Legal Alert

Mortgage Banking Update - May 2, 2024

May 2, 2024

May 2 – Read the newsletter below for the latest Mortgage Banking and Consumer Finance industry news, written by Ballard Spahr attorneys. In this issue we discuss the FTC vote to ban noncompete agreements in employee contracts, a final rule that raises salary thresholds and creates overtime eligibility, the launch of the VA Servicing Purchase Program, and much more.


FTC Votes to Ban Noncompete Agreements in Employment Contracts

The Federal Trade Commission (FTC) voted yesterday to issue a final rule that will prevent most employers from enforcing noncompete agreements against workers, with only limited exceptions for existing noncompetes with senior executives and noncompetes made in connection with the bona fide sale of a business. Employers must review existing and prospective employment agreements and revise them to comply with the new rule, which, unless enjoined by a court, will go into effect 120 days after publication in the Federal Register, expected in the coming days. Ballard Spahr’s Labor and Employment and Antitrust and Competition Groups are prepared to answer questions regarding what steps employers should be prepared to take in light of the final rule. Read our full Alert on this update here.

Ballard Spahr is hosting a 30-minute webinar on Thursday, May 2, to discuss the FTC ruling, its exceptions and expected challenges, and how your business can protect itself from unfair competition and federal agency enforcement actions. Register here.

Jason A. Leckerman, Leslie E. John, Denise M. Keyser, Brian D. Pedrow & Karli Lubin Talmo

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Department of Veterans Affairs Enacts Sweeping Loss Mitigation Program Changes

The Department of Veterans Affairs (VA) made significant changes to its loss mitigation program this month, launching its awaited Veterans Affairs Servicing Purchase Program, and implementing a 40-year loan modification term. Details of those developments are provided below.

Extension to 40-Year Loan Modification Term

On April 17, 2024, the VA issued Circular 26-24-8, which extends the available term of its loan modification option. Effective immediately, VA servicers can modify loans to a repayment term of up to 480 months from the due date of the first payment required under the modification (provided the other criteria for reaching an affordable payment are met, pursuant to 38 C.F.R. § 36.4315(a)(1) through (a)(8) and (a)(10) through (a)(14)).

Notably, the Circular itself is characterized as constituting advanced consent from the VA. Servicers therefore do not need to submit a proposed modification to VA for prior approval, if the conditions in the Circular are met. We also note that this extended term aligns the VA with the 40-year modification term permitted by FHA.

Launch of Veteran Affairs Servicing Purchase (VASP) Program

On April 10, 2024, VA announced the launch of its Veterans Affairs Servicing Purchase (VASP) program, which is slated to commence on May 31, 2024. Characterized as a “last-resort tool” for severe financial hardships, VA will use VASP to purchase defaulted VA loans, modify the loans, and then place them in the VA-owned portfolio as direct loans. As we previously reported, in conjunction with VA’s “strongly encouraged” foreclosure moratorium through May 31, 2024, it promised the upcoming launch of the VASP program.

Through VASP, borrowers will have a fixed 2.5% interest rate, and will not be required to directly apply for the program. Instead, servicers will identify eligible borrowers for VASP and submit requests on behalf of borrower, as a component of the VA loss mitigation waterfall.

The program is added as Chapter 9 of the VA Servicer Handbook and describes two types of purchases: Traditional VA Purchase (tVAP) and VA Servicing Purchase (VASP). According to the handbook, a borrower cannot elect to use either tVAP or VASP, and the options are offered to a borrower based on a review of all home retention options available.


Under tVAP, the loan is evaluated by VA (and not the servicer) on a case-by-case basis, and exercised when VA determines the option is in the best interest of both the Veteran and VA. Either the servicer or the VA-assigned technician can initiate a request for tVAP evaluation. When tVAP is initiated by the servicer, the servicer does not review any qualifying loan criteria, and instead, simply refers the loan to VA for review. According to the handbook, VA may consider tVAP after an assumption, in rare cases, if the loan meets the general criteria and the technician determines tVAP is in the VA’s best interest.

According to the handbook, tVAP is considered on a case-by-case basis, however, a loan is not eligible unless the following general requirements are met:

  1. The servicer has made the final decision to foreclose.
  2. If tVAP is completed, the borrower certifies the intent to retain the home and occupy it as their residence.
  3. The borrower overcame the reasons for default and regained the ability to resume monthly payments or will have that ability in the reasonably foreseeable future.
  4. The VA technician determines the borrower and all other obligors on the loan had an acceptable credit history prior to default, and can verify current or future income that is stable and reliable.
  5. The borrower is the current legal owner of record of the property.
  6. The borrower and all other obligors on the loan agree to the modification offered by VA. The modification will include a provision calling the loan due on the sale of the property.
  7. All other lienholders will subordinate their liens.

The Handbook also describes a preliminary review process, a final review and determination process by the VA-assigned technician, and a series of steps for processing and implementing the tVAP option, including the necessary loan modification. We note that the handbook does not elaborate on the terms of the associated loan modification specific to tVAP, and how a determination of ability to make the modified payments is made. In addition, it appears that certain of the criteria for this option are inconsistent, such as the requirements that the servicer has made the final decision to foreclose, and that the borrower overcame the reasons for default and can resume monthly payments.


According to the handbook, VASP is an expedited process through which VA elects to purchase the loan, in conjunction with a loan modification completed by the servicer. Under VASP, the servicer evaluates the loan for eligibility, and if the criteria are met, the servicer completes a series of steps resulting in purchase by VA and modification of the loan.

The eligibility criteria are as follows:

  1. The loan is between 3 and 60 months delinquent on the date submitted to VA. The loan is submitted with either a trial payment plan (“VASP TPP event”), or no trial payment plan (“VASP with No TPP event”).
  2. The property is owner-occupied. We note the handbook provides detail on this requirement for certain situations, such as divorce and active military service.
  3. Neither the borrower nor any other obligor are in active bankruptcy when the loan is submitted. Dismissed or discharged bankruptcies do not preclude VASP review.
  4. The reason for default has been resolved and the borrower has indicated they can resume making scheduled payments.
  5. The borrower and all other obligors have a stable and reliable source of income.
  6. The VA loan is in first lien position, and the property is not encumbered by any liens or judgments that would jeopardize that lien position. In addition, servicers must confirm that HOA charges are current, and if not, include any outstanding charges or assessments in the VASP payoff amount.
  7. The borrower has made at least 6 monthly payments on the loan since origination. If the loan has been modified, the borrower has made at least 6 monthly payments since the most recent modification.
  8. The borrower is the current legal owner of record on the property. Additional detail is provided regarding required signatories on the modification documents, scenarios of divorce, necessary assumptions, and occupancy requirements, related to ownership of the property.
  9. The borrower and all other obligors agree to the terms of the VASP modification.

Servicers are required to evaluate borrowers for these criteria, as part of the overall loss mitigation evaluation under the existing VA Home Retention Waterfall. VASP is the final home retention option in that loss mitigation waterfall.

The handbook further states that VA will conduct an automated, preliminary review of the qualifying loan criteria through VALERI, and that oversight will be conducted through a Post Audit process after the VASP payment to the servicer by VA is made and certified.

If the loan qualifies for VASP, modified terms can be offered to the borrower consisting of the following:

  • Loans are modified to a fixed rate of 2.5%, with either a 360 or 480 month term.
  • The modification is first calculated for a new payment over 360 months. If that does not result in a 20% reduction in the principal and interest portion of the monthly payment, then the term can be extended to 480 months. If the borrower cannot afford the payment calculated for the 480 month term, the servicer can proceed to liquidation options.
  • A Trial Payment Plan (TPP) is required under either of the following circumstances: (1) the loan is 24 months or more delinquent; or (2) the principal and interest portion of the monthly payment is not reduced by at least 20%.
  • If the borrower fails a TPP, the loan may be evaluated for VASP again in the future. If the borrower fails 3 TPPs during a single default episode, the loan no longer qualifies for VASP.

If a TPP is appropriate, the terms must be offered to the borrower within 15 days of the waterfall evaluation. TPPs must meet the following criteria:

  1. TPPs cover 3 payments.
  2. Servicers must complete an escrow analysis prior to establishing the TPP.
  3. TPP payments are equal to the anticipated monthly payment required after the VASP modification is complete.
  4. If the TPP is offered on or before the 15th day of the month, the first TPP payment will be due on day 1 of the next calendar month. If the TPP is offered after the 15th day of the month, the first TPP payment is due on day 1 of the month after the next calendar month. The remaining 2 payments are due on the same day for the next two consecutive months.
  5. The borrower must make each of the 3 payments on or before the last day of the month in which the payment is due.

Once the TPP is complete, the servicer can submit a request to VA for VASP payment. If the TPP is failed, the servicer can proceed with delinquent loan servicing.

The handbook provides additional detail regarding the process for submitting the VASP options to VA for processing, reporting to VA, and the initiation and completion of the VASP payment process through VA. After the VASP payment from VA has been completed and certified, the servicer can prepare the appropriate loan modification documents, and send them to the necessary parties for execution.

Reid F. Herlihy 

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This Week’s Podcast Episode: A Close Look at the Consumer Financial Protection Bureau’s Final Credit Card Rate Fee Rule: Have Cardholders Been Dealt a Winning or Losing Hand?

Our special guest is Andrew Nigrinis of Legal Economics LLC and former CFPB enforcement economist. The CFPB’s final credit card late fee rule lowers the safe harbor late fee amount that card issuers other than “smaller card issuers” can charge to $8. We first discuss how the final rule differs from the proposed rule and the existing rule, who are “smaller issuers” not subject to the lower safe harbor amount, and the changes made by the final rule for larger issuers. We then look at issuers’ ability to determine late fees based on their costs, permissible fees other than late fees, the CFPB’s economic analysis underlying the final rule, and the final rule’s likely impact on issuers and cardholders. We conclude with a discussion of the Texas lawsuit challenging the final rule and the key arguments for invalidating the rule.

Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, Alan Kaplinsky, leads the discussion, joined by Partners in the group, John Culhane and Ronald Vaske, and Of Counsel Kristen Larson.

To listen to the episode, click here.

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DOL Issues Final Rule Increasing Compensation Thresholds for FLSA Overtime Exemptions

On April 23, 2024, the U.S. Department of Labor (DOL) published its final rule, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees,” which raises the salary thresholds for “white-collar” and highly compensated employees, rendering millions of employees eligible for overtime. The final rule phases in the new thresholds beginning July 1, 2024.

The FLSA and the Executive, Administrative, Professional (EAP) Exemption

The FLSA requires employers to pay workers overtime at a rate of 1.5 times the employee’s regular rate of pay for all hours worked in excess of 40 per week. Section 13(a)(1) of the FLSA carves out an exemption to overtime pay for employees who are “in a bona fide executive, administrative, or professional capacity” (EAP), which generally applies to “white-collar” employees. However, in order to qualify for the EAP exemption: (1) the employee must be paid a predetermined and fixed salary not subject to reduction (the salary basis test); (2) the amount of salary paid must meet a minimum specified amount (the salary level test); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties defined by the regulations (the duties test).

The new rule significantly increases the annual salary threshold (currently $35,568) in a phased approach:

  • Effective July 1, 2024, the salary threshold will increase to $43,888 annually/$844 per week.
  • Effective January 1, 2025, the salary threshold will increase to $58,656 annually/$1,128 per week.

The Highly Compensated Employee (HCE) Exemption

The final rule also increases the annual earnings threshold for the highly compensated employee (HCE) exemption (currently $107,432) to $151,164 for full-time salaried workers. The HCE exemption does not require a duties test analysis because the high compensation serves as a strong indicator of exempt status. The DOL will increase the HCE threshold in two phases:

  • Effective July 1, 2024, the HCE threshold will increase to $132,964 annually.
  • Effective January 1, 2025, the HCE threshold will increase to $151,164 annually.

Future Increases

The EAP and HCE thresholds will automatically increase every three years beginning on July 1, 2027.

Preparing for Change

It is likely the rule will face legal challenges and scrutiny, which may delay implementation. The DOL proposed a similar rule increasing the overtime exemption threshold in 2016. The rule was challenged shortly after publication, and later invalidated by a federal judge. However, employers should prepare for the final rule to take effect on July 1, 2024. Employers should be proactive and review current employee classifications to identify the impact on their workforce, adjust or redefine work duties, and reclassify employees as necessary.

Ballard Spahr’s Labor and Employment Group frequently advises employers on issues related to worker misclassification and the development of wage and hour policies. We also regularly defend employers in wage and hour litigation and DOL investigations. Please contact us if we can assist you with these matters.

Shannon D. Farmer & Katherine E. Rodriguez

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Treasury Asks the 11th Circuit to Uphold the CTA and Congressional Authority

We previously blogged on the lawsuit filed by the National Small Business Association (NSBA) and one of its individual members, which sought to challenge the constitutionality of the Corporate Transparency Act (“CTA”). Most recently, we analyzed the March 1 decision in that case by the Northern District of Alabama court, finding the CTA to be unconstitutional and enjoining the United States government from enforcing it against the plaintiffs.

The government sought an appeal before the Eleventh Circuit, and last Monday the Treasury Department filed its appellate brief. Before the District Court, the government argued that Congress had authority to enact the CTA under three distinct enumerated powers: (1) oversight of foreign affairs and national security; (2) its Commerce Clause-derived regulatory authority; and (3) its power to tax. The government’s brief on appeal focuses primarily on regulation of commercial activity, and its value as a component of the federal focus on combatting financial crime.

As we previously discussed, the District Court’s Opinion found in part that the CTA was constitutionally defective because it (according to the Court) attempted to regulate the act of incorporation, a purview of the individual States, in the name of national security. The District Court noted, however, that the CTA presumably would pass constitutional muster were its applicability limited to actual engagement in commercial activity by an incorporating entity (because such a limitation would serve as a “jurisdictional hook” tying the regulation to the flow of interstate commerce).

The government highlights this conclusion as the first of two “principal errors” underpinning the district court’s ruling. It notes that, contra the District Court’s assertion, the CTA does not regulate the act of incorporation: it neither preempts state law on incorporation, nor limits the class of entities that can be incorporated, nor alters the means by which incorporation is accomplished, nor requires incorporation of any entity. Rather, the government argues, the CTA uses incorporation as a proxy for the category of entities that can engage in economic transactions in their own name and thus can potentially be used as vehicles for financial crimes without disclosing their owners.

The government further highlights provisions that cut against the District Court’s finding:

  • that reporting entities must keep FinCEN updated as to their ownership on an ongoing basis, rather than merely upon incorporation (31 U.S.C. Section 5336(b)(1)(D));
  • that domestically-owned “inactive” companies are exempt (31 U.S.C. Section 5336(a)(11)(B)(xxiii)); and
  • that nonprofits, political organizations, and some trusts are also exempt (31 U.S.C. Section 5336(A)(11)(B)(xix).

The government seized on the Court’s admission that the CTA would “pass constitutional muster” if limited to entities actually engaging in commercial activity, arguing that the difference between the Court’s “acceptable” version of the statute and the actual CTA would not be a meaningful one – but also arguing that because incorporated non-exempt entities can engage in commercial activity, their ownership information should be available if and when they do.

The second “principal error” in the District Court’s Opinion, according to the government, was the determination that the CTA is unrelated to the federal aim of curbing financial crime. The District Court deemed the CTA “far from essential” in light of the existence of FinCEN’s 2016 Customer Due Diligence rule (“CDD Rule”), which requires some (but not all) financial institutions to retain beneficial ownership information about some (but not all) entity customers – which the District Court characterized as “nearly identical information” to that required by the CTA.

The government took issue with both the equivalency drawn between the two regulations and the analytical standard to which the Court held the CTA (i.e. whether it was “absolutely necessary” to achieve the government’s desired policy aim). First, the government noted that the CDD Rule solicited information from only a subset of the entities covered by the CTA – that is, those entities choosing to bank with covered financial institutions – and that information was reported to only those financial institutions and not to the government. Thus, the beneficial ownership information reported to financial institutions under the CDD Rule is not centralized or immediately available to federal law enforcement. Second, the government noted (citing U.S. v. Comstock, 560 U.S. 126 (2010)) that the Necessary and Proper Clause gives Congress the power to enact statues that are “convenient, or useful” in helping it exercise its authority. And the government pointed to language in the CTA requiring the Treasury Department to rescind some provisions of the CDD Rule and revise others, specifically to harmonize their regulatory provisions (FinCEN has yet to issue these proposed regulations).

As noted supra, the government spent the lion’s share of its word count on Congress’ authority under the Commerce Clause – devoting only a paragraph to the taxing power and a page and a half to foreign policy and national security authority. This focused approach seems designed to hone in on the District Court’s “principal errors” and avoid getting sidetracked, whether in debates on the national security bureaucratic regime or in justifying reliance on taxing authority for what the government concedes is not actually a tax.

With a statutory compliance deadline of January 1, 2025 for existing entities covered by the CTA, and with the CTA already applicable to newly-formed covered entities, time is of the essence in clarifying whether and to whom the CTA should apply going forward. Amicus briefs have been filed, and a joint motion to expedite briefing and oral argument has been granted. The appellees’ response brief is due on May 13, 2024; the government’s reply brief, if any, is due on June 3, 2024.

We will continue to follow developments in this case.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

Brian N. Kearney

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Washington State “True Lender” Law Signed, Effective June 6, 2024

After its passage by the Washington state legislature, Substitute Senate Bill (SSB) 6025, the Washington “predatory loan prevention act”, was approved by Governor Jay Inslee on March 25, 2024, with an effective date of June 6, 2024.

Unlike the original version of this act proposed in Senate Bill 6025 and its identical companion bill, House Bill 1874, SSB 6025 as enacted does not include language expanding the definition of “loan” under the Washington Consumer Loan Act. The definition of “loan” remains “a sum of money lent at interest or for a fee or other charge and includes both open-end and closed-end loan transactions.” Rev. Code Wash. § 31.04.015 (14).

However, the originally proposed amendments to the Washington Consumer Loan Act discussed in our prior blog, adding “anti-evasion” and true lender recharacterization provisions, generally remain in place in the law as enacted. New subsections (2) and (3) of Rev. Code Wash. § 31.04.025 provide:

  • (2)A person may not engage in any device, subterfuge, or pretense to evade the requirements of this chapter including, but not limited to: Making loans disguised as personal property sale and leaseback transactions; disguising loan proceeds as a cash rebate for the pretextual installment sale of goods or services; or making, offering, assisting, or arranging a debtor to obtain a loan with a greater rate of interest, consideration, or charge than permitted by this chapter through any method, including mail, telephone, internet, or any electronic means regardless of whether the person has a physical location in the state.
  • (3)If a loan exceeds the rate permitted under this chapter, a person is a lender making a loan subject to the requirements of this chapter notwithstanding the fact that the person purports to act as an agent, service provider, or in another capacity for another person that is exempt from this chapter, if among other things:
    1. The person holds, acquires, or maintains, directly or indirectly, the predominant economic interest in the loan; or
    2. The totality of the circumstances indicate that the person is the lender, and the transaction is structured to evade the requirements of this chapter.

Rev. Code Wash. § 31.04.027, which lists offenses that constitute a violation of the Consumer Loan Act by a “licensee, its officers, directors, employees, or independent contractors, or any other person subject to this chapter”, is amended by the addition of subsection (1)(o), which states it is a violation to

  1. Engage in any device, subterfuge, or pretense to evade the requirements of this chapter including, but not limited to, making, offering, or assisting a borrower to obtain a loan with a greater rate of interest, consideration, or charge than is permitted by this chapter.

The new predatory loan prevention act expands the Consumer Loan Act’s coverage to include any loan made to a “person physically located” in Washington, in addition to the existing coverage of any loan made to a “resident” of Washington, “by a licensee, or persons subject to this chapter”.

The amendments also establish that except for residential mortgage loans, a loan made by a person violating the licensing requirement of the Act is null, void, uncollectable, and unenforceable. Rev. Code Wash. § 31.04.035, as amended, provides, in pertinent part:

  • (1)No person may engage in any activity subject to this chapter without first obtaining and maintaining a license in accordance with this chapter.
  • (2)If a transaction violates subsection (1) of this section, any:
  1. Non third-party fees charged in connection with the origination of the residential mortgage loan must be refunded to the borrower, excluding interest charges; and
  2. Loan that is not a residential mortgage loan is null, void, uncollectable, and unenforceable.

Mindy Harris, John L. Culhane, Jr. & Ronald K. Vaske

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SCOTUS Lowered the Threshold of Harm Required for Title VII Discrimination Claims

Last week, on April 17, 2024, the US Supreme Court unanimously held in Muldrow v. City of St. Louis, Missouri, et al., that an employee challenging a job transfer under Title VII of the Civil Rights Act of 1964 (Title VII) needs to show they suffered “some harm” under the terms of their employment, but the harm need not be “material,” “substantial,” or “serious.” The decision resolves a circuit split over the degree of harm needed for a Title VII claim, generally lowering the bar and making it easier to bring a claim.

Title VII Background

Title VII is the federal antidiscrimination statute governing private employers with 15 or more employees. Title VII protects employees and job applicants from employment discrimination with respect to “compensation, terms, conditions, or privileges of employment,” on the basis of race, color, religion, sex, or national origin.

Plaintiffs must prove that they suffered an adverse employment action to pursue a Title VII discrimination claim. Circuit Courts have been split as to the level of harm required under an “adverse employment action” for Title VII purposes. For example, the Second Circuit requires a showing of more disruption than a mere inconvenience or an alteration of job responsibilities, including termination or demotion. The Eleventh Circuit considers an employment action as adverse when it results in some tangible, negative effect and meets a threshold level of substantiality. However, even with the circuit split over the degree of harm, all courts agreed that major decisions, such as refusing to hire, fire, demoting, or failing to promote all meet the requirement of an adverse employment action.

In Muldrow, which involved a job transfer without loss of pay or rank, the Supreme Court resolved the circuit split as to the level of harm required to establish a Title VII violation.

Factual and Procedural Background

Sergeant Jatonya Clayborn Muldrow was a plainclothes officer in the St. Louis Police Department’s specialized Intelligence Division from 2008 through 2017. In 2017, the new Intelligence Division commander asked to transfer Muldrow out of the unit and replace her with a male police officer. The Department approved the request and reassigned Muldrow to a uniformed job elsewhere in the Department. Although Muldrow’s rank and pay remained the same in the new position, her responsibilities, perks and schedule did not. Muldrow no longer worked with high-ranking officials in the Intelligence Division; instead, she supervised the day-to-day activities of neighborhood patrol officers. She also lost access to an unmarked take-home vehicle and had a less regular schedule involving weekend shifts.

Muldrow brought a Title VII suit challenging the transfer, alleging the City had discriminated against her based on her sex with respect to the terms and conditions of her employment. The District Court granted the City’s summary judgment motion, and the Court of Appeals for the Eighth Circuit affirmed, holding that Muldrow had to – but could not – show that the transfer caused her a “materially significant disadvantage” such as a “diminution to her title, salary, or benefits” and instead caused “only minor changes in working conditions.” The Eighth Circuit maintained that the changes in her job responsibilities were “insufficient” to support a Title VII claim.

Supreme Court Decision

The Supreme Court first analyzed the text of Title VII, stating that the statutory language requires Muldrow to show the transfer brought about some “disadvantageous” change in an employment term or condition. In this case, the parties agreed that her transfer was a change in her employment terms or conditions. The words “discriminate against” means to treat worse, here based on sex, with respect to an employment term or condition. The “terms or conditions” phrase is not used in the narrow contractual sense and covers more than the economic or tangible. Thus, to make out a Title VII discrimination claim, according to the Court, an employee must show some harm respecting an identifiable term or condition of employment. The employee does not have to show that the harm incurred was significant, serious, or substantial, or any similar adjective suggesting that the disadvantage to the employee must exceed a heightened bar. To demand “significance” is to add words to the statute Congress enacted.

The Court also stated that the anti-discrimination provision simply “seeks a workplace where individuals are not discriminated against” because of traits like race and sex. The provision flatly “prevents injury to individuals based on” status without distinguishing between significant and less significant harms. Therefore, the Court of Appeals applied the wrong standard – requiring Muldrow to show that the allegedly discriminatory transfer out of the Intelligence Division produced a significant employment disadvantage – instead, she only needs to “show some injury respecting her employment terms or conditions.” The transfer must have left her worse off, but not significantly so.

Here, Muldrow was moved from a plainclothes job in a prestigious specialized division, which provided her with substantial responsibility over priority investigations and frequent opportunity to work with police commanders, to a uniformed job supervising one district’s patrol officers, where she was less involved in high-visibility matters and primarily performed administrative work. Her schedule also became less regular, requiring her to work weekends, and she lost her take-home car. In the Court’s view, if these allegations are proved, she was left worse off several times over. It does not matter that Muldrow’s rank and pay remained the same or that she could still advance to other jobs. Title VII prohibits making a transfer, based on sex, with the consequences Mulrow alleged. For these reasons, the Court remanded the case for further proceedings consistent with its articulation of the requisite harm standard.

Implications for Employers

Although the Muldrow decision involved a sex discrimination claim based on a job transfer, the decision, on its face, did not limit the holding to transfer cases. It is likely this decision will be applied to Title VII claims outside the context of alleged discriminatory transfers, including in the context of reverse discrimination claims challenging DEI initiatives as long as they entail some degree of alleged harm related to a term or condition of employment – without distinguishing between significant and less significant harms. Under this lower threshold, initiatives that may have escaped challenge as not involving a substantial or material impact on terms and conditions of employment now may be challenged more readily.

Ballard Spahr’s Labor and Employment Group regularly advises clients on compliance with anti-discrimination laws, including ensuring that DEI programs and workplace policies and procedures are current and compliant.

Nalee Xiong & Brian D. Pedrow

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Further Developments in Colorado Rate Exportation Litigation: Colorado AG Files Opposition Brief and FDIC Tries to “Opt Out” of Its Own Interpretations of DIDMCA Section 525

As expected, the Colorado Attorney General and Colorado Uniform Consumer Credit Code Administrator filed their responsive brief in opposition to the plaintiffs’ motion for preliminary injunction filed earlier this month in federal district court in Colorado. As explained in our earlier blog, in NAIB et al. v. Weiser et al., three financial services industry trade groups filed a lawsuit asking the court to strike down recent Colorado legislation that opts out of a federal law that grants FDIC-insured state banks (as well as insured thrifts and credit unions) the same interest rate authority enjoyed by their national bank counterparts.

In an unexpected turn of events, the FDIC filed an amicus brief siding with the State of Colorado’s position.

The law at issue is the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA). Section 521 of DIDMCA applies to insured state banks and tracks Section 85 of the National Bank Act, the statute establishing interest rate authority for national banks, generally allowing banks to charge interest at the rate allowed in the state of their location or a floating rate based on a prevailing Federal Reserve discount rate, whichever is higher. In a unanimous decision issued just 15 months prior to DIDMCA’s enactment, the U.S. Supreme Court held that Section 85 allows national banks to “export” the rate authorized in states where they are located on loans made to borrowers in other states. Subsequent case law has construed DIDMCA Section 521 in pari materia with Section 85, thereby granting insured state banks the same rate exportation authority as national banks. However, Section 525 of DIDMCA allows states to enact laws opting out of Section 521’s preemptive effect with respect to loans “made in” the enacting state. The ultimate issue before the federal court in Colorado is, therefore, where a loan is made in the case of loans to Colorado residents by insured state banks located in other states.

The briefs filed by the state of Colorado and FDIC counter the industry groups’ argument that these loans should be deemed made in the bank’s home state or the state where key lending functions occur, rather than in the borrower’s state. In particular, the briefs are dismissive of the plaintiffs’ key lending functions approach, arguing that it ignores the ordinary meaning of “made in” and improperly conflates existing FDIC interpretations of where a bank is located with where a loan is made. The briefs also refute the plaintiffs’ dormant Commerce Clause and Supremacy Clause arguments.

Finally, the state’s brief also argues that the plaintiffs lack standing and the case is not yet ripe for adjudication.

Both briefs fail to fully analyze Congress’ purpose in enacting interest rate preemption and related opt-out authority under DIDMCA. Further, contrary to assertions set forth in its brief, the FDIC appears to be suddenly renouncing the reasoned position it has publicly taken for more than four decades. We will provide a more detailed discussion of the arguments made by the Colorado defendants and FDIC (and the authorities they ignored) in the coming days and continue to monitor and report developments in this case as they arise.

A hearing on the motion for preliminary injunction is set for May 16.

On June 6, 2024, from 1:00 p.m. to 2:30 p.m. ET, we will be holding a webinar “Interest Rate Exportation Under Attack,” in which we will be covering this topic in great detail. Click here to register.

Ronald K. Vaske, John L. Culhane, Jr., Kristen E. Larson & Alan S. Kaplinsky

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CFPB Takes Action Against BloomTech, Inc., for ISAs That Violate TILA, UDAAP, and the FTC’s Holder Rule

On April 17, the CFPB issued a consent order to a for-profit training school alleging numerous violations of law related to its use if income share agreements (ISAs). According to the Bureau, BloomTech, Inc. (BloomTech) and the company’s founder and CEO engaged in deceptive and abusive acts or practices, violated the Truth in Lending Act (“TILA”) and Regulation Z, and violated the Federal Trade Commission’s (“FTC”) Holder Rule. This may be the first time the CFPB has cited a violation of the Holder Rule in an enforcement action.

BloomTech is a private vocational school that offers training programs to students in web development, data science, and backend engineering. According to the CFPB, these training courses are short-term programs that last six to nine months and cost between $20,000 and $30,000. BloomTech offered ISAs as a financing option whereby students agreed to pay a percentage of their income, so long as they had a qualifying job with an income of at least $50,000 after graduation. In total, BloomTech originated more than 11,000 ISAs.


The CFPB’s order asserts that BloomTech made the following misrepresentations, which were deceptive and likely to mislead consumers:

  • In connection with the ISAs, BloomTech represented that the ISAs were not loans or debt, carried no finance charge, and were risk-free. Advertisements included phrases such as “graduate risk-free” and “no loans, no debt.” However, according to the Bureau, the ISAs included a finance charge of $4,000 for students that completed repayment, and students that defaulted risked negative credit reporting;
  • BloomTech advertised false or misleading job-placement statistics and placement at large corporations that rarely hired its students; and
  • BloomTech advertised that the company would not be paid until the student was paid through a job-placement, but BloomTech was paid when it immediately sold the ISAs to investors.

In addition, the CFPB alleges that BloomTech engaged in abusive acts or practices because it took unreasonable advantage of students who relied on the representations related to job-placement, curriculum, instructors, and promised financial outcomes.

Holder Rule Violations

The CFPB asserts that BloomTech violated the FTC’s Holder Rule, as the ISAs failed to include the required notice. The CFPB can enforce the FTC’s Holder Rule under sections 1061(b)(5)(B)(ii) and 1063(i) of the Dodd Frank Act “with respect to an unfair or deceptive act or practice to the extent that such rule applies to a covered person or service provider with respect to the offering or provision of a consumer financial product or service.” The rule applies to sellers of goods or services who accept the proceeds of a purchase money loan or accept a consumer credit contract in connection with the sale of their goods or services and requires that a provision be included in the contract (even where such contract is not prepared by the seller) which provides that any holder of the contract is subject to all claims and defenses that could be asserted against the seller of goods or services. The consent order asserts that the ISAs are credit sales subject to the Holder Rule and that BloomTech violated the rule because the ISAs did not include the rule’s required contractual provision.

In October 2023, the FTC and New Jersey Attorney General announced a settlement against Sollers College, a for-profit college in New Jersey, for, among other things, failing to include the Holder Rule notice in its ISAs and for violating Section 5 of the FTC Act. Similar to BloomTech, Sollers College offered ISAs for students to finance their education in various private educational programs by agreeing to pay the for-profit college a share of their future income. In the Better Future Forward consent order, the CFPB concluded that an ISA is an extension of credit under the Consumer Financial Protection Act and TILA. This consent order serves as a reminder of the Bureau’s broad authority, including its authority to enforce certain FTC trade regulations.

TILA/Regulation Z Violations

The CFPB asserts that the ISAs failed to include required TILA disclosures, including the amount financed, the finance charge, and the annual percentage rate. Although the contingent nature of ISAs raises significant questions as to the merits of this position, the CFPB has viewed ISAs as extensions of consumer credit and “private education loans” under TILA in the past, as noted above. The CFPB has also joined with California Department of Financial Protection and Innovation (“DFPI”) and ten state attorneys general in filing a lawsuit against other ISA providers alleging that the companies violated the CFPA, TILA, and the Fair Debt Collection Practices Act (“FDCPA”). Some states have also categorized educational ISAs as student loans. For example, the California DFPI entered into an agreement with Meratas, Inc., Inc. finding that ISAs made solely for the purpose of financing a postsecondary education are student loans under the California Student Loan Servicing Act.

Under the terms of the consent order, BloomTech is permanently restrained from directly or indirectly engaging in any consumer lending activities. In addition, BloomTech must rescind certain ISAs, provide TILA disclosures, and return payments to consumers. The CFPB assessed a $64,235 civil money penalty against BloomTech, and a $100,000 civil money penalty against its CEO and owner.

John L. Culhane, Jr., Michael R. Guerrero, Kaley N. Schafer, & Brian Turetsky

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CFPB Files Cross-Motion for Summary Judgment in Texas Small Business Lending Rule Lawsuit

The CFPB (or “Bureau”) filed a cross-motion for summary judgment in the lawsuit regarding the small business lending data collection and reporting rule, also known as the 1071 rule based on the Dodd-Frank section that requires the CFPB to adopt the rule (the “Rule”). Last month, the plaintiffs and intervenors in the lawsuit challenging the Rule filed a consolidated motion for summary judgment. In their summary judgment motion, the plaintiffs and intervenors requested summary judgment on their non-constitutional claims, and made substantive arguments regarding the CFPB’s authority to implement the Rule as adopted by the CFPB. Plaintiffs and intervenors do not seek summary judgment on their claim that the Rule is invalid because the CFPB’s funding structure is unconstitutional, but have indicated that they will seek leave to amend their filings consistent with any applicable direction provided by the Supreme Court when it rules in CFSA v. CFPB. Currently, the CFPB is enjoined from enforcing the Rule “pending the Supreme Court’s reversal of [Community Financial Services Association of America Ltd. v. CFPB], a trial on the merits of this action, or until further order of this Court.” As explained in our previous blog on the case, the Texas court extended its preliminary injunction to apply on a nationwide basis. The order extending the preliminary injunction was entered following the intervention of several additional plaintiffs in the lawsuit. In its reply and cross-motion for summary judgment, the CFPB defends its authority to implement the Rule and the validity of its cost-benefit analysis.

In its cross-motion, the CFPB makes the following arguments:

  • The CFPB’s authority to include additional data points was expressly mandated by Dodd-Frank. In addition to gathering information about ownership and other data points listed in the Act, Section 1071 authorized the Bureau to identify additional data points “that the Bureau determines would aid in fulfilling the purposes of” Section 1071. The CFPB argues that the data points included in the Rule are either expressly listed in the Act or were added to further the purpose of the Act, and were thus authorized by Congress. The CFPB also addresses plaintiffs’ argument that the expanded data points are not authorized because they are not information already obtained by lenders during the application process. The CFPB argues that there is no limitation within the text of the Act that would limit the data collection and reporting to information already obtained by lenders, and in fact, the majority of the data points listed in the Act for collection and reporting are not data already obtained by lenders.
  • The CFPB acted reasonably in including the additional data points. The Bureau argues that the plaintiffs and intervenors did not make substantive challenges to any of the individual data points or make a showing that any of the data points is unreasonable. The Bureau noted that in its rulemaking process, it described the reasons for adding each data point and explained how each piece of data “would aid in fulfilling the statutory purposes.” As an example, the CFPB notes that additional data points include information about pricing because it “offers useful insights into underwriting disparities,” and collection of this information facilitates enforcement of fair lending laws. The CFPB also argues that the plaintiffs “disagree that any collection of small business data is justified,” which is a challenge to the Act itself, not the Rule. The CFPB challenges the plaintiffs’ argument that the Rule’s data collection requirements that are similar to Home Mortgage Disclosure Act (HMDA) data collection requirements for residential mortgage loans are inappropriate in the small business lending industry because small business lending processes are “non-standardized” and “complex.” The Bureau argues that this assertion is an attack on the Act, and not an argument to be made against the Rule, which only implements the Act. Further, the Bureau argues the plaintiffs’ assertion of the potential for low response rates on the demographic data points is no reason to remove any of the data points, especially considering that the Rule requires financial institutions to maintain procedures “reasonably designed to obtain responses,” which can be assessed and improved if necessary.
  • The CFPB reasonably considered the costs and benefits of the Rule. The CFPB argues that it considered feedback from financial institutions and small businesses with regard to the cost to comply with the Rule. The CFPB argues that it included numerous exceptions from the Rule in order to lighten the expected cost of compliance, especially for smaller entities. The Bureau notes that in an attempt to alleviate potential burden, it raised the small business loan volume threshold at which financial institutions would be covered. The Bureau adopted a threshold of at least 100 covered transactions in each of the two preceding calendar years. The Bureau also convened a SBREFA panel, after which it conducted an analysis of potential costs for financial institutions, varying the model for differences in size and complexity. The CFPB argues it is unlikely that the Rule will lead to a decrease in availability of credit to small businesses, as asserted by the plaintiffs. The CFPB stated that financial institutions will continue to receive revenue from small business lending, such that the cost of compliance with the Rule will not be prohibitive, but “have only a limited impact on the availability and affordability of small business credit.” The Bureau explains that the main benefit of the Rule is that “it will create the most comprehensive dataset on credit availability for small businesses, which will provide important insight into lending patterns in this market.” The CFPB did not attempt to quantify this benefit. Additionally, the CFPB argues that the plaintiffs failed to show that the CFPB didn’t consider any specific data regarding costs and that the plaintiffs simply disagree with the CFPB’s determinations.

The plaintiffs’ response and reply is due by May 10, 2024, and CFPB’s reply to plaintiffs is due by June 7, 2024.

As a reminder, the Rule is also being challenged in two other cases filed in federal district court, one in Kentucky and one in Florida. The Kentucky case has been stayed until the Supreme Court makes a decision in CFSA v. CFPB. The posture of the Florida case is similar to that of the Texas case, in that the plaintiffs have filed a motion for summary judgment and the CFPB has filed response and a cross-motion for summary judgment. Response to the CFPB’s cross-motion in the Florida case is due by April 26, 2024. All CFPB rule challenges will be affected by any ruling made by the Supreme Court in CFSA v. CFPB regarding the constitutionality of the CFPB’s funding structure. On October 3, 2023, the U.S. Supreme Court heard oral arguments in the case, and we will continue to monitor developments and provide updates through both the Consumer Finance Monitor blog and podcast. A ruling is not expected until as late as June 2024.

We note, Dodd-Frank also expanded the data reporting requirements under HMDA by specifying additional data categories and authorizing the CFPB to require the reporting of “such other information as the Bureau may require.” In October 2015, the CFPB issued a final rule to implement the HMDA amendments, and pursuant to such authority added many data collection categories beyond those specified in Dodd-Frank. Although industry commenters objected to the significant expansion of data reporting requirements, the final rule mainly became effective in January 2018. The inclusion of the additional data collection categories was not challenged in court.

Loran Kilson, Richard J. Andreano, Jr., John L. Culhane, Jr. & Alan S. Kaplinsky

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FinCEN Releases Updated BOI FAQs

On April 18, the Financial Crimes Enforcement Network (“FinCEN”) released updated FAQs related to the Corporate Transparency Act (“CTA”) and Beneficial Ownership Information (“BOI”) Rule. The last round of updates occurred in January 2024. As we previously have reported, the FAQs do not create any new requirements and are intended to clarify the regulation. In total, there are 16 new FAQs and 2 updated FAQs. We have included brief summaries below.

One of the main take-aways is that FinCEN does not expect to provide access to CTA BOI to financial institutions (“FIs”) until 2025. In the interim, FinCEN will issue the long-awaited proposed regulations seeking to align the CTA with the Customer Due Diligence (“CDD”) Rule already applicable to certain FIs, including banks, which requires FIs to obtain BOI from covered entity customers opening accounts. This delay is likely very frustrating for FIs seeking to comply with the CTA and adjust their existing systems for complying with the CDD Rule.

Initial Reports

The FAQs address initial filing requirements for companies created or registered before January 1, 2024 that will lose their exempt status between January 1, 2024 and January 1, 2025. The BOI Rule requires any company that loses its exempt status to file a BOI report within 30 calendar days of losing the exempt status. The BOI Rule also allows any reporting company created or registered before January 1, 2024 to file an initial report before January 1, 2025.

The new FAQs clarify that reporting companies that were created or registered before January 1, 2024 and that lose their exempt status prior to January 1, 2025 have the longer of the following timeframes in which to file an initial report: (1) the remaining days left in the one-year filing period for existing companies (i.e., January 1, 2025); or (2) the 30-calendar day period for companies that lose their exempt status.

The FAQs provide the following example:

If an existing reporting company ceases to be exempt on February 1, 2024, the company will have until January 1, 2025, to file its initial BOI report. If the company ceases to be exempt on December 15, 2024, the company will have until January 14, 2025, to file its initial BOI report.

This clarification may assist existing companies that lose their exempt status in late December 2024 from scrambling to file their initial report by January 1, 2025.

Reporting Companies

Additional FAQs address whether reporting requirements apply to S-corporations and homeowners associations (“HOA”). The FAQs clarify that depending on the HOA’s corporate structure and whether it qualifies for certain exemptions, it may be a reporting company. As an example, the FAQs provide that an incorporated HOA that is designated as a Section 501(c)(4) social welfare organization would not be a reporting company.

The FAQs also clarify whether domestic corporations or limited liability companies (“LLCs”) that are not created by the filing of a document with a secretary of state are reporting companies. FinCEN clarifies that the definition of a reporting company includes corporations and LLCs, based on the understanding that both are generally created by the filing of a document with the secretary of state or similar office. The FAQs indicate that in unusual circumstances where a domestic corporation or LLC is created, but not by the filing of a document with the secretary of state or similar office, the entity is not a reporting company.

Reporting Company Exemptions

A new FAQ clarifies the application of the large reporting company exemption when the size of the reporting company fluctuates. The BOI Rule provides an exemption for large operating companies that have more than 20 full-time employees in the United States, have filed a Federal income tax or information return in the United States in the previous year demonstrating more than $5,000,000 in gross receipts or sales, and have an operating presence at a physical office in the United States. FinCEN has clarified that a large operating company still must file a BOI report where the size of the reporting company fluctuates above and below the exemption threshold within the reporting period.

Beneficial Owners

Several FAQs address beneficial owners under certain circumstances, including the beneficial owner of an HOA. A beneficial owner of an HOA is any individual who directly or indirectly exercises substantial control over a reporting company, or owns or controls at least 25% of the ownership interests of a reporting company. At least one individual must meet one of the following criteria to exercise “substantial control” over the HOA:

  • The individual is a senior officer;
  • The individual has authority to appoint or remove certain officers or a majority of directors of the HOA;
  • The individual is an important decision-maker; or
  • The individual has any other form of substantial control over the HOA.

The FAQs reiterate who qualifies as a beneficial owner when a trust owns a reporting company. One new FAQ addresses when to report a corporate trustee as a beneficial owner. The FAQs indicate that the reporting company should determine whether any of the corporate trustees’ individual beneficial owners directly own or control at least 25% of the ownership interests of the reporting company through their ownership interests in the corporate trustee. The FAQs also indicate that the reporting company may, but is not required to, report the name of the corporate trustee in lieu of the individual beneficial owners only if all of the following three conditions are met:

  • The corporate trustee is an entity that is exempt from the reporting requirements;
  • The individual beneficial owner owns or controls at least 25% of ownership interests in the reporting company only by virtue of ownership interests in the corporate trustee; and
  • The individual beneficial owner does not exercise substantial control over the reporting company.

Accessing the BOI System

FinCEN has added a new FAQ section (i.e., Section O of the FAQs) devoted entirely to the accessing the BOI system and the associated regulations (the “Access Rule”). FinCEN finalized the Access Rule late last year, which we blogged about here.

The FAQs separately address each type of authorized recipient (i.e., federal agencies, state agencies, foreign governments) that may request BOI and the preparations these recipients can take to receive, store, and use BOI. According to the FAQs, access for FIs subject to the CDD Rule is not projected until Spring 2025. Similarly, FinCEN expects FI supervisory agencies to have access to the BOI system at that time. FinCEN indicates that once FIs and the banking regulators obtain access, the agency will provide additional guidance regarding supervisory expectations. See FAQ O.6.

The FAQs shed more light on the timing of FinCEN’s phased approach regarding access. According to the FAQs, FinCEN plans on taking the following phased approach:

  • The first phase, expected to begin in the spring of 2024, will be a pilot program for a handful of Federal agency users.
  • The second phase, expected in the summer of 2024, will extend access to Treasury offices and other Federal agencies engaged in law enforcement and national security activities that already have memoranda of understanding for access to Bank Secrecy Act information.
  • The third phase, expected in the fall of 2024, will extend access to additional Federal agencies engaged in law enforcement, national security, and intelligence activities, as well as to State, local, and Tribal law enforcement partners.
  • The fourth phase, expected in the winter of 2024, will extend access to intermediary Federal agencies in connection with foreign government requests.
  • The fifth phase, expected in the spring of 2025, will extend access to FIs subject to CDD requirements under applicable law and their regulatory supervisors.


An updated FAQ addresses penalties, which, as adjusted for inflation, are now $591 for each non-willful violation. Any person who willfully violates the BOI Rule may be subject to criminal penalties of up to two years imprisonment and a fine of up to $250,000. A willful violation may include willfully failing to file a BOI report, willfully filing false BOI, or willfully failing to correct or update previously reported BOI.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

Kaley N. Schafer

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Plaintiffs File Brief in Support of Preliminary Injunction and Response to Petition for Panel Rehearing in Credit Card Late Fee Challenge

On April 26, 2024, Plaintiffs filed their response to the CFPB’s Petition for a Panel Rehearing with the Fifth Circuit in the lawsuit challenging the CFPB’s credit card penalty fees rule (Rule). On the same date, the Plaintiffs also filed their brief in support of their motion for a preliminary injunction with the Fifth Circuit. As we have previously stated, the Rule is unlikely to be stayed before its May 14 effective date based on the court briefing schedule set forth below.

Preliminary Injunction Briefing at Fifth Circuit

The Plaintiffs and CFPB fully briefed the motion for the preliminary injunction at the district court. While the district court did not expressly rule on that motion, the district court denied the Plaintiffs’ motion to expedite consideration of the motion for a preliminary injunction. The Plaintiffs then appealed to the Fifth Circuit on the theory that the district court de facto denied their motion for a preliminary injunction by failing to rule on it. The Plaintiffs’ brief in the Fifth Circuit is substantially the same as their brief in the district court.

The Plaintiffs argue that the court should preliminarily enjoin the Rule during the pendency of the lawsuit. In order to obtain a preliminary injunction from the Fifth Circuit, the Plaintiffs must satisfy the following four factors: (1) a substantial threat of irreparable harm to the Plaintiffs absent the injunction, (2) the likelihood of the Plaintiffs’ ultimate success on the merits, (3) the balance of harms to the parties, and (4) the public interest.

The Plaintiffs argue that they satisfy the four factors for the court to grant a preliminary injunction for the following principal reasons:

  1. Irreparable Harm—The Plaintiffs have established that the Rule will cause card issuers to suffer irreparable harm, which the CFPB did not contest in its opposition to Plaintiffs’ motion for a preliminary injunction or in its opposition to Plaintiffs’ motion for an injunction pending appeal. If the Rule is allowed to take effect: (1) compliance costs in connection with updating fee disclosures to reflect lower late fees, training compliance, customer-service and other staff on the Rule’s new requirements, and performing an initial and annual cost-justification study if charging a late fee above the $8 safe harbor; (2) lost late fee revenues; (3) risk of enforcement actions because there is a significant risk that it will be impossible to come into compliance by the Rule’s effective date; (4) increased collection costs because the Rule will make consumers more likely to make late payments; (5) changed economics of accounts which would never have been issued, or would not have been issued on their particular terms, had issuers been limited to (or had anticipated) an $8 late fee; and (6) loss of customer goodwill if issuers are forced to reduce their late fees to $8 and subsequently raise them, either through the Rule’s cost-analysis provisions or based on the outcome of this litigation.
  2. Success on the Merits—The Plaintiffs are likely to succeed on the merits of their claims because (a) the Fifth Circuit has ruled in CFSA v. CFPB that the CFPB’s funding is unconstitutional, and (b) the Rule violates the CARD Act, TILA, and APA.
  3. Balance of Harms to the Parties—The equities favor a stay pending resolution of the case because the harms to the Plaintiffs’ members will be substantial while the harms to the CFPB in delaying the Rule’s effective date are negligible.
  4. Public Interest—Because the Rule would likely lead to more late payments, higher interest rates, constricted access to credit, and other less favorable terms, the public interest would be served by delaying these effects while the case is decided. The Rule could also cause consumer confusion if it goes into effect and then later is permanently enjoined.

The CFPB’s response brief in opposition to the motion for a preliminary injunction is due by May 13 and Plaintiffs’ reply brief is due May 17. Thus, the preliminary injunction briefing will be in progress on the Rule’s May 14 effective date.

Petition for Panel Rehearing

On April 18, the CFPB filed a Petition for Panel Rehearing and the Fifth Circuit has directed the Plaintiffs to file a response by April 30. In its petition, the CFPB argues that the Fifth Circuit panel should reconsider its decision vacating the district court’s order transferring the case to the U.S. District Court for the District of Columbia and issuing a writ of mandamus directing the district court to reopen the case for the following reasons:

  • TILA does not require advance notice for the only change the Rule would require—a reduction in the maximum late fee.
  • Whether or not the Plaintiffs are saved from the cost of preparing new disclosures for distribution after the Rule’s May 14 effective date with a preliminary injunction, a court could still effectively grant them the permanent relief they seek, namely reinstatement of the old rule’s late fee safe harbor.
  • The approach taken in the panel’s decision improperly interferes with the district court’s authority to manage their own dockets and assess that expedition of the plaintiffs’ preliminary injunction motion was unwarranted.

In their Response to Petition for Panel Rehearing, the Plaintiffs request the court to deny the “CFPB’s misguided petition” and reject the CFPB’s attempts to further delay the decision. Plaintiffs argue that as the effective date approaches, issuers have suffered irreparable harm and will suffer additional harm by distributing revised applications, marketing materials, disclosures, and statements. Plaintiffs state, “As the CFPB well knows, if issuers are compelled to lower their late fees to $8 and then raise them again after succeeding in this litigation, they must provide 45 days’ advance written change-in-terms notice to customers and once again update their application, marketing, and disclosure materials for new applicants and accounts, inevitably resulting in immense customer confusion and frustration.” Specifically, the Plaintiffs argue:

  • Plaintiffs clearly established without CFPB objection that credit card issuers must take action well in advance of the effective date and thus were already suffering irreparable harm and would suffer additional harm.
  • The Court correctly understood that March 29 was a significant date for issuers to make mitigating changes to minimize the costs of the Rule (such as increase the APR).
  • The Court correctly concluded that there was “a legitimate basis for [] urgency” given the “unusually short timeline for complying with the Final Rule or obtaining injunctive relief.”
  • The CFPB’s petition is simply attempting to reargue its case, which is not a basis for panel rehearing under the rules for the Fifth Circuit.
  • The Court applied existing law on effective denials to the “unique expedited nature of the case” and did not adopt a bright line rule that applies in all cases.

We will continue to monitor the Fifth Circuit’s ruling on this case and provide further updates. We are also closely monitoring the U.S. Supreme Court’s decision in CFSA v. CFPB, which we expect to have by the end of June.

Kristen E. Larson, John L. Culhane, Jr., Brian Turetsky, Ronald K. Vaske & Alan S. Kaplinsky

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Looking Ahead

New Federal Ban on Noncompete Agreements: How Does This Impact Your Business?

A Ballard Spahr Webinar | May 2, 2024, 1:30 PM – 2:45 PM ET

Moderator: Jason A. Leckerman, Louis L. Chodoff, Meredith S. Dante

MBA Legal Issues and Regulatory Compliance Conference

May 5-8, 2024 | Manchester Grand Hyatt, San Diego, CA


May 5, 2024 – 3:30 PM PT

Speaker: Joel E. Tasca

APPLIED COMPLIANCE TRACK: Loan Originator Compensation

May 6, 2024 – 2:30 PM PT

Speaker: Richard J. Andreano, Jr.

KEY UPDATES TRACK: Changes to State Reporting Requirements and State Licensing

May 6, 2024 – 4:00 PM PT

Speaker: John D. Socknat

EMERGING ISSUES TRACK: Labor Law – Best Practices for Compensation and Recruiting in a Changing Landscape

May 7, 2024 – 1:00 PM PT

Speaker: Meredith S. Dante

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