May 15 – Read the newsletter below for the latest Mortgage Banking and Consumer Finance industry news, written by Ballard Spahr attorneys. In this issue, we cover Pennsylvania's new consumer protection measures, examine the House Financial Services Committee's decision to slash the CFPB budget for savings, analyze the potential effects of the election on the FTC, and much more.
- Podcast Episode: Private Civil Consumer Financial Services Litigation to Partially Fill CFPB Void – Part 2
- Podcast Episode: The Impact of the Election on the FTC
- Trump Administration to Withdraw McKernan’s Nomination to Serve as CFPB Director
- Disparate Impact Executive Order and HUD to Reconsider Disparate Impact Rule
- GAO Agrees to Investigate Attempted CFPB Firings, Other Recent Bureau Actions
- House Financial Services Committee Finds Savings By Slashing CFPB Budget
- Citing CFPB Cutbacks, Pennsylvania Governor Is Beefing Up Consumer Protection Efforts
- Ousted Democratic NCUA Board Members File Suit
- Looking Ahead
This podcast is Part 2 of a repurposed webinar we produced on March 25 titled “The Impact of the Election on the CFPB – Part 4.” As a result of the diminishing impact of the CFPB on enforcing the consumer financial services laws, we expect that void to be filled by state government enforcement agencies and private civil litigation, including class and mass actions. Our webinar focused on private civil litigation. Our featured guest for this webinar was Ira Rheingold, Executive Director of the National Association of Consumer Advocates. He was joined on the panel by Thomas Burke, Dan McKenna, Jenny Perkins, Joseph Schuster, and Melanie Vartabedian, litigators in our firm’s Consumer Financial Services Group.
We discussed the following areas where the panelists are predicting an increase in private civil litigation during 2025 and beyond:
- Solar Litigation Trends (Ira, Melanie).
- Increased volume of arbitrations and mass arbitrations (Ira, Dan).
- A general emphasis on “unfair” practices, including a close look at alleged unlawful fees (Ira).
- Crypto industry practices -fees, deception and third-party responsibility (Ira).
- National Bank Act preemption and DIDMCA opt-out litigation (Joseph).
If you missed listening to Part 1 of this repurposed webinar, you can access the podcast in the link to the following blog, which appears here. The blog describes the topics we covered.
Former chair for 25 years and now the Senior Counsel of the Consumer Financial Services Group, Alan Kaplinsky, hosted the podcast show.
For our podcasts repurposed from webinars that we produced as part of our series titled “The Impact of the Election on the CFPB,” click here and here for Part 1 (regulations and other written guidance); Part 2 (supervision and enforcement), click here and here; and for Part 3 (state AGs and departments of banking), click here and here.
To listen to this episode, click here.
Consumer Financial Services Group
Podcast Episode: The Impact of the Election on the FTC
This podcast features Stephen Calkins, a law professor at Wayne State University in Detroit and former General Counsel of the Federal Trade Commission (FTC).
President Trump recently fired, without good cause, the two Democratic members of the FTC, leaving only two Republican members as commissioners. He did this even though the FTC Act provides that a commissioner may be fired by the President only for good cause and that the commission is to be governed by a bipartisan five-member commission This is the third time in the past few weeks that President Trump has fired without good cause democratic members of other federal agencies; the other two being the National Labor Relations Board (NLRB) and the Merit Selection Protection Board (MSPB). The statutes governing those two agencies, like the FTC Act, allow the President to fire a member of the governing board for good cause only.
The fired members of all three agencies initiated lawsuits in federal district court for the District of Columbia, seeking mandatory preliminary injunctions requiring those agencies to reinstate them with back pay. We discuss the status of the two lawsuits and how the outcome will turn on whether the Supreme Court will apply or overrule a 1935 Supreme Court opinion in Humphrey’s Executor, which held that the provision in the Constitution allowing the President to fire an FTC commissioner for good cause only did not run afoul of the separation of powers clause in the Constitution. Conversely, the Supreme Court will need to determine whether the Supreme Court opinion in Seila Law, LLC V. Consumer Financial Protection Bureau should apply to these two new cases. In Seila Law, the Supreme Court held on constitutional grounds, that the President could fire without good cause the sole director of the CFPB even though the Dodd-Frank Act allowed the President to fire the sole director of the CFPB for good cause only.
Until this gets resolved, the FTC will be governed only by two Republican commissioners who will constitute a quorum for purposes of conducting official business. Professor Calkins explains how a Supreme Court ruling in these two new cases upholding President Trump’s firing of the Democratic members of the agencies could enable the President to fire without good cause members of other multiple-member agencies, like the Federal Reserve Board.
We then discuss the status of the following four final controversial FTC rules, some of which were challenged in court: the CARS Rule, the Click-to-Cancel Rule, the Junk Fee Rule, and the Noncompete Rule. We also discuss the impact of President Trump’s executive order requiring that all federal agencies, including so-called “independent” agencies, must obtain approval from the White House before taking any significant actions, like proposing or finalizing rules.
Then, we discuss the status of enforcement investigations and litigation and whether any of them have been voluntarily dismissed with prejudice by the FTC under Trump 2.0, whether any new enforcement lawsuits been filed, and what they involve. We discuss our expectation that the FTC will be a lot less active in the consumer protection enforcement area during Trump 2.0.
We then discuss the impact on staffing because of DOGE-imposed reductions-in-force. Finally, we touch upon the status of pending antitrust enforcement lawsuits.
Former practice group leader for 25 years of the Consumer Financial Services Group and now Senior Counsel, Alan Kaplinsky, hosts the discussion.
To listen to this episode, click here.
Consumer Financial Services Group
Trump Administration to Withdraw McKernan’s Nomination to Serve as CFPB Director
President Trump will withdraw Jonathan McKernan’s nomination as CFPB Director, as he nominates him as the Treasury Department’s Undersecretary of Domestic Policy, the New York Times and Law360 reported.
When McKernan’s nomination was first announced on Friday, Trump administration officials did not address McKernan’s CFPB nomination. However, the Times and Law360 later quoted White House officials as saying the nomination will be withdrawn.
Treasury Department officials said that McKernan has been serving as an adviser at the Treasury Department and had become an “integral part” of Secretary Scott Bessent’s team.
Administration officials have not named a new CFPB nominee. The Senate Banking Committee had endorsed McKernan’s nomination as director, but it had not gone to the Senate floor. He will require Senate confirmation to serve in his new position.
Office of Management and Budget Director Russell Vought has been serving as Acting CFPB director and has been particularly active in efforts to dismantle the bureau. Under the Federal Vacancies Reform Act, an acting officer may serve for no longer that 210 days after a nomination is rejected, returned to the administration or withdrawn. If a second nomination is then submitted and also rejected, withdrawn, or returned, the acting official can continue for an additional 210 days.
Consumer Financial Services Group
Disparate Impact Executive Order and HUD to Reconsider Disparate Impact Rule
President Trump recently signed an executive order titled “Restoring Equality of Opportunity and Meritocracy” to eliminate the use of disparate impact liability. The U.S. Department of Housing and Urban Development (HUD) also has indicated that it intends to yet again reconsider its disparate impact rule under the Fair Housing Act.
The executive order provides that “[i]t is the policy of the United States to eliminate the use of disparate-impact liability in all contexts to the maximum degree possible to avoid violating the Constitution, Federal civil rights laws, and basic American ideals.” While the executive order is not limited to lending or housing, it specifically provides as follows:
“Within 45 days of the date of this order, the Attorney General, the Secretary of Housing and Urban Development, the Director of the Consumer Financial Protection Bureau, the Chair of the Federal Trade Commission, and the heads of other agencies responsible for enforcement of the Equal Credit Opportunity Act (Public Law 93-495), Title VIII of the Civil Rights Act of 1964 (the Fair Housing Act (Public Law 90-284, as amended)), or laws prohibiting unfair, deceptive, or abusive acts or practices shall evaluate all pending proceedings that rely on theories of disparate-impact liability and take appropriate action with respect to such matters consistent with the policy of this order.”
“Within 90 days of the date of this order, all agencies shall evaluate existing consent judgments and permanent injunctions that rely on theories of disparate-impact liability and take appropriate action with respect to such matters consistent with the policy of this order.”
Addressing the existence of fair lending and fair housing provisions in state laws, the executive order provides that “[i]n coordination with other agencies, the Attorney General shall determine whether any Federal authorities preempt State laws, regulations, policies, or practices that impose disparate-impact liability based on a federally protected characteristic such as race, sex, or age, or whether such laws, regulations, policies, or practices have constitutional infirmities that warrant Federal action, and shall take appropriate measures consistent with the policy of this order.”
The executive order does not address the 2015 ruling of the U.S. Supreme Court in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc. that disparate impact claims may be brought under the Fair Housing Act. The ruling was 5 to 4, with Justice Kennedy writing the majority opinion and being joined by Justices Ginsburg, Breyer, Sotomayor, and Kagan, and with Chief Justice Roberts and Justices Scalia, Thomas, and Alito dissenting.
Separately, in the long standing litigation against the HUD disparate impact rule originally adopted in 2013, with the most recent version being reissued in 2023, HUD has indicated that “as a result of the change in administration on January 20, 2025, HUD is now under new leadership, who have indicated that the agency intends to reconsider the 2023 Rule. HUD officials are continuing to review the 2023 Rule and considering the process for its reconsideration.” A blog post reviewing the tortured history of the rule may be found here.
The developments raise the potential for the issue of whether disparate impact claims may be brought under the Fair Housing Act to be reviewed again by the Supreme Court.
Richard J. Andreano, Jr. and John L. Culhane, Jr.
GAO Agrees to Investigate Attempted CFPB Firings, Other Recent Bureau Actions
The Government Accountability Office has agreed to investigate recent CFPB moves to fire more than 1,400 employees and the impact it and other agency actions have had on the bureau’s ability to operate.
“GAO accepts your request as work that is within the scope of its authority,” A. Nicole Clowers, GAO’s Managing Director, Congressional Relations, wrote in response to a letter from Senate Banking Committee ranking Democrat Elizabeth Warren, (D-Mass.) and Senator Andy Kim, (D-N.J.). Clowers said the watchdog agency’s probe will include efforts by the Department of Government Efficiency (DOGE).
The senators had said they requested that the GAO probe the “Trump administration’s actions to dismantle the agency, including attempted firings, stop-work orders, and recent announcements of dropped lawsuits [that were filed] to hold big corporations responsible for ripping off Americans.”
They added that “the GAO will investigate whether the CFPB is able to fulfill its congressionally mandated functions.”
The CFPB has attempted to fire more than 1,400 employees, leaving 200 employees at the bureau. That Reduction in Force (RIF) has been blocked by the U.S. Circuit Court of Appeals for the District of Columbia.
In a separate letter, Warren, Senate Minority Leader Senator Chuck Schumer, (D-N.Y.), and other Democratic senators have sent Acting CFPB Director Russell Vought a letter asking him to outline the agency’s responsibilities and the impact the firings would have on agency operations.
“Your hasty and unjustified mass firings are an illegal shutdown of the CFPB that will leave it unable to conduct agency actions that are required by law,” they wrote.
And they added, “We request that you provide—by April 30, 2025—a detailed accounting of each of the more than 80 statutory obligations of the CFPB, the number of employees assigned to each of those functions as of December 2024, the number of employees who would be assigned to each function if your rushed reduction in force were to go into effect, the immediate impact of such a reduction on the agency’s ability to perform each function consistent with federal law and federal court orders, and copies of any individualized or particularized analysis of those planned reductions on the agency’s work.”
Consumer Financial Services Group
House Financial Services Committee Finds Savings By Slashing CFPB Budget
The House Financial Services Committee has approved its part of the massive budget bill, saving some $1 billion by, among other things, slashing the CFPB’s budget by more than 60 percent.
The Committee did so by modifying the bureau’s authority to draw funds from the Federal Reserve’s operating budget, limiting the agency to a maximum of 5 percent of the Fed’s total operating expenses. The agency currently may draw 12 percent of the Fed’s operating budget.
The change would cap 2025 spending at $249 million. By comparison, as of September, 30, 2024, the CFPB had incurred about $755.1 million in FY 24 obligations, according to a bureau report. Of that total, about $480 million was spent on employee compensation and benefits for the 1,755 bureau employees who were on-board at the end of the quarter.
The committee approved the measure along party lines, 30-22. The committee was charged with finding budget savings of at least $1 billion. Chairman Hill announced that it had exceeded that threshold, apparently due in no small part to the reduction in funding for the CFPB. Democrats offered dozens of amendments to restore CFPB funding, but all were defeated, with Republicans contending that its part of the budget bill was intended to cut spending.
In order to pass the Senate under the budget reconciliation process, only provisions that change revenue or spending may be included in the budget measure. The reconciliation process allows the measure to be considered in the Senate without the threat of a filibuster.
The CFPB has been a favorite target of Republicans. In the past, they tried to make the bureau subject to the annual appropriations process, but those efforts have failed. More recently, the Trump administration has attempted to eliminate about 1,400 positions at the CFPB, but that effort has been blocked by a federal appeals court.
The Financial Services Committee’s budget measure also would require the CFPB to return to the U.S. Treasury any amounts in the bureau’s Civil Penalty Fund that remain after direct payments to victims.
Financial Services Chairman Representative French Hill, (R-Ark.), said the Republican Congress must show discipline to solve what GOP members contend is a budget crisis.
“Past Congresses failed to make the tough decisions, and so now the crisis is here, confronting [the] very Americans they failed to help,” Hill said at the markup. He reminded committee members that “we are here with one purpose, to do our part to put our nation back on a responsible fiscal trajectory.”
Still, committee ranking Democrat Representative Maxine Waters, (D-Calif.), said it was “ridiculous” to be cutting the CFPB’s budget to find savings.
“From cracking down on illegal junk fees, tackling discrimination in housing, and protecting servicemembers and students from scams – the Bureau and its hardworking employees are doing crucial work,” she said.
On the other side of the Capitol, Senate Banking Chairman Senator Tim Scott, (R-S.C.), may be considering even larger cuts, Politico reported. In an interview, Scott told Politico that one option being considered is to eliminate all funding for the CFPB. Scott also said he supports subjecting the CFPB to the annual appropriations process.
Consumer Financial Services Group
Citing CFPB Cutbacks, Pennsylvania Governor Is Beefing Up Consumer Protection Efforts
Citing cutbacks at the federal level, Pennsylvania Governor Josh Shapiro has launched a new centralized consumer protection hotline, website, and email address to make it easier for state residents to report allegations of scams and resolve financial and insurance issues.
Officials said the effort is part of the Shapiro administration’s initiative to fill a void left by weakened federal consumer protection. As evidence of that void, they cited the CFPB’s actions to stop employees from working and alluded to other unspecified actions by the Trump administration making it “clear that [the federal government] intends to leave this work to the states if it is going to happen at all.”
“Now, as federal oversight and efforts to protect consumers — especially from the CFPB — decline, the Shapiro administration is stepping up with new tools, expanded enforcement, and stronger coordination,” they said, in announcing the new services.
“Here in Pennsylvania, we have some of the strongest consumer protection laws in the country,” Shapiro said. “That means agencies like the Pennsylvania Insurance Department and the Department of Banking and Securities have the power to stand up for consumers when they get ripped off or scammed.”
The Shapiro administration said it is expanding Pennsylvania’s use of the enforcement authority granted to states under the Dodd-Frank Act, allowing state regulators to enforce federal consumer protection laws when federal agencies fail to act. This includes:
- Investigating allegations of predatory lending, student loan servicing issues, insurance fraud claims, and allegations of deceptive financial practices.
- Coordinating enforcement and investigations among agencies.
- Educating consumers through outreach and free public programming.
State residents may call 1-866-PACOMPLAINT, visit pa.gov/consumer, or email consumer@pa.gov to report financial, insurance, and consumer concerns.
Ballard Spahr has a dedicated State Attorneys General Consumer Response Team that helps banks and other financial institutions understand and adapt to the evolving regulatory environment and mitigate risks in an era of heightened state-level enforcement. Ballard Spahr brings an unmatched combination of experience to state attorney general (AG) enforcement matters.
The lawyers on our State Attorneys General Consumer Finance Response Team advise businesses and organizations to keep them well-prepared to meet current conditions and be ready for what lies ahead. If you have received a civil investigative demand (CID), subpoena, or inquiry from a state attorney general, or if you need guidance on state regulatory compliance, our team is available to assist. Please contact us to discuss your specific situation.
Consumer Financial Services Group
Ousted Democratic NCUA Board Members File Suit
The two Democratic National Credit Union Administration (NCUA) board members ousted by President Trump have filed suit, arguing that their firings violated federal law.
Todd Harper and Tanya Otsuka filed suit in the U.S. District Court for the District of Columbia, naming President Donald Trump, Treasury Secretary Scott Bessent, NCUA Chairman Kyle Hauptman, and others as defendants. They contend that they only could be fired for cause. “The identical, one-sentence emails sent to both Mr. Harper and Ms. Otsuka at the same time on the same day say nothing about the reasons for the termination, and do not attempt to assert a basis for cause,” the two stated.
They go on to assert that their terminations disregard the protections that Congress established to preserve the board’s independence and they ask to be reinstated as members of the board.
The two NCUA board members are the latest Democratic commission and board members to file suit over their firings by President Trump. Others include Democratic members of the FTC, the Equal Employment Opportunity Commission, the National Labor Relations Board, and the Merit Systems Protection Board.
Harper and Otsuka contend that the NCUA board cannot continue to operate with only one member. The only current board member is Republican Kyle Hauptman, who was designated as Chairman by President Trump.
“With only a single Member purporting to exercise authority, the NCUA cannot continue carrying out the supervisory, regulatory, and institutional functions that Congress intended to be exercised by a Board composed of at least a majority of its Members,” they argue. The Federal Credit Union Act provides that the “Board shall consist of three members” and that a “majority of the Board shall constitute a quorum.”
Before the suit was filed, the NCUA issued a statement asserting that the agency can operate as it normally does even if the board only has one member.
“Please be assured that the NCUA has precedent and standing delegations of authority in place to continue performing all operational and statutory requirements under the authority of a single Board Member,” the agency said, in a statement, following the firings.
During the George W. Bush administration, Dennis Dollar, who was chairman of the NCUA board, held a board meeting, voted and took several administrative and operational actions, after two members left the board, the agency said.
“The records are in place at NCUA from 2002 that clearly establish the precedent that the Chairman can act as the Board,” the NCUA said.
The agency continued, “It is the NCUA’s long-held view that a single Board Member constitutes a quorum when there are no other Board Members. Chairman Hauptman and NCUA’s leadership are equipped with the required authorities to continue implementing the administration’s priorities and fulfilling our mission of protecting the system of cooperative credit and its member-owners through effective chartering, supervision, regulation, and insurance.”
The NCUA board, with Hauptman as the only member, is scheduled to meet on May 22 to receive a briefing on the agency’s Voluntary Separation Program and the agency’s Share Insurance Fund.
“All of us at NCUA are working together to build a more streamlined agency focused on executing our core mission of protecting the safety and soundness of the credit union system,” Hauptman said, following the ouster of the two board members. “Stakeholders can rest assured that NCUA is continuing to do the job that Congress demands of us and the American people expect.”
The remainder of the board meetings through the end of the year are marked “tentative.”
In a statement to CU Today, Dollar said that he attempted to set a precedent for board operations with a single member in early 2002.
“I took several actions while serving as chairman of the one-person NCUA board to establish a precedent that – if this ever happened again – the agency would not be stymied in doing its job and could function with a one-member board until the three-member board was reestablished with future appointments,” Dollar said.
Dollar said the only thing he did not do as a one-member board was to approve a regulation. He said he was certain that the NCUA Chairman could approve or rescind a regulation if necessary. However, he said the agency did not have anything pending that needed quick approval, so he decided to wait until a full board was sworn in. “I chose not to set the precedent of approving a regulation—although all indications at the time were that I had the authority to do so,” he added.
The agency already has taken at least one action. The NCUA published a Federal Register notice stating that it is soliciting comment on its final rules dealing with the simplification of share insurance and succession planning.
The NCUA took the action, citing a January 20 White House memorandum that called for a regulatory freeze pending a review of rules. The memorandum, among other instructions, directs federal agencies to “consider opening a comment period to allow interested parties to provide comments about issues of fact, law, and policy raised by the rules” for rules that have not yet taken effect.
The share insurance simplification rule takes full effect on December 1, 2026, and the succession planning regulation takes full effect on January 1, 2026.
Consumer Financial Services Group
MBA – Legal Issues and Regulatory Compliance Conference
May 14-17, 2025 | Hilton San Diego Bayfront Hotel, San Diego, CA
APPLIED COMPLIANCE TRACK: Loan Originator Compensation
May 15, 2025 – 2:30 PM PT
Speaker: Meredith Dante
May 15, 2025 – 4:00 PM PT
Speaker: Richard J. Andreano, Jr.
DATA PRIVACY, SECURITY AND AI TRACK: Evolving Regulatory Environment on AI in the Mortgage Industry
May 16, 2025 – 1:00 PM PT
Speaker: Gregory Szewczyk
May 17, 2025 – 11:15 AM PT
Speaker: John D. Socknat
May 18-20, 2025 | The Broadmoor Resort, Colorado Springs, CO
Compliance Update PART I
May 19, 2025 – 11:00 AM MT
Speaker: Richard J. Andreano, Jr
Compliance Update PART II
May 20, 2025 – 8:40 AM MT
Speaker: Richard J. Andreano, Jr.
A Ballard Spahr Webinar | June 11, 2025, 12 PM ET
Speakers: Alan S. Kaplinsky, John L. Culhane, Jr., Matthew A. Morr, John D. Socknat
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