Consumer Compliance Outlook: Third Issue 2020

On the Docket: Recent Federal Court Opinions


The Supreme Court holds that the leadership structure of the Consumer Financial Protection Bureau violates the Constitution’s separation of powers.

Seila Law LLC v. Consumer Financial Protection Bureau, 140 S. Ct. 2183 (2020). PDF External Link In 2011, many consumer protection regulatory functions were centralized in a newly created agency ― the Consumer Financial Protection Bureau (Bureau) ― including rulemaking, supervisory, and enforcement authority for certain depository institutions and nonbanks. The Bureau’s structure includes a single director appointed for a five-year term, during which he or she may only be removed by the President for “inefficiency, neglect of duty, or malfeasance in office.” 12 U.S.C. §§5491(c)(1), (3). In 2017, after the Bureau issued a civil investigative demand to a California law firm, the firm sued to invalidate the demand by alleging that the CFPB’s structure was unconstitutional.

The district court and the Ninth Circuit found the Bureau’s structure was constitutional and dismissed the lawsuit. On appeal, the Supreme Court reversed, holding that the structure of the Bureau violates Article II of the Constitution, which gives the President the power to supervise and remove those who exercise authority on his behalf with only limited exceptions. The court distinguished prior cases upholding laws, which placed restrictions on the removal of agency officers. In particular, the Supreme Court cited certain factors supporting its finding of a separation of powers violation, noting that the Bureau is structured with a single director who can only be removed for cause, rather than a multimember commission with staggered terms; the Bureau has significant powers to issue regulations, and initiate and adjudicate cases; the five-year term of the Bureau director could result in a President being unable to appoint a director and set enforcement and rulemaking priorities; and the Bureau is funded outside of the Congressional appropriations process.

To resolve the constitutional violation, the Supreme Court did not invalidate the entire Bureau, noting that the statute contains a severability clause. Instead, the Supreme Court only invalidated the provision restricting the President’s power to remove the director. In response to the Supreme Court’s decision, the director of the Bureau published a notice in the Federal Register PDF External Link ratifying most of the Bureau’s past regulations and actions in an effort to “resolv[e] any potential defect in the validity of these actions arising from Article II of the United States Constitution.” 85 Federal Register 41330 PDF External Link (July 10, 2020).


The Ninth Circuit determines that an employer fulfilled the Fair Credit Reporting Act (FCRA)’s disclosure and authorization requirements in obtaining the plaintiff’s consumer report for employment purposes.

Luna v. Hansen & Adkins Auto Transport, Inc. PDF External Link, 956 F.3d 1151 (9th Cir. 2020). When the plaintiff applied for a position with Hansen & Adkins, he signed two documents: 1) a disclosure, which appeared on a separate sheet of paper, that informed applicants the company may obtain reports about the applicant’s previous employment, previous drug and alcohol test results, and driving record, and 2) an authorization, which indicated that an applicant’s signature authorized the company or their subsidiaries or agents to investigate previous employment records. The authorization appeared at the end of the application alongside unrelated notices and waivers.

Under the FCRA, an employer may obtain a consumer report of the applicant if it provides a “clear and conspicuous disclosure … in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes” and obtains the applicant’s authorization in writing. 15 U.S.C. §1681b(b)(2)(A)(i)-(ii). The class action lawsuit alleged that the defendant’s hiring practices violated FCRA’s disclosure and authorization requirements.

On appeal, the Ninth Circuit affirmed the district court’s summary judgment in favor of the defendant. The court determined that the disclosure was sufficiently “clear and conspicuous” because it appeared in a“reasonably understandable form” that is “readily noticeable to the consumer.” The disclosure may also be provided “contemporaneously” with other employment documents. The court further held that FCRA’s standalone requirements apply only to the disclosure requirements —not the authorization requirement.”


The Eleventh Circuit holds that a guarantor lacks standing to sue for an alleged ECOA violation because a guarantor does not fall within the Equal Credit Opportunity Act (ECOA)’s definition of “applicant.”

Regions Bank v. Legal Outsource PDF External Link, 936 F.3d 1184 (11th Cir. 2019). The ECOA prohibits creditors from discriminating “against any applicant, with respect to any aspect of a credit transaction … on the basis of …. marital status.” 15 U.S.C. §1691(a)(1). The federal appeals courts are divided whether ECOA’s definition of “applicant” includes a guarantor. See Hawkins v. Community Bank of Raymore, 761 F.3d 937 (8th Cir. 2014), aff’d by an equally divided Court, 136 S. Ct. 1072 (2016) (“applicant” does not include guarantors) and Moran Foods, Inc. v. Mid-Atl. Mkt. Dev. Co., 476 F.3d 436 (7th Cir. 2007) (same), with RL BB Acquisition, LLC v. Bridgemill Commons Dev. Grp., 754 F.3d 380 (6th Cir. 2014) (“applicant” includes guarantors).

The Eleventh Circuit has now addressed this issue. The case involves a defaulted loan from Regions Bank to Legal Outsource, a law firm whose principal was Charles Phoenix. The default triggered a cross-default clause in another Regions loan to Periwinkle Partners, LLC, which Charles; his wife, Lisa; and Legal Outsource guaranteed. After Legal Outsource defaulted, Regions brought suit against the guarantors. Lisa filed a counterclaim alleging Regions violated ECOA’s prohibition against marital status discrimination by requiring her to guarantee the Legal Outsource’s debt based solely on her marital status. The district dismissed her claim. On appeal, the Eleventh Circuit affirmed, finding that ECOA’s protections only apply to credit “applicants,” which ECOA defines as “any person who applies to a creditor directly for … credit …” The court noted a guarantor supports a credit application for someone else but does not seek credit for the guarantor himself and therefore is not an applicant protected by ECOA.

While §1002.2(e) of Regulation B specifically defines “applicant” to include “guarantors, sureties, endorsers, and similar parties” for purposes of the spousal signature provisions of12 C.F.R. §1002.7(d), the court found that under the decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), an agency’s interpretive regulation of a statute it is charged with implementing is not entitled to judicial deference if it contradicts the statute. The court found that ECOA’s definition of applicant did not include guarantors and therefore rejected that interpretation in Regulation B. The U.S. Supreme Court subsequently denied a request to review the decision, thereby declining to resolve the split in interpretation of Regulation B among the federal appeals courts listed previously. As a result, this issue continues to present some uncertainty.


The Fourth Circuit rejects lawsuit against real estate team for alleged kickback scheme in violation of RESPA §8(b) because the plaintiffs failed to demonstrate they suffered an injury sufficient for standing.

Baehr v. Creig Northrop Team, P.C., 953 F.3d 244 (4th Cir. 2020)PDF External Link The plaintiffs purchased their home in 2008, and their real estate agent said Lakeview Title Company would provide the title insurance. The agent did not disclose that Lakeview paid monthly marketing fees to the agent’s real estate brokerage firm. The plaintiffs’ class action lawsuit alleged that the monthly marketing payments were actually “kickbacks” prohibited under RESPA §8(b), and they were deprived of fair and impartial competition by the alleged scheme.

The Fourth Circuit affirmed the district court’s summary judgment because plaintiffs did not suffer a concrete injury sufficient to establish injury-in-fact sufficient for Article III standing ― specifically, “deprivation of impartial and fair competition between settlement service providers” was not deemed to be an “intangible harm” conferring standing under Article III when “untethered from evidence that it increased settlement costs.” Invoking Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) PDF External Link, the court noted that a mere statutory violation is insufficient to establish concrete injury. The court noted the plaintiffs did not allege any monetary harm, they had no interest in seeking alternative settlement service providers or title agencies (they “set forth no evidence that impartial and fair competition was even relevant to their decision to obtain settlement services” from the title company at issue), and were admittedly satisfied with the services they received. The plaintiffs’ related legal theories were also rejected, including that the real estate brokerage firm owed them a fiduciary duty to remit the kickbacks they received; the court found a fiduciary relationship did not exist under Maryland state law in the circumstances of this case.