Consumer Finance Monitor

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Regulating Bank Reputation Risk Feb 06, 2025

Show notes

Today's podcast show features a discussion with Julie Andersen Hill about her law review article titled "Regulating Bank Reputation Risk", 54 GA. L. Rev. 523 (2023). Professor Hill is the Dean and Wyoming Excellence Chair of the University of Wyoming College of Law.

The abstract to Professor Hill's article does an excellent job of summarizing her thesis:

This Article surveys reputation risk guidance and enforcement efforts. It shows that reputation risk regulation is usually an ancillary consideration to credit risk, operational risk, or other primary risk. In these instances, reputation risk adds little because regulators have strong tools to address the root problems. Sometimes, however, regulators justify guidance or enforcement primarily in terms of controlling reputation risk. Regulators use reputation risk to weigh in on hot-button political topics afield from safety and soundness like gun rights, payday lending and fossil fuels. Because regulators believe that reputation risk is present in every facet of banking, little prevents them from using it to address other controversies.

This Article argues that expansive regulation of reputation risk is harmful. There is little evidence that can accurately predict and prevent bank reputational losses. Moreover, because reputation risk is largely subjective, regulators can use it to further political agendas apart from bank safety and soundness. Unnecessary politicization of banking regulation undermines faith in the regulatory system and correspondently erodes trust in banks.

During our discussion, Professor Hill addressed the following issues:

What is reputation risk?
What legal authority do bank supervisors have to regulate reputation risk?
Why do you believe that the regulation of reputation risk is unnecessary and harmful?
What is Operation Choke Point all about and how did it turn out?
What was the outcome in the U.S. Supreme Court in NRA v. Vullo of the New York State bank regulator urging state banks to manage the reputation risk posed by doing business with the National Rifle Association?
Has concern over the regulation of reputation risk subsided in light of the termination of Operation Chokepoint and the unanimous Supreme Court opinion in NRA v. Vullo?
Why does there appear to be renewed worry that regulators are using reputation risk and other justifications to force banks to cut services to people, businesses or industries that they don't like?
Is there any credence to the claims of Elon Musk and others that crypto and tech startups are being debanked or denied fair access to banking services?
In light of the fact that President Trump himself and many members of Congress are troubled by debanking claims, what sort of policy changes are likely to be considered? What is the likelihood of the OCC promulgating a regulation prohibiting debanking in Trump 2.0 similar to the one it almost finalized in Trump 1.0?

The importance of this podcast is underscored by the fact that yesterday, the Senate Committee on Banking, Housing and Urban Affairs held a hearing entitled "Investigating the Real Impacts of Debanking in America."

Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.

The Impact of the Election on the CFPB: What to Expect with Supervision and Enforcement During Trump 2.0 Jan 30, 2025

Show notes

Our podcast show today features John Culhane and Mike Kilgarriff, partners in Ballard Spahr's Consumer Financial Services group. They discuss what supervision and enforcement will look like under a new acting director/director appointed by President Trump. This episode is a repurposing of the second half of a webinar that was produced on January 6. On January 23, we released the first half of the webinar, which consisted of Alan Kaplinsky's "fireside chat" with Kathy Kraninger, the former Director of the CFPB during Trump 1.0., linked here.

With respect to supervision, we consider, among others, the following issues with respect to the CFPB's leadership under Trump 2.0:

(a) Will it be business as usual or more relaxed?

(b) Will it focus on compliance with the Federal consumer financial services laws and less on UDAAP?

(d) Will there be fewer PAAR letters and more use of MRAS and MRIAs?

With respect to enforcement, we consider, among others, the following issues with respect to the CFPB's leadership under Trump 2.0:

(a) Will there be an exhaustive review of all existing investigations and lawsuits and a dismissal of those which involve "regulation by enforcement" or "pushing the envelope"?

(b) Will they focus more on fraud and scams and less on UDAAP?

(c) What position will they take on whether the CFPB has been unlawfully funded because the Federal Reserve Banks have had no combined earnings since September 2022?

Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.

Alan Kaplinsky's "Fireside Chat" with Kathy Kraninger, Former Director of the CFPB During Trump 1.0 Jan 23, 2025

Show notes

Today's podcast episode is a repurposing of Alan Kaplinsky's "fireside chat" with Kathy Kraninger, the Director of the CFPB during the second half of President Trump's presidency from December 2018 until January 2021. (This was originally the first half of a webinar we did on January 6, 2025 which was entitled "The Impact of the Election on the CFPB - Supervision and Enforcement." The January 6 webinar is Part 2 of a 3-part series. Next Thursday, we will release the second half of that webinar which will feature Ballard Spahr partners, John Culhane and Mike Kilgariff, who will take a deep dive into the expected changes in CFPB supervision and enforcement during President Trump's second term in office.)

During her "fireside chat" with Alan, Kathy discussed the following things:

(a) How she was nominated by Trump to be the Director and succeeded Mick Mulvaney, the acting Director appointed by Trump to succeed Richard Cordray as Acting Director;

(b) Organizational and other changes made by Mulvaney and/or Kraninger, including a hiring freeze, appointments of new heads of departments, etc;

(c) The practical impact on CFPB operations of the Supreme Court's opinion in the Seila Law case in which the Court held that the President had the right to remove the CFPB director without cause;

(d) Her priorities as Director, including her regulatory, supervisory and enforcement agendas;

(e) Her policy statements on "abusiveness", supervisory expectations and COVID-19;

(g) Her thoughts on what she anticipates will change at the CFPB once a new acting director chosen by Trump succeeds Rohit Chopra; and

(h) Her thoughts on whether Congress should re-structure the CFPB's governance and funding.

The "fireside chat" provides stakeholders in the CFPB insight into what may happen at the CFPB during Trump 2.0. There will, however, be some important differences between the circumstances that existed during the transition from Cordray to Mulvaney Kraninger during Traump 1.0 and the transition from Chopra to a new acting Director during Trump 2.0.. At the time when Mick Mulvaney became Acting Director, there were no pending lawsuits challenging CFPB final regs and other actions. During Mulvaney's term in office, a trade association of payday lenders sued the CFPB challenging the CFPB's payday lending rule and, in particular, its "ability to pay" requirement. The acting director appointed by Trump will inherit multiple pending lawsuits against the CFPB challenging many of the regs issued by the CFPB under Rohit Chopra's last two years as Director. The Acting Director will need to develop legislative (Congressional Review Act), judicial and regulatory strategies for dealing with the slough of regs, proposed regs and other written guidance issued by Chopra. The Acting Director will also need to quickly decide what position the CFPB will take with respect to the defense raised in at least 13 enforcement lawsuits claiming that the CFPB has been disabled from conducting business since September 2022 when there was no longer any "combined earnings of the Federal Reserve Banks" - a prerequisite to the Federal Reserve Board funding the CFPB under the Dodd-Frank Act.

Alan Kaplinsky, Senior Counsel and former chair for 25 years of the Consumer Financial Services Group, hosts the discussion.

The CFPB's Proposed Data Broker Rule Jan 16, 2025

Show notes

In today's episode, we discuss the CFPB's recent proposed data broker rule—a proposal that would greatly expand the reach of the Fair Credit Reporting Act.

On December 3, the CFPB issued a proposed rule promoted as one that would require companies that sell data about income or financial tier, credit history, credit score or debt payments to comply with the Fair Credit Reporting Act. The proposal would make it clear that when data brokers sell certain sensitive consumer information, they are "consumer reporting agencies" under the FCRA. That would require them to comply with accuracy requirements. It also would require them to provide consumers access to their information. However, the proposal is much broader than a data broker rule, and the podcast explores the significant breadth of the proposal.

The rule might face an uncertain future, since it was issued by current CFPB Director Rohit Chopra and pushes beyond the boundaries of the FCRA. Chopra's aggressive regulatory regime is opposed by the Trump Administration.

Joining us today is Dan Smith, president and CEO of the Consumer Data Industry Association, which represents the consumer data reporting industry.

The host of the discussion is Alan Kaplinsky, the former practice group leader for 25 years, and now senior counsel of the Consumer Financial Services Group at Ballard Spahr. Joining the discussion are two Ballard Spahr partners: Richard Andreano, the practice leader of our mortgage banking group at Ballard Spahr and John Culhane.

In this episode, we will discuss the key aspects of the landmark proposed rule, such as:

1. The proposal being much broader than one addressing the sale of personal information to various parties, including stalkers, spies and scammers.

2. The fact that the proposal does not even define what is a data broker.

3. How the proposal would significantly change the concept of what constitutes a consumer report, including the proposal to treat credit header information as a consumer report.

4. How the proposal would change the concept of what constitutes a consumer reporting agency.

5. Requirements that the proposal would add to the written authorization permissible purpose to obtain a consumer report, including requirements regarding revocation of the authorization.

6. How the proposal would modify the requirements to rely on the legitimate business need permissible purpose to obtain a consumer report.

7. Whether the CFPB actually has legal authority to essentially rewrite the FCRA.

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