Archives for March 2020

Editor’s Note: All COVID-19 related articles published by insideARM can be found here. 

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The situation is rapidly changing each day as states decide how best to slow the spread of COVID-19. Over the past few days, several states have issued shelter-in-place orders or updated guidance on what types of businesses are and are not permitted to continue running as usual.

Nevada

Nevada’s governor initially provided guidance for the closure of non-essential businesses. On Friday, that guidance is no longer a recommendation, but an order. In effect until April 16, 2020, the governor has officially ordered businesses “not essential to providing sustenance and for the everyday safety, health, and wellbeing of Nevadans” to shut down. 

Specifically of interest to our readers, an update notice from the Nevada Department of Business and Industry, Financial Institutions Division clarifies that collection agencies are non-essential. 

Based upon the above, a collection agency is deemed a non-essential business at this time. Accordingly, the Nevada Financial Institutions Division must enforce the Governor’s mandatory emergency directive and direct all collection agencies holding a license under Nevada Revised Statutes Chapter 649 and located in this State to close effective midnight tonight until April 16, 2020, unless otherwise modified or withdrawn by Governor Sisolak. All collection agencies holding a license or certificate under Nevada Revised Statutes Chapter 649 and located out-of-state must cease collection efforts with Nevada consumers/residents effective midnight tonight until April 16, 2020, unless otherwise modified or withdrawn by Governor Sisolak.

The governor’s notice adds:

By signing the directive, I am granting local governments the authority they do not currently have to impose civil penalties—including fining and revoking licenses—of businesses that do not shut down…If businesses defy this directive and stay open, state AND local law enforcement will the ability to treat this as a criminal act after all other options have been exhausted.

New and Updated Shelter-in-Place Orders

Over the weekend, several states have issued new or updated shelter-in-place orders. Those states include (in alphabetical order): 

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Connecticut

On Sunday, March 22, Connecticut’s governor released guidance to businesses on how to proceed mind the previously-issued state-wide orders. Connecticut issues a stay-at-home order on March 10. Then, on March 20, the governor issued another executive order that directs the use of telecommuting options where possible and that non-essential business entities reduce their in-person workforce no later than 8pm on Monday, March 23.

Collection agencies are not explicitly listed in the guidance as being essential businesses, but other related businesses are, such as: financial institutions such as banks, accounting and payroll services, and legal and accounting services. 

Illinois

On Friday, March 20, the governor of Illinois issued an executive stay-at-home order. The order requires that non-essential businesses cease operations unless they are able to perform via telecommuting from residences. Section 12 of the order lists businesses considered as “essential.” Under the financial institution subsection, the order lists the following businesses as essential:

• Banks
• Consumer lenders, including but not limited, to payday lenders, consumer installment lenders, and sales finance lenders
• Credit unions
• “Affiliates” of financial institutions.

Louisiana

On Sunday, March 22, Louisiana’s governor issued a stay-at-home order that is effective until April 12. Louisiana residents are ordered to stay home except for essential outings. 

Maryland

Today, Maryland’s Office of Legal Counsel issued interpretive guidance as to what businesses fall under the essential category of the governor’s March 19, 2020, order closing all non-essential businesses. Related to the financial sector, the guidance states that the following—among others—are considered essential: 

• Banks and credit unions
• Non-bank lenders
• Payment processing companies
• Accounting and bookkeeping firms

Massachusetts

Today, Massachusetts’ governor issues an emergency order, which requires all non-essential businesses to close their physical workplaces and facilities. The order is effective as of Tuesday, March 24, through April 7 at noon. The governor also provided a list of businesses considered essential. For financial services, the following are considered essential:

• Workers who are needed to process and maintain systems for processing financial transactions and services (e.g., payment, clearing, and settlement; wholesale funding; insurance services; and capital markets activities)
• Workers who are needed to provide consumer access to banking and lending services, including ATMs, and to move currency and payments (e.g., armored cash carriers)
• Workers who support financial operations, such as those staffing data and security operations centers

New Jersey

The governor of New Jersey has issued a state-wide “stay at home” order, which also requires the closure of all non-essential retail businesses. Banks and financial institutions are listed as exceptions to this order. 

New York

New York’s governor issued an executive order directing non-essential businesses to close in-office personnel functions as of 8PM on Sunday, March 22. The order lists the following financial institutions as essential: banks, payroll, accounting, and services related to financial markets. 

Ohio

Ohio’s governor issued a shelter-in-place order, effective at 11:59pm tonight (Monday, March 23) until April 6, unless otherwise amended. The order requires that residents stay home except for essential outings. The order requires non-essential businesses to close. Ohio uses the U.S. Department of Homeland Security’s definition of essential business. 

insideARM Perspective

Other than in Nevada, there is no explicit guidance on whether or not collection agencies fall under the definition of essential business. We will keep track of any developments—such as the update about Nevada, which provided clarification. In the meantime, companies should speak with their legal counsel to determine if they fall under the “essential” business category.

A lot of firms have been taking stabs with misleading “emergency purposes” TCPA blogs regarding the coronavirus epidemic- hazarding a guess about what is, and is not, permissible without any guidance from the FCC on the subject. (Really inappropriate in my view.) We stayed clear of doing so, and now you’ll see why.

On Friday the FCC issue its FIRST and ONLY declaratory ruling on the subject—again don’t believe some of the misleading headlines you may have seen out there on this— and its clarifications are narrow. On its own motion the FCC exempted certain calls related to the coronavirus pandemic from TCPA requirements—but only calls made by certain callers regarding certain topics:

First, the caller must be from a hospital, or be a health care provider, state or local health official, or other government official as well as a person under the express direction of such an organization and acting on its behalf. Second, the content of the call must be solely informational, made necessary because of the COVID-19 outbreak, and directly related to the imminent health or safety risk arising out of the COVID-19 outbreak.

(Emphasis added.)

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The FCC goes on to expressly clarify that certain forms of Covid-19 related messages are not emergency in nature. These include “advertising a commercial grocery delivery service, or selling or promoting health insurance, cleaning services, or home test kits.”

Ruling available here: Coronavirus Ruling

We will have further analysis tomorrow. But for those of you wondering about the scope of the “emergency purposes” exemption—this is the definitive guidance you’ve been waiting for. More to come.

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Editor’s note: This article is provided through a partnership between insideARM and Squire Patton Boggs LLP, which provides a steady stream of timely, insightful and entertaining takes on TCPAWorld.com of the ever-evolving, never-a-dull-moment Telephone Consumer Protection Act. Squire Patton Boggs LLP—and all insideARM articles—are protected by copyright. All rights are reserved.

GERMANTOWN, Md. — Unprecedented times call for unprecedented actions. The world is changing almost daily for credit and collection professionals. From states pushing to suspend collections, to companies moving to work-from-home models, change is rapidly being thrust upon all of us. At times like these, reliable information and interpretation is critical.

As a trusted voice in the accounts receivable management (ARM) industry, Kaulkin Ginsberg Company assembled some of the most well-informed experts in the industry for a “group chat” to share their viewpoints amidst all of the chaos, which will take place on Tuesday, March 24 at 1:00 PM EST. 

Panelists that will be joining Mike Ginsberg, president & CEO of Kaulkin Ginsberg Company, include:

• Rozanne Andersen, Chief Compliance Officer, Ontario Systems
• Tim Collins, General Counsel & Chief Compliance Officer, TrueAccord
• Joann Needleman, Member, Clark Hill PLC
• Mike Frost, Partner, Malone Frost Martin PLLC
• Manny Newburger, Founding Shareholder and Vice President, Barron & Newburger, P.C.
• John Bedard, Owner, Bedard Law Group

Participation is welcomed from every facet of the ARM industry to join the webinar, including consumer and commercial credit grantors, collection agencies, collection law firms, debt buyers, technology vendors, advisors, and regulators. Registration is free, so please invite you staff, colleagues, and friends. The webinar will last about 90 minutes, inclusive of time reserved for Q&A. Can’t join live? Register anyway to receive a copy of the recording to share with your team.

There have been few times in history when exchanging critical information and communicating with one another has been more crucial than it is right now.  

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About Kaulkin Ginsberg Company

Since 1991, Kaulkin Ginsberg Company has provided critical strategic advice to the outsourced business services industry. Our client-centric approach covers almost every stage of a company’s life cycle and enables us to maintain longstanding relationships as trusted advisors. We provide mergers and acquisition advisory, strategic consulting, valuation and financial solutions, market intelligence and analysis, as well as litigation support and expert witness.

To confidentially discuss your interests, please contact us at hq@kaulkin.com or visit our website.

Many states are enacting measures to protect their residents from the current COVID-19 pandemic. These measures might impact the way collection agencies run businesses. In addition to the states that eased work-from-home licensing requirements for debt collectors, some states are now going further by locking non-essential businesses down if they are not able to function remotely.

Pennsylvania

On Thursday, Pennsylvania’s governor ordered the immediate shut down of non-life sustaining businesses, other than those that are functioning remotely. 

No person or entity shall operate a place of business in the Commonwealth that is not a life sustaining business regardless of whether the business is open to members of the public. This prohibition does not apply to virtual or telework operations (e.g., work from home), so long as social distancing and other mitigation measures are followed in such operations.

The governor’s office also provided a list of what businesses qualify as life-sustaining. Debt collection agencies and firms are not explicitly listed. Legal services are deemed non-life sustaining, same with most administrative services. However, there are some credit intermediation services that are considered in the green.

Pennsylvania’s Department of Banking and Securities, which sent an email to licensees late Thursday night, might provide some clarity (or confusion, depending on whether you view their statement as in conflict with the governor’s order):

Please be aware that banks, credit unions, and non-depository licensees are NOT required to shut down their physical locations. Credit intermediation and related activities also do not require physical closure. Banks, credit unions, and non-depository licensees are encouraged to remain open and operational and to follow best practices for social distancing.

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California

California’s governor issued an executive order for all residents of California to stay at home until further notice. Only businesses that provide “essential services” are permitted to stay open. This list includes pharmacies, grocery stores, and banks. 

Changing Situation

The situation is changing rapidly. insideARM will continue to monitor and report how the government—both state and federal—responds to the pandemic.

Editor’s Note: This article, authored by Joann Needleman and Ann Lemmo, originally appeared as an Alert on ClarkHill.com, and is republished here with permission.

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The collections and servicing industry and call centers are being hit hard as a result of COVID-19. Agencies and businesses are scrambling to supply their staff with the hardware and software to work remotely while shifting the number of workers to comply with the Centers for Disease Control and Prevention (CDC) and the Occupational Safety and Health Administration (OSHA) guidance to ensure seamless operations. Industry associations and strategic groups are engaging one another to share suggestions, insights, and tips during this most unusual time. The blocking and tackling will continue for the next several weeks and possibly months.

The industry will get through this. However, this crisis has exposed weaknesses and impracticalities that exist in a 21st century world. After the crisis is in our rear-view mirror, there will be significant soul-searching to rethink the industry’s infrastructure which will impact consumer engagement in the future as well as inevitable operational changes.  

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Moving Towards the Use of Remote Agents

This will be a difficult decision not only from the perspective of client acceptance and consent, but from state licensing requirements. As the result of COVID-19, many state governments, including state regulatory agencies, have issued temporary guidelines regarding work-from-home (WFH) for employees of licensed entities, including collection agencies. But should industry make it a priority and demand that this guidance be permanent?

Flu outbreaks, epidemics, and even pandemics are nothing new. In 2009 the H1N1 (Swine Flu) virus infected 100 million Americans killing about 75,000. The CDC reports that between October 1, 2019, and December 7, 2019, there were up to 3.7 million cases of the flu, between 23,000 to 41,000 hospitalizations, and approximately 1,300 to 3,300 flu-related deaths. As of March 18, 2020, there have been 120 deaths due to COVID-19 of the 7,708 cases reported. The data and history suggest that future infectious diseases will continue to have a significant impact on our workforce.

Building the infrastructure to support remote access could be significant and result in some instances of a complete implosion of current operational policies. However, in the past week, businesses and collection agencies have already been forced to invest in hardware and software updates and enhance IT security in order to accommodate the closure of their brick and mortar operations. Why not leverage what has already been spent?

Moving towards Better and More Effective Technology when Contacting Consumers

The trend of using alternative methods of communication, like email and text,  fell upon the industry in the past year and was further validated by the Consumer Financial Protection Bureau’s (CFPB) Notice of Proposed Rule for Debt Collection. However, before last week, many in the industry were still skeptical and hesitant to incorporate these methods in their day-to-day collection activity. The mandates of social distancing and self-isolation suggest that now, more than ever, consumers are going to be less willing to be contacted by a call either at home or on their cell phone about their financial situation. Consumers are going to have questions and be in dire need of assistance and will want to have those conversations on their terms in the methods they prefer. In the coming months, a company’s website must be a vital resource for a consumer rather than an innocuous banner which says little about who you are and what you do. Think about ways a consumer can learn about their debt or ways to settle or negotiate.  If you have not considered a chat function, why not think about it now? After the moratoriums and bans on collection of debt are lifted, companies will need to be creative –not to mention highly sensitive — to the needs of the consumer. Further, maintaining a high level of integrity will ensure that our industry is not associated with the fraudsters and scammers who will be praying on consumers in vulnerable situations.

New Policies and Protocols

After Hurricane Katrina, companies scrambled to developed disaster recovery policies. Prior to last week, did your company have an Infectious Disease Preparedness and Response Plan? Can you identify within your company those who are high risk of infection and do you have the controls in place to assess those risks? The answer is probably no, but this health crisis has resulted in a whole new set of questions that your clients want answered and information that you will want from your existing or future vendors. New absentee and sick policies will need to be implemented in order to discourage workers from coming to work when sick. Cleanliness, respiratory etiquette and sanitizing through hand washing will also have to be addressed. Finally, assessment of co-worker interactions including the sharing of phones, offices and other tools may have to be curtailed. 

The cliché statement that “every problem brings an opportunity” has never been truer. The other day a wise colleague also said that “how we act now will define us in the future.” The impact from COVID-19 will not discriminate; both sides of the equation will be equally impacted.  There is no more business as usual, rather business for the future.

Clark Hill’s Financial Services Regulatory and Compliance Practice Group is currently assisting clients with technical guidance, policy advice and strategy to address the implications of COVID-19 upon the financial services industry. Please contact Joann Needleman for further information.

Clark Hill has put together a resources page devoted exclusively to clients and colleagues through this difficult and rapidly changing times. https://www.clarkhill.com/pages/covid-19

In response to the overall economic uncertainty in this, our time of quarantine, House Financial Services Chairwoman Maxine Waters published a set of proposals— “proposals” is a key word here—on Wednesday evening, 18 March, for the next fiscal stimulus bill that Congress plans to take up to soften the huge damage the coronavirus is inflicting on the economy.

Waters is suggesting direct cash payments—larger and longer lasting than in other proposals—and suspension of nearly all consumer and small business debt payments, supported by reimbursements to creditors through the Federal Reserve.

(An excellent rundown of the various proposals being suggested is over at Roll Call: In memo, Rep. Maxine Waters lists stimulus priorities, ignoring industries.)

Three measures suggested by Rep. Waters, with the potential to seriously disrupt the credit and collections industry, are:

1. Suspend All Consumer and Small Business Credit Payments (mortgages, car notes, student loans, credit cards, small business loans, personal loans, etc.)

2. Suspend All Negative Consumer Credit Reporting During the Pandemic.

3. Prohibit Debt collection, Repossession, and Garnishment of Wages During the Pandemic. 

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insideARM’s Perspective

Rep. Waters’s proposal hasn’t been embraced by everyone. Many are still (knock on wood) at the moment employed, and receiving a paycheck, so there are questions about the soundness of sending everyone in the United States a $2,000 check throughout the crisis. However, if debt collection ceases entirely for the duration of the pandemic, that’s an entirely new flood of unemployed and financially vulnerable people.

This is a weird time. We’re not telling you something you aren’t already thinking/knowing/consumed with every day. If all you can do is the least amount of the Best You Can, you’re doing enough. And we’ll follow these various proposals as they start to circulate, like this one from U.S. Senators Brian Schatz (D-Hawai‘i) and Sherrod Brown (D-Ohio).

Editor’s note: This article is provided through a partnership between insideARM and Squire Patton Boggs LLP, which provides a steady stream of timely, insightful and entertaining takes on TCPAWorld.com of the ever-evolving, never-a-dull-moment Telephone Consumer Protection Act. Squire Patton Boggs LLP—and all insideARM articles—are protected by copyright. All rights are reserved.

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Well here’s a feel-good story that we could all use right now.

For those of you unfamiliar with the Bad Reyes saga, come gather around and I’ll tell you a tale.

Recall the uncertain days following the big ACA Int’l ruling. There was widespread confusion as to whether or not the D.C. Circuit Court of Appeal had completely set aside earlier FCC guidance on the definition of ATDS or merely rejected a particularly expansive read adopted in 2015. The first case to take a stab at the issue was Marshall v. CBE Grp., Inc., Case No. 2:16-cv-02046-GMN, 2018 WL 1567852 (D. Nev. Mar. 30, 2018) which held—just days after ACA Int’l—that the FCC’s predictive dialer rulings had been completely set aside.  Neat. But Marshall was a click to dial case and the determination regarding the applicability of the FCC’s earlier rulings was essentially glorified dicta, which did not ultimately yield the result in the case.

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Nonetheless, Marshall was a real shot across the bow for the Plaintiff’s bar and it seemed, perhaps, that the lights had gone out for TCPA predictive dialer cases But then, in May 2018—a dark miracle of sorts. A district court reviewed the D.C. Circuit’s ruling and determined that it had not actually set aside the 2003 and 2008 FCC rulings after all–predictive dialers were still per se subject to the TCPA. It was a first-in-the-nation result that opened the door to further predictive dialer TCPA cases and would bridge the gap until Marks came along five months later. That case, of course, was Reyes v. BCA Fin. Servs., Inc., No.: 1:16-cv-24077-JG, 2018 U.S. Dist. LEXIS 80690 (S.D. Fla. May 14, 2018)—better known as Bad Reyes in TCPAWorld. Remarkably the Court actually entered summary judgment affirmatively against the Defendant concluding that calls had been made using an ATDS.

But Bad Reyes would soon become worse Reyes as the Court saw fit to certify a rare-at-the-time code class consisting of numerous individuals the Defendant’s records demonstrated may have received a call to a “bad number.” Making matters worse, the court had entered the summary judgment ruling pre-certification—even though the certification motion had been filed first—resulting in a waiver of Defendant’s one-way intervention rights and allowing class members to flood into the suit with the primary substantive issue already decided in their favor.

Motions for reconsideration were filed and denied. Petitioners for interlocutory appeal were sought and denied. Things were about as bleak as you could imagine with the Defendant seeking bet-the-company exposure and seemingly no way out.

And then, a unicorn. Ruling on a second motion to stay last July, the Bad Reyes court suddenly decided to await the FCC’s guidance on the definition of ATDS. Yep—just over a year after turning TCPAWorld’s ATDS definition on its head and on the eve of trial proceedings in the certified case, the Court did a u-turn and decided wait for the FCC to declare the proper ATDS definition before proceeding. What a result!

Several months passed without further news until today—a day that seemed so remarkably impossible this time last year— when the Court entered an order (found here Reyes Dismissal) vacating the class certification ruling and summary judgment entered in the case. Instead of pursuing a massive judgment against the Defendant, the Plaintiff has apparently elected to lay down his weapons and fight no more. The Case was dismissed pursuant to stipulation, with prejudice as to the named class representative and without prejudice as to the class members.

In all of TCPAWorld history, I cannot think of another reversal-of-fortune story quite like this one. Having a court approve an individual settlement in a certified class action is remarkable enough, but to see such a result entered in a case that looked so bleak for so long—and that held such a mythical place in TCPAWorld lore—is really quite remarkable.

This is truly a never-give-up and never-give-in result for the ages and one that should prove quite inspirational to any TCPA defendants finding themselves in harm’s way currently. Great work to all involved!

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Want to keep up with other pivotal TCPA court decisions? The iA Case Law Tracker can help you do that in less time than it takes to pour your morning cup of coffee.

This article is part of the iA Think Differently series. Written by members of the iA Innovation Council, the series showcases thought leadership in analytics, communications, payments, and compliance technology for the accounts receivable management industry.

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While the world goes through an unprecedented change right before our eyes, the economic impact is becoming increasingly real for all of us.  

The sobering reality for the credit and collection industry is this: The lack of technological innovation is hurting you and it’s going to hurt your employees and your clients. Now is the time to learn about change management by adopting a new way of thinking. We’ll also show you how you can get 50 free workstations.  

Many companies in this industry, like many others, have hedged themselves on bloated software and outbound call centers in fear of change. Senior executives and stakeholders are now presented with the challenge of an unfamiliar challenge: change. In this new reality—that we are all in together—change is going to happen whether you face the music or not.  

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To succeed at change management, the focus needs to be on your people and your sustainable, self-serve, digital assets.  

So, it pains me to see companies scramble to set up remote staff and only remote staff. For a company like Revenly, that’s fine, we are nearly all remote anyway. Our people are comfortable, our digital assets are managed, what we provide to our clients is stable—and right now we are working hard to improve the value we deliver. We have our workstations, our home offices, and our routines carved out. We were ready for it whether we knew what “it” was or not.  

For a company that has never managed a remote work environment, that is going to be a challenge. In other words, if you think having your call center work from home is going to be the life raft, all I can say is, “old habits die hard.” 

While ops and IT teams are setting up your remote workforces and spacing out the desks at the office for essential staff, give yourself pause to think differently.  

It’s time for the words “agile, lean, and extensibility” to become part of your business plan. I’m not saying change everything, but ask yourself how much of your payments are self-serve?  How are you going to automate reconciliation? How are your normal processes going to exist outside of your siloed offices? Change needs to occur at every level to succeed. That may mean deploying new jobs to manage virtual processes, giving an employee who feels displaced a new responsibility and newfound purpose.  

Focus on reliable revenue with low cost of acquisition that’s easy to scale: a self-serve option that’s agile, lean, and offers extensibility. Don’t fall into the same trap that many companies are in now by relying on a single point of failure. It’s time to make bold moves and invest in something of strategic importance, that’s sustainable, and will last years to come.  

Here are some resources we think you’ll find useful: 

• Under 72-hour deployment of new, automated payment platforms, that can automate your payments, manage reconciliation and stay in touch with payers no matter where you are (Revenly).  

• Virtual workstations products WorkSpaces and WorkDocs at no charge for up to 50 users through June 30th, 2020 (AWS).  

Disruption comes in all shapes and sizes. While we all hope for the best, healthiest, outcome for one another, the reality is that once this passes the world will have changed. Don’t hesitate to reach out and before you ask…  

Yes, technology can do that. Get your information by clicking here.

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About the iA Innovation Council

The iA Innovation Council is a collaborative working group of product, tech, strategy, and operations thought leaders at the forefront of analytics, communications, payments, and compliance technology. Group members meet in person several times each year to engage in substantive dialogue and whiteboard sessions with the creative thinkers behind the latest innovations for the industry, the regulators who audit and establish guardrails for new technology, and educators, entrepreneurs and innovators from outside the industry who inspire different thinking. 

2020 members include:

Amid the uncertainty of the coronavirus, states are acting fast to form some sort of continuity in business and life for both industry and consumers. insideARM reported earlier this week that some states were easing their licensing burdens for work-from-home collectors. New York has taken a different approach. Effective immediately, New York’s Attorney General and Governor announced that they are suspending the collection of certain types of debts owed to the state (including medical and student loan debt) for at least thirty (30) days.

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insideARM Perspective

While this announcement only applies to debts owed to the State of New York, it important to closely pay attention to what is going on. The situation is changing rapidly, and new guidance is coming out from states on a regular basis. As things unfold, debt collectors need to be able to pivot quickly. First and foremost, industry members should focus on the safety of people—both for their employees and the consumers they work with. Next, it’s important to create a plan for the current situation, including a business continuity plan.

The silver lining among all of this is that there have been a flurry of resources pop up in the past week or so about what to look out for and how to proceed in this uncertain situation. Many law firms with employment law practices are hosting free webinars that discuss labor and employment considerations of the current situation. Industry groups are hosting meetings and webinars to address industry-specific problems. Seeing the industry come together—not just as subject matter experts, but also as humans—makes me proud of us all as “neighbors.” 

The U.S. Court of Appeals for the Fifth Circuit recently held that the restrictions on the president’s removal authority under the Consumer Financial Protection Act, allowing for the removal of the CFPB’s director only for “inefficiency, neglect of duty, or malfeasance in office,” are valid and constitutional.

A copy of the opinion in Consumer Financial Protection Bureau v. All American Check Cashing, Inc. is available at:  Link to Opinion.

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As you may recall, Congress created the Consumer Financial Protection Bureau in response to the 2008 financial crisis and tasked it with implementing and enforcing preexisting consumer-protection statutes. The CFPB is headed by a single director appointed for a five-year term by the president with the advice and consent of the Senate and removable by the president for “inefficiency, neglect of duty, or malfeasance in office.”

The CFPB filed a civil enforcement action against two payday lenders and their owner in the U.S. District Court for the Southern District of Mississippi.  The CFPB alleged that the payday lenders had engaged in unfair, deceptive, or abusive acts.

The payday lenders filed a motion to dismiss alleging that the CFPB is unconstitutionally structured, and as a result, any enforcement action it initiates is void from its inception.

In reviewing the payday lenders’ motion, the trial court examined the ruling of the U.S. Court of Appeals for the District of Columbia Circuit in PHH Corporation v. CFPB, 881 F.3d 75 (D.C. Cir. 2018), and denied the motion, holding that “the [CFPB] is not unconstitutional based on its single-director structure” and certified its order for interlocutory appeal.

The Fifth Circuit heard oral argument but withheld ruling pending the en banc court’s resolution of Collins v. Mnuchin, 938 F.3d 553 (5^th Cir. 2019).

Collins held that the Federal Housing Finance Agency (FHFA) violated the Constitution’s separation of powers and is “too insulated from executive control because it is funded through annual assessments on the [government-sponsored entities (GSEs)], is free of any formal executive control, and is led by a single director removable only for cause.”

The Collins court distinguished PHH, noting that while the Executive Branch has no authority over the FHFA, it “can directly control the CFPB’s actions through the [Financial Stability Oversight Council] FSOC.”

The Fifth Circuit then heard a second round of oral argument where the payday lenders argued that the structure of the CFPB violates the separation of powers doctrine arguing that because the Bureau is led by a single director removable by the president only for cause, it denies the Executive Branch its due.

The Fifth Circuit found no support for this argument in constitutional text or in Supreme Court decisions and upheld the constitutionality of the CFPB’s structure.

The Fifth Circuit noted that the Supreme Court of the United States “has, without exception, upheld for-cause protection for officers so long as removal authority remains in the hands of the President or his at-will agent.” Further noting, the Supreme Court has struck down officer removal restrictions three times, “each where the removal power has been held by Congress or given to someone other than the President.”

The Court distinguished Collins where it found that the FHFA’s single-member leadership, in conjunction with for-cause removal protection and other features, unconstitutionally insulated the FHFA noting in the present matter the “FSOC’s veto provides the Executive Branch with ‘an emergency brake to hold the CFPB accountable,’ the Executive Branch holds no formal control over the FHFA.”

Finally, the Fifth Circuit concluded that “[t]he President can remove the CFPB Director only for ‘inefficiency, neglect of duty, or malfeasance in office,’ a broad standard repeatedly approved by the Supreme Court. That alone is enough to decide this case. If there is any threat of undue concentration of power, the Office of President is its beneficiary” finding “neither the text of the Constitution nor the Supreme Court’s previous decisions supports the Appellants’ arguments that the CFPB is unconstitutionally structured, the district court is AFFIRMED.”

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Want to quickly find court decisions related to specific issues, but not deal with complex terms and connectors? The iA Case Law Tracker can help you do that in less time than it takes to pour your morning cup of coffee.