Congress Upends CFPB’s Indirect Auto Lending Guidance, Spares Payday Lending Rule

By Nicolas G. Keller

-On May 21, 2018, President Trump signed into law a resolution disapproving the Consumer Financial Protection Bureau’s (“CFPB”) guidance on Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act (“Indirect Auto Lending Guidance” or “Guidance”).  In that Guidance, the CFPB expressed the view that certain indirect auto lenders—that is, lenders that coordinate with dealerships to provide auto loans to consumers—are subject to the Equal Credit Opportunity Act and its anti-discriminatory provisions.[1] 

The CFPB issued the Indirect Auto Lending Guidance in 2013 as a bulletin, not a formal rule, and did not submit it to Congress for review under the Congressional Review Act (“CRA”), which would have allowed Congress sixty days to disapprove the Guidance by simple majority vote in both houses.[2]  However, in March 2017, Senator Patrick Toomey of Pennsylvania requested that the Government Accountability Office (“GAO”) determine whether the Indirect Auto Lending Guidance is a “rule” under the CRA and therefore subject to the disapproval procedures.[3]  In an opinion issued on December 5, 2017, the GAO concluded that the Guidance is indeed a “rule” under the CRA—this was effectively treated as a trigger for the sixty-day clock, enabling Congress to exercise its powers under the CRA even though the Guidance was never submitted to Congress or published in the Federal Register.[4]  In its opinion, the GAO expressed a broad stance on the reach of the CRA over agency guidance, stating that “CRA requirements apply to general statements of policy which, by definition, are not legally binding.”[5]  This holds open the door for the CRA to be used to disapprove agency guidance that is much older than sixty days, as was the case with the Indirect Auto Lending Guidance.

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The Supreme Court Reaffirms The Reach And Force Of The Federal Arbitration Act, This Time In Employment Cases

By Adam G. Unikowsky, Michael T. Brody, Carla J. Rozycki, Howard S. Suskin, and Gabriel K. Gillett

-On May 21, 2018, the Supreme Court issued its long-awaited decision in the consolidated cases Epic Systems Corp. v. Lewis, No. 16-285; Ernst & Young LLP v. Morris, No. 16-300; and NLRB v. Murphy Oil USA, No. 16-307.  In a 5-4 opinion by Justice Gorsuch, the Court held that courts must enforce arbitration agreements requiring employees to bring employment-related claims in individualized arbitration proceedings, and barring them from pursuing those claims as a collective or class action.[1]  The Court explained that absent a contrary congressional directive, arbitration clauses are “valid, irrevocable, and enforceable” under the Federal Arbitration Act (FAA), which reflects “‘a liberal federal policy favoring arbitration agreements.’”[2]  The Court held that such arbitration agreements do not violate employees’ statutory right under the National Labor Relations Act (NLRA) to “engage in other concerted activities for the purpose of … mutual aid or protection.”[3]  It concluded that the National Labor Relations Board (NLRB)’s contrary conclusion was not entitled to Chevron deference.[4]  Therefore, the Court held that the provisions requiring individual arbitration of employment disputes were enforceable under the FAA.

The Epic decision represents a major victory for employers.  It allows them to avoid burdensome class actions and instead take advantage of the cost and speed of individualized arbitration.  The decision continues the Court’s longstanding practice of enforcing the FAA according to its terms. 

The Epic case began when Jacob Lewis filed a putative class and collective action in federal court against his former employer, Epic Systems Corp., alleging violations of federal and state wage-and-hour laws.[5]  Epic moved to compel individual arbitration, arguing that under the terms of an agreement that Lewis had accepted as a condition of employment, Lewis was required to bring employment-based claims through individual arbitration and not as a collective or class action.[6]  The district court held that the arbitration agreement was unenforceable, and the Seventh Circuit affirmed, deferring to the Board’s conclusion that individualized arbitration agreements violated an employee’s right to engage in concerted action under the NLRA.[7]  The Seventh Circuit’s decision conflicted with decisions from other circuits, which had held that the FAA required enforcement of such agreements according to their terms.  The Court granted Epic’s petition for certiorari, along with two other petitions raising the same question, and consolidated the three cases.[8]

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Supreme Court to Examine Cy Pres Remedy in Google Privacy Case

SCOTUSBy Olivia G. Hoffman

Last month, the Supreme Court granted certiorari to review a decision of the Ninth Circuit approving an $8.5 million class action settlement in which the majority of the settlement proceeds took the form of a cy pres award.  Cy pres—which comes from a French expression meaning “as near as possible”—is an equitable doctrine that allows a court to direct unclaimed or non-distributable funds awarded as part of a class action settlement “to an entity whose interests lie ‘as near as possible’ to that group,” i.e., to a charity that advances interests related to those pursued by the plaintiff class in the lawsuit.[1]

The case, Frank v. Gaos, No. 17-961, involves a pre-certification settlement of a class action against Google for alleged violations of the federal Stored Communications Act and California privacy laws.  The district court approved the settlement, which allocated approximately $3.2 million to the plaintiffs’ attorneys, administrative costs, and the named plaintiffs, and awarded the remaining $5.3 million to six not-for-profit cy pres recipients that had submitted proposals detailing the ways in which they planned to use the proceeds to promote internet privacy initiatives.[2]  On appeal, the Ninth Circuit affirmed the district court’s decision that the settlement was “fair, adequate, and free from collusion.”[3]  It noted that while cy pres-only settlements are “the exception, not the rule[,]” such a settlement was appropriate here, where there were approximately 129 million class members, each of whom would have been entitled to a mere 4 cents.[4]  Moreover, the panel held that the district court did not abuse its discretion by approving the selection of the cy pres recipients, notwithstanding objectors’ claims that, among other things, defendant Google and class counsel had “significant prior affiliations” with the recipient organizations.[5]  Finally, the Ninth Circuit upheld the reasonableness of the $2.125 million award to class counsel, which the district court had determined to be acceptable under either the percentage-of-recovery or lodestar method.[6]

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A Hands-Off CFPB Might Cause Trouble for Fintechs

-In an article for American Banker, Jenner & Block Partner Michael W. Ross and Associate Emily A. Bruemmer examine the Consumer Financial Protection Bureau’s (CFPB) preference for less enforcement at the federal level. The authors discuss acting Director Mick Mulvaney’s announcement that the CFPB would no longer be “pushing the envelope” through enforcement actions and will be depending on state regulators for more leadership in regard to enforcement. Mr. Ross and Ms. Bruemmer explain that this development may not translate to less enforcement activity overall, but instead could lead to more inconsistent and unpredictable efforts by the state authorities. The authors note that FinTech companies’ protection of consumer data could become an area of focus and warn FinTech companies to remain vigilant regarding their privacy practices to ensure they are prepared in all the jurisdictions in which they operate.

To read the full article, please click here.


Partner Anne Ray to Discuss Ethical Issues Unique to the Consumer Space

-Jenner & Block Partner Anne P. Ray will speak at the 23rd Annual Consumer Financial Services Institute in Chicago. Hosted by the Practising Law Institute, the two-day program will focus on a broad array of recent regulatory, enforcement and litigation issues relating to mortgages; auto finance; credit, debit and prepaid cards; marketplace lending and Fintech; deposit accounts; student loans; and other products and services. Titled “Ethical Issues Unique to the Consumer Space,” Ms. Ray’s session will take place on May 8, 2018, the second day of the program. Ms. Ray and the other speakers will cover the impact of In re Payment Card Interchange Fee on litigating and settling class actions. They will also discuss the ethical implications in joint defense agreements and social media, as well as the ethical pitfalls in the settlement context—a mediator’s perspective. Ms. Ray’s session begins at 3:30 pm CT.

To learn more and to register for the event, please click here.


New York Attorney General Launches Cryptocurrency Exchange Inquiry

New-DevelopmentBy Jolene E. Negre

On April 17, the New York Attorney General’s Office released a statement that it has launched a fact-finding inquiry into 13 cryptocurrency exchanges. Questionnaires were sent to the following exchanges:

  • Coinbase, Inc. (GDAX)
  • Gemini Trust Company
  • bitFlyer USA, Inc.
  • iFinex Inc. (Bitfinex)
  • Bitstamp USA Inc.
  • Payward, Inc. (Kraken)
  • Bittrex, Inc.
  • Circle Internet Financial Limited (Poloniex LLC)
  • Binance Limited
  • Elite Way Developments LLP (Tidex.com)
  • Gate Technology Incorporated (Gate.io)
  • itBit Trust Company
  • Huobi Global Limited (Huobi.Pro)

The text of the questionnaires can be found here.

The Attorney General’s release suggests that the inquiry is part of a broader investor protection effort and emphasizes a greater need for transparency and accountability… 

To read the full Jenner & Block client alert on this subject, please click here.


Jenner & Block Launches FinTech Industry Group

FinTech Jenner & BlockToday, Jenner & Block announced the formation of a FinTech industry group, expanding the firm’s strong reputation in advising clients on complex financial services and consumer-related matters.  Leveraging our industry knowledge and significant capabilities, the FinTech industry group will work strategically with businesses to address and stay ahead of new developments as financial technology and the regulatory landscape continue to evolve.  Anchored by a team of experienced former government officials, including a former senior counsel at the Consumer Financial Protection Bureau, prosecutors and in-house counsel, the team focuses on advising FinTech companies and businesses that rely on financial technology to navigate challenges in this increasingly complex area of commerce.  The group assists clients in a variety of legal areas including compliance and controls, data security, trade secrets and intellectual property protection, insurance coverage, dispute and controversy resolution, government and internal investigations and corporate and transactional matters.

To learn more, please click here.


Legal Considerations When Using Big Data and Artificial Intelligence to Make Credit Decisions

Big-data-creditIn an article for Lending Times, Jenner & Block Partner Kali Bracey and Associate Marguerite L. Moeller discuss potential legal risks that may arise as a result of companies using big data to make credit extension decisions.  The article explains that despite the growing trend of using artificial intelligence and machine learning to make unbiased credit determinations and model credit risk, big data can in fact lead to inadvertent disparate impact on protected classes.  Lenders must ensure that they abide by the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA) to avoid discriminatory impact in terms of race, gender or other protected classes in lending decisions.  The FHA prohibits discrimination in securing financing for housing, while the ECOA prohibits discrimination for credit transactions.  They must also comply with the Fair Credit Reporting Act (FCRA), which requires lenders to disclose to consumers if they deny credit based on a consumer report and to disclose to consumers if they charge more for credit based on a consumer report.  The authors recommend that companies incorporate federal fair lending and credit laws into their algorithmic models.  While it is unclear how the current administration will address these issues, federal regulators are paying attention to the emerging field of big-data-based lending.  Furthermore, private plaintiffs and state attorneys general may still take action in the form of seeking punitive damages and equitable and declaratory relief or enforcing state statutes that protect fair lending.

To read the full article, please click here.


Second Circuit Affirms Dismissal of Organic Baby Formula Suit on Preemption Grounds

By Kelly M. Morrison

Bottle-container-high-chair-374756On March 23, 2018, the Second Circuit affirmed the dismissal of a putative class action alleging that Abbott Laboratories mislabeled its Similac baby formula as organic, ruling that the plaintiffs’ claims were preempted by the federal Organic Foods Production Act (OFPA). 

The plaintiffs in Marentette v. Abbott Labs. Inc. alleged that Abbott violated New York and California consumer protection statutes and common law by labeling as “organic” Similac formula that contained ingredients that are prohibited in organic foods under the OFPA.  Because the organic label on the formula was approved under the National Organic Program (NOP) that was established to implement the OFPA, however, the Second Circuit held that the plaintiffs’ claims effectively challenged the OFPA certification process, and were therefore preempted. 

The Court’s conclusion rested primarily on the comprehensive nature of the NOP, which was enacted “to establish national standards governing the marketing of . . . organically produced products.”  The NOP requires a producer seeking organic certification to disclose all of the practices and procedures it will use in connection with the product, including every substance used during production, following which a certifying agent conducts an on-site inspection.  Only after the certifying agent confirms that production of the product complies with OFPA is a producer permitted to label it as organic.  The statutory scheme also confers enforcement power on the USDA and its agents, which the Court deemed further evidence that Congress did not intend individual consumers to challenge certification decisions. 

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Do Business Interruption Policies Cover Ransomware?

RansomwareIn an article published by Law360, Jenner & Block Partner Jan A. Larson and Associate Catherine L. Doyle examine the potential impact of court action on ransomware coverage.  The authors explore the pending district court action of Moses Afonso Ryan Ltd. v. Sentinel Insurance Company Ltd.  They explain that the case wrestles with the classification of, and coverage for, business interruption and lost income suffered by a law firm in the wake of a ransomware attack.  “The case offers a preview into whether courts will construe broad, general business insurance provisions to protect insureds against significant lost-business income caused by ransomware attacks, or whether insurers will enjoy wide latitude to hide behind more stringent limitations of liability found in narrower provisions related to data and software damage,” they observe.

To read the full article, please click here.