometimes not. The Third Circuit in particular noted that nothing in the Constitution specifies "a link between 'the Recess of the Senate' and any particular length of time."

In reaching its decision, the Third Circuit firmly rejected arguments based on a "functional" interpretation of the RAC, 20th-century Attorney General opinions, and presidential practice from the Reagan era to the present. The decision also confirmed that the court believes the question of what constitutes "the Recess" is an appropriate one for it to decide, rather than a political question that it should avoid. It rejected in no uncertain terms "friend of the court" arguments that the court should decline to define the word "Recess" in the RAC as a nonjusticiable political question.

- Keith R. Fisher


Vermont Amends Provision Governing Mortgage Brokers Engaging in Loan Processing or Underwriting

Vermont recently provided an exemption from the requirement that mortgage brokers provide a mortgage broker agreement in instances where the broker acts as an independent contractor loan processor or underwriter for a licensed or exempt mortgage broker or lender. Brokers acting in this capacity are not required to provide a broker agreement so long as their activities fall within the definition of an independent contractor loan processor or underwriter and their activities are limited to processing or underwriting.

Additionally, the broker must be paid a fee solely by the licensed or exempt broker or lender. That fee cannot be paid by the prospective borrower and the broker cannot be paid a commission based on the dollar amount of the loan. Finally, if the broker is acting as an independent contractor on behalf of a mortgage broker, the employing mortgage broker must have already entered into a written mortgage broker agreement with the prospective borrower. This amendment is effective immediately.

Vermont Adds Additional Pre-Licensing Education Requirements for MLOs

An individual seeking licensure as a Vermont MLO is required to complete at least 20 hours of pre-licensing education. Vermont recently amended this requirement to reflect that at least two hours of the pre-licensing education must be in courses covering Vermont law and regulations. This amendment is effective immediately.

West Virginia to Require Registration of Appraisal Management Companies

Beginning on July 1, 2014, appraisal management companies cannot conduct business in West Virginia without having obtained a registration issued by the West Virginia Real Estate Appraiser Licensing and Certification Board. Accordingly, anyone who performs or provides appraisal management services in West Virginia, directly or indirectly, through the use of software products, online, or by any means of communications must obtain a registration by July 1, 2014.

- Matthew Saunig


Copyright © 2013 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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