Introduction to the 2025 Annual Survey of Consumer Financial Services Law

This year’s Annual Survey begins with a report on two U.S. Supreme Court decisions that have a significant impact on the activities of the Consumer Financial Protection Bureau (“CFPB”). In Community Financial Services Ass’n v. CFPB, the Fifth Circuit had ruled that the CFPB’s funding mechanism through which it receives funding from the Federal Reserve System without congressional oversight was unconstitutional when it was reviewing the validity of the Payday Lending Rule that the agency promulgated in 2017. The Supreme Court reversed, holding that the mechanism did not violate the requirements of the Appropriations Clause, so that it was constitutionally permissible.

In Jarkesy v. SEC, the Fifth Circuit had held that the SEC’s use of an administrative law judge to hear fraud claims violated the Seventh Amendment’s guaranty of the right to a jury trial, as well as suffering from other infirmities. The Supreme Court affirmed the decision, finding that the jury trial guaranty extends to all claims, such as fraud claims, that are legal rather than equitable in nature. The ruling will affect all agencies that, like the CFPB, refer matters for adjudication to administrative law judges.

Both the Supreme Court and the lower courts issued significant decisions on questions that arise under the Federal Arbitration Act (“FAA”) during the past year. The Supreme Court unanimously held that the FAA requires courts to stay proceedings rather than dismissing the case when matters are sent to arbitration, thereby resolving a circuit split. It also held unanimously that a court, not an arbitrator, must decide whether an arbitration provision in a contract is superseded by a later contract that contains no arbitration provision. Other courts held that arbitration may not be compelled when a party fails to comply with the arbitrator’s rules, compelled arbitration in a variety of circumstances, and applied the Supreme Court’s holding that a waiver of the right to arbitrate requires no showing of prejudice, only a showing that the waiver was intentional.

As discussed in the previous Annual Survey, the counter to contract provisions that allow corporate defendants to compel arbitration for consumer claims has been the phenomenon of mass arbitration, in which plaintiffs’ attorneys file or threaten to file arbitration demands on behalf of thousands of claimants and companies face the prospect of having to pay massive arbitration filing fees. In one such case, in which the district court compelled the defendant to arbitrate fifty thousand claims and pay all of the filing fees, the Seventh Circuit reversed the order by holding that the plaintiffs had failed to meet their burden of showing the existence of valid arbitration agreements for all of the claimants. It also found that ordering the defendant to pay all of the arbitration fees exceeded the district court’s authority because under the arbitration rules, the arbitrator was vested with discretion to make such an order, not the court.

Bellwether clauses that provide for the arbitration of test claims to be resolved prior to when all of the other claims in a mass arbitration are handled have been the subject of significant litigation. One decision that has been appealed to the Ninth Circuit found that such a procedure is substantively and procedurally unconscionable, while other courts have rejected such challenges.

An amendment to the California Arbitration Act requires the parties that have drafted arbitration provisions to immediately pay arbitration filing fees on demand, a measure that increases the pressure in mass arbitration situations, has led to several decisions that have held in favor of and against federal preemption of the requirement under the FAA. Rhode Island enacted a similar provision. Several companies have taken the offensive against mass arbitrations by filing suits on various grounds against law firms that file or threaten to file mass arbitrations. Two major arbitration providers, JAMS and AAA, have addressed mass arbitration problems by adopting new mass arbitration rules and reducing the initial filing fees to a fixed amount.

There were several developments on the regulatory side, in enforcement, and in litigation under the Fair Credit Reporting Act (“FCRA”) during the past year. The CFPB released advisory opinions on background checks and consumer file disclosures as well as a proposed rule that would restrict the inclusion of medical debt information in consumer reports. It also initiated rulemaking procedures for a data broker rule. Both the CFPB and the Federal Trade Commission (“FTC”) filed enforcement actions asserting FCRA violations by consumer reporting agencies. The U.S. Supreme Court ruled that the FCRA operates to waive the U.S. government’s sovereign immunity, so that it can be sued as a furnisher of consumer information. Two other cases dealt with the issue of how to distinguish legal from factual disputes when determining a consumer reporting agency’s duty to investigate disputes.

The CFPB and other federal financial regulators issued guidance and rules that affect the mortgage industry. Their focus on alleged bias led to changes in examinations for valuation discrimination and a final rule on quality control for automatic valuation models used in mortgage lending. The CFPB issued a proposed rule to assist consumers who experience difficulty in making mortgage payments and an interpretative rule that subjects contracts for deeds to residential real estate to the mortgage lending provisions of the Truth in Lending Act (“TILA”). The U.S. Supreme Court provided guidance on the nuanced comparative analysis used when making determinations about federal preemption of state banking laws.

Non-depository financial technology (“FinTech”) companies attracted significant regulatory and legislative attention during the past year. The federal banking regulators issued a joint statement that identified and emphasized risks associated with bank partnerships with FinTech companies. The regulators entered into consent orders with bank partners that focused on shortcomings in their partnership programs related to anti-money laundering and other issues. True lender laws that would treat FinTechs as lenders to consumers were proposed in several states and enacted in one of them. The controversy continued over Colorado’s opting out of a federal law that allows state chartered banks and their FinTech partners to charge higher interest rates than the Colorado usury law would permit. Earned wage access programs that give consumers access to funds that are earned from their employers but not yet paid were the subject of new state laws that clarified that the programs are not loans under state law. However, the CFPB took the opposite tack by proposing an interpretative rule that would make earned wage access programs a form of credit subject to the disclosure requirements of TILA.

Eight more states enacted comprehensive consumer privacy laws, joining eleven states that enacted such laws in earlier years. The newer laws generally followed the pattern of the earlier laws to regulate the activities of controllers and processors of personal information when the amount of data in their possession is above specified thresholds. Similar exemptions for financial institutions covered by federal law were also included in the newer laws. The newer laws, like the earlier laws, also established a set of consumer rights, set forth duties for controllers of data, and provided enforcement authority for state attorneys general.

One topic that is new to the Annual Survey is state laws that require disclosures similar to those required by TILA for consumer financial transactions for specified categories of commercial credit transactions. So far, nine states have enacted such laws since 2021. The applicability, disclosure requirements, registration provisions, and enforcement remedies are examined.

The U.S. Department of Justice (“DOJ”) continued to combat redlining around the country during the past year. It was joined by the U.S. Department of Housing and Urban Development in this effort and by the CFPB in another anti-discrimination case. All three agencies also pursued other anti-discrimination enforcement actions. While the CFPB’s use of its unfairness authority to fight discrimination was enjoined by a court, the FTC continued to use its unfairness authority for that purpose. The DOJ also continued to take enforcement action against violations of the Servicemembers Civil Relief Act.

The Supreme Court’s holding that the CFPB’s funding mechanism was constitutional quickly resulted in a district court ruling on remand that the CFPB’s Small Business Lending Rule was valid. The CFPB’s interpretation of Regulation B that it includes protection from discrimination for prospective as well as actual applicants for credit was upheld by the Seventh Circuit. Fair lending claims by city and county governments reached a dead end after a decade or more of hotly contested litigation when courts ruled that the claims failed to meet the Supreme Court’s evidentiary requirements and all remaining cases were suddenly withdrawn. Similar claims by private litigants also fared poorly for similar reasons.

Auto finance developments during the past year continued to show a focus on ancillary products and discrimination. The CFPB entered into a consent order with the country’s largest captive finance company for making cancelation of ancillary product purchases unreasonably difficult and for failing to make refunds after cancelation. Another CFPB consent order resulted from a lender’s improper force-placement of insurance. An FTC consent order dealt with an auto dealership group’s discrimination against Native American customers. Several cases dealt with overcharges on motor vehicle leases and repossession practices.

The CFPB’s Payday Loan Rule survived a constitutionality challenge when the U.S. Supreme Court rejected the Fifth Circuit’s ruling that the agency’s funding mechanism was unconstitutional, allowing the rule to take effect after a substantial litigation delay. The CFPB had a partial loss on one enforcement action against a rent-to-own company when the court held that its services do not constitute an extension of credit, but its other enforcement actions against small dollar lenders recovered substantial sums. It also issued an interpretative rule that classified buy-now pay-later companies as credit card providers subject to consumer legal protections applicable to credit cards. There were significant state law developments that affected the regulation of small dollar lending as well as several state enforcement actions against lenders.