The latest episode of the Consumer Finance Monitor Podcast being released today tackles one of the most consequential developments in bank–fintech litigation in recent years: the Los Angeles Superior Court's tentative decision in Opportunity Financial, LLC v. Hewlett (read more here). This case squarely addresses the long-debated "true lender" doctrine which has for decades bedeviled banks and Fintechs and "bricks and mortar" non-banks that have entered into joint ventures with one another to engage in interstate lending programs which take advantage of interest rate exportation rights afforded to banks. After applying application California and federal law, the Court granted summary judgment to OppFi and against the California Department of Financial Protection and Innovation (DFPI) which unsuccessfully maintained that OppFi is the true lender and not OppFi's partner, FinWise Bank.

In this episode, host Alan Kaplinsky, founder and former chair of the Consumer Financial Services Group and now Senior Counsel, is joined by two leading voices with sharply contrasting perspectives: Professor Emeritus Arthur Wilmarth, a prominent critic of bank–fintech partnerships, and Ballard Spahr Senior Counsel Ron Vaske, who regularly advises banks and fintech companies on structuring such programs. Their discussion offers a deep and balanced exploration of the court's reasoning and its broader implications.

A Tentative Decision with Significant Implications

At the center of the case is a partnership between OppFi, a fintech platform, and FinWise Bank, a Utah-chartered, FDIC-insured institution. The program allowed FinWise to originate consumer loans at interest rates permissible under Utah law and export those rates nationwide under Section 27 of the Federal Deposit Insurance Act.

The DFPI challenged the arrangement, arguing that OppFi—not FinWise—was the "true lender," which would subject the loans to California's 36% interest rate cap.

In a tentative ruling, the court rejected the DFPI's position and granted summary judgment in favor of OppFi. The court emphasized traditional indicia of lending authority, including:

• FinWise's role in funding the loans

• Its control over underwriting criteria

• Its retention of a 5% ownership interest

• Its ongoing oversight of compliance and marketing

Critically, the court also relied on the longstanding California law principle that usury is determined at the inception of the loan. (See the discussion below.) Because FinWise originated the loans, the court concluded they were not rendered unlawful by OppFi's subsequent purchase of a 95% participation interest giving which gave it a predominant economic interest.

Competing Views on "True Lender"

The podcast highlights a fundamental divide in how courts and commentators approach the true lender doctrine.

Professor Wilmarth argues that the court failed to meaningfully engage with the "predominant economic interest" test, which focuses on who bears the majority of the economic risk and reward. In his view, OppFi's 95% participation interest suggests that it—not the bank—is the real lender in substance. He also raises broader concerns about whether such arrangements undermine state usury laws and expose consumers to excessively high-cost credit.

Ron Vaske, by contrast, emphasizes the legal and structural realities of the transaction. He underscores that FinWise is the named lender, funds the loans, and remains legally responsible to borrowers. From this perspective, the allocation of economic interests after origination should not redefine the identity of the lender or override federal law permitting rate exportation.

The Role of "Valid When Made"

Another key related theme explored in the episode is the "valid when made" doctrine—the principle that a loan that is lawful at origination remains lawful after assignment. The court's reliance on this concept reinforces the importance of determining lender status at the moment the loan is made, rather than based on subsequent transfers or participations.

The discussion also touches on the interplay between state and federal law, as well as the continuing relevance of regulatory interpretations following the Supreme Court's decision in Loper Bright, which curtailed Chevron deference.

What Comes Next?

It is important to note that the court's ruling is still tentative. In accordance with California procedure, OppFi must submit a proposed final opinion and order to the Court. If adopted, an appeal by the DFPI appears likely—potentially setting the stage for further appellate guidance on the true lender doctrine in California and beyond.

Why This Matters

This case is part of a broader and ongoing policy debate:

· Supporters of bank–fintech partnerships argue they expand access to credit and operate within well-established federal banking frameworks.

· Critics contend they can be used to circumvent state consumer protection laws, particularly interest rate caps.

As the regulatory and judicial landscape continues to evolve, OppFi v. Hewlett represents a significant—and closely watched—development.

It may be significant to note that, unlike several other states, California does not have a statute stating that the holding of a "predominant economic interest" in a loan makes the holder the true lender

Be sure to listen to the full podcast episode for a deeper dive into the case and the competing legal and policy perspectives shaping the future of bank–fintech partnerships.

Consumer Finance Monitor is hosted by Alan Kaplinsky, Senior Counsel at Ballard Spahr, and the founder and former chair of the firm's Consumer Financial Services Group. We encourage listeners to subscribe to the podcast on their preferred platform for weekly insights into developments in the consumer finance industry.

In Episode 3 of our Debt Sales 101 mini-series, we discuss who buys charged-off debt and how debt sale transactions are typically structured. We explain how different buyers specialize in different asset classes and how buyers evaluate portfolios from legal, regulatory, and commercial perspectives.

From a buyer's perspective, purchasing debt is not just a credit decision. Buyers are underwriting legal and regulatory risk as much as they are underwriting expected recoveries. In this episode, we discuss the key factors buyers consider, including transferability and chain of title, collectability and applicable statutes of limitation, licensing requirements, and the broader regulatory environment that affects how accounts can be collected. These factors often drive pricing and determine whether certain buyers will participate in a particular sale process.

We also discuss how sellers identify the right buyer and why working with well-capitalized and experienced buyers can have a significant impact on execution and pricing. From there, we walk through the primary transaction structures used in the market, including spot sales and forward flow arrangements, and discuss how risk allocation, repricing risk, and portfolio segmentation are addressed in these structures.

The key takeaway from this episode is that debt sales are not one-size-fits-all transactions. The identity of the buyer, the structure of the deal, and the allocation of regulatory and commercial risk all directly affect pricing, execution, and long-term success of a debt sale program. In the next episode, we turn to the regulatory landscape and discuss how recent regulatory developments are shaping the debt sale market.

In this episode of the Consumer Finance Monitor Podcast, host Alan Kaplinsky is joined by colleagues Pilar French and Burt Rublin to unpack a rapidly evolving issue at the intersection of bank–FinTech partnerships and interstate lending: the renewed exercise of state opt-out authority under Section 525 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA). Colorado enacted an opt-out statute in 2023 that is the subject of ongoing litigation before the entire Tenth Circuit Court of Appeals, and very recently the Oregon Legislature passed an opt-out bill as well.

The Podcast discussion highlights how a little-used statutory provision is now at the center of a major legal and policy debate—one that could reshape the landscape for state-chartered banks and the broader consumer finance industry.

The Foundation: Interest Rate Exportation Under DIDMCA

For decades, state-chartered, FDIC-insured banks have relied on Section 27 of the Federal Deposit Insurance Act—enacted through DIDMCA—to "export" interest rates permitted in their home states to borrowers nationwide. This authority mirrors the power granted to national banks under the National Bank Act and has been a cornerstone of interstate lending.

However, DIDMCA also includes a lesser-known provision—Section 525—that allows states to opt out of this federal framework for state banks with respect to "loans made in such state." For years, this provision attracted little attention. That is now changing.

Oregon's House Bill 4116: A New Wave of Opt-Out Activity

Oregon's recently passed House Bill 4116 represents one of the most significant modern uses of the DIDMCA opt-out provision. If signed into law, it would:

1. Reimpose Oregon's interest rate caps (generally 36%) on certain loans made to Oregon residents;

2. Apply broadly to consumer finance loans of $50,000 or less;

3. Expand the definition of where a loan is "made" to include the borrower's location—such as where the consumer resides or enters into the loan agreement.

Surprisingly, the law applies to state-chartered banks but excludes credit unions.

The legislation appears driven by concerns over high-interest, short-term lending, though testimony suggested that such loans represent only a small portion of the market. Critics argue that the bill oversimplifies complex lending structures—particularly bank–FinTech partnerships—through politically appealing but potentially misleading narratives.

The Core Legal Dispute: Where Is a Loan "Made"?

At the heart of both the Oregon legislation and ongoing litigation in the Tenth Circuit concerning the Colorado opt-out statute is a fundamental interpretive question: where is a loan "made" for purposes of Section 525 of DIDMCA?

1. Industry Position: A loan is "made" where the bank is located, because the bank is the entity that extends credit. Therefore, an opt-out by a state only enables it to impose its own usury laws on loans made by its own state banks and eliminates their ability to charge interest pursuant to Section 27 of the Federal Deposit Insurance Act.

2. Opt-out State/Consumer Advocate Position: A loan is "made" both where the bank is located and where the borrower resides. This means that an opt-out state can apply its own usury laws to interstate loans made to its citizens by state banks located in other states.

This distinction is critical. If the broader interpretation prevails, states that opt out of DIDMCA could effectively regulate interest rates charged by out-of-state banks to their residents—significantly curtailing interstate lending.

The Colorado Litigation: A Pivotal Case

Colorado's opt-out statute has become the testing ground for this issue, as it raises an issue that all sides agree is one of first impression.

1. A federal district court sided with industry plaintiffs, granting a preliminary injunction against enforcement of the opt-out statute and holding that only the bank's location determines where a loan is made.

2. A divided panel of the Tenth Circuit reversed that decision, adopting Colorado's argument that a loan is made in both the borrower's location and where the bank is located.

3. In a significant and very unusual development, last week the Tenth Circuit granted rehearing en banc, vacating the panel decision and ordering additional briefing for consideration by the entire Court.

The case has attracted substantial attention, including numerous amicus briefs on both sides from bank trade associations, consumer organizations, numerous Red and Blue State attorneys general, and federal bank regulators.

Federal Bank Regulators Weigh in With Amicus Briefs Supporting Rehearing En Banc

Both the FDIC and the Office of the Comptroller of the Currency have criticized the broader interpretation of DIDMCA's opt-out provision adopted in the now-vacated majority panel opinion by the Tenth Circuit.

1. The FDIC originally supported Colorado during the Biden Administration but then shifted its support to the banks' position during the second Trump Administration and filed an amicus brief that supported rehearing en banc and aligned with the industry view.

2. The OCC emphasized that the panel decision could undermine the goal of Section 521 of DIDMCA to create parity between state and national banks and would undermine the dual banking system and introduce significant uncertainty into the lending market.

These positions underscore the potential systemic impact of the case.

Practical Implications for State Banks Engaged in Interstate Lending

As a result of the enactment of the Oregon law and if additional states enact similar legislation, out-of-state banks lending to residents of a state which has enacted an opt-out statute may face difficult choices:

1. Comply with state-specific rate caps;

2. Exit certain markets altogether;

3. File a declaratory judgment action seeking injunctive relief against the state agency charged with enforcing the opt-out statute based on Federal preemption of such statute under Section 27 of the Federal Deposit Insurance Act.

The uncertainty extends beyond origination. Secondary market participants may face increased due diligence burdens, as determining where a loan is "made" becomes more complex—especially in an era of digital lending and mobile consumers.

Broader Industry Impact

The implications could be far-reaching:

1. Reduced interstate lending by state-chartered banks;

2. Migration to national bank charters to preserve rate exportation authority;

3. Fragmentation of the regulatory landscape, with a patchwork of state rules;

4. Increased compliance complexity for bank–FinTech partnerships and loan purchasers.

In short, the dual banking system could face renewed pressure if state-chartered banks cannot export their home state interest rates when making interstate loans to borrowers in opt-out states, which would deprive them of competitive parity with national banks.

What Comes Next?

Several developments will be critical to watch:

1. The outcome of the Tenth Circuit's en banc review;

2. Whether additional states follow Oregon's lead;

3. The potential for U.S. Supreme Court review;

4. Federal legislative proposals that could eliminate the opt-out provision altogether (though prospects for passage appear uncertain).

Key Takeaways

1. The DIDMCA opt-out provision, long dormant, is reemerging as a potential tool for states to regulate interest rates charged to their citizens by out-of-state state banks.

2. The determination of where a loan is "made" for purposes of Section 525 of DIDMCA is now a central legal battleground.

3. The forthcoming Tenth Circuit en banc decision will set an important precedent with nationwide implications.

4. A growing patchwork of state laws could significantly complicate interstate lending.

5. The future of bank–FinTech partnerships and the dual banking system may hinge on how these issues are resolved.

As these developments continue to unfold, financial institutions, regulators, and policymakers alike will need to navigate an increasingly complex and uncertain legal environment—one that may redefine the rules of interstate lending in the United States.

In Episode 2 of our Debt Sales 101 mini-series, we move from the "why" behind debt sales to the "what." Specifically, we discuss what types of debt can be sold, how portfolios are typically composed, and the legal and regulatory considerations that determine whether debt is appropriate for sale.

Not all debt is equally marketable, and not all accounts within a portfolio carry the same legal, regulatory, or operational risk. In this episode, we discuss the types of consumer and small business debt that are commonly sold, the types of specialty accounts that buyers may still be willing to purchase, and the categories of accounts that often raise diligence concerns, including accounts involving fraud, deceased consumers, pending legal matters, or other issues that can affect collectability or compliance.

We also discuss how buyers evaluate portfolios from both a business and regulatory perspective, including the importance of documentation, data quality, servicing history, and chain of title. Buyers are not just underwriting credit risk. They are underwriting legal and regulatory risk, and that evaluation directly affects pricing, deal structure, and whether certain accounts can be included in a sale at all.

A key theme in this episode is that portfolio composition is not just a business issue. It is a compliance and risk management issue as well. The types of accounts included in a sale, how those accounts were serviced prior to sale, and the documentation that supports them all play a significant role in determining how a portfolio is valued and how a transaction is structured.

This episode builds on the foundation from Episode 1 and sets up the next stage of the process. In Episode 3, we discuss who buys debt and how debt sale transactions are typically structured, including spot sales, forward flow arrangements, and how risk allocation and pricing are negotiated in those structures.

We're pleased to announce that our latest episode of the Consumer Finance Monitor Podcast is now live and it's one you won't want to miss.

In this episode, our host Alan Kaplinsky, founder, Chair for 25 years, and now Senior Counsel of our Consumer Financial Services Group, is joined by Max Dubin, Chief of Staff to the Acting Superintendent of Banking at the New York Department of Financial Services (DFS). As a senior leader at one of the most influential state financial regulators in the country, Max offers a rare and insightful look into how DFS is approaching some of the most important issues facing the consumer financial services industry today.

A central focus of the conversation is the Department's proposed framework for regulating the rapidly evolving "buy-now, pay-later" (BNPL) market (read more about BNPL on our Consumer Finance Monitor blog here.) Max provides valuable context on what DFS is aiming to accomplish and how it is thinking about balancing innovation with consumer protection. Among other points, he explains that the DFS is seeking to craft a regulatory approach that reflects how BNPL products actually function in today's marketplace, while also ensuring that consumers receive clear disclosures and are adequately protected from potential risks.

We also cover a wide range of additional "hot" topics at DFS, including DFS regulatory, supervisory and enforcement priorities, emerging consumer protection concerns, the DFS' approach to fintech innovation and partnerships, crypto licensure and regulation, New York Governor Hochul's budget priorities, which includes reforms of the insurance industry to make it more affordable, coordination with other state and federal regulators, and what industry participants should expect from DFS in the months ahead.

This episode offers practical insights for banks, nonbanks, fintech companies, and their counsel, particularly those focused on compliance, product development, and regulatory strategy. Max's candid and thoughtful perspectives provide a valuable window into the thinking of DFS at a time when state-level regulation is playing an increasingly prominent role.

We hope you enjoy the conversation. This is the second of our 3-part series focused on agencies in New York City and State which have a major impact on banks and non-banks who do business with New York City and State residents. On February 12, we released a podcast show, hosted by Alan Kaplinsky, featuring Jane Azia, Chief of the Bureau of Consumer Frauds and Protection and Alec Webley, Assistant Attorney General of the New York Attorney General's Office. Among other things, Jane and Alec discussed the New York FAIR Business Practices Act which expanded the scope of New York's consumer protection law to cover unfair and abusive acts and practices as well as deceptive acts and practices.

Very soon, we will be releasing Part 3 of the series which will be a conversation between Alan and Commissioner Sam Levine, the head of the New York City Department of Consumer and Worker Protection.

Consumer Finance Monitor is hosted by Alan Kaplinsky, Senior Counsel at Ballard Spahr, and the founder and former chair of the firm's Consumer Financial Services Group. We encourage listeners to subscribe to the podcast on their preferred platform for weekly insights into developments in the consumer finance industry.

We are pleased to release Episode 1 of our new podcast mini-series, Debt Sales 101. In this first episode, we start with the fundamentals and discuss what a debt sale is, how these transactions are structured, and why companies choose to sell debt.

Debt sales are often discussed in simple terms, but in practice they sit at the intersection of business strategy, legal structure, and regulatory compliance. In this episode, we explain that a debt sale is fundamentally the sale of charged-off accounts where the seller transfers title and the right to collect to a debt buyer in exchange for an upfront payment. This is different from placing accounts with a collection agency or outsourcing collections. In a true debt sale, ownership of the account is transferred, and that distinction has important legal and operational consequences.

We also discuss several of the primary reasons companies sell debt. First, a debt sale allows a company to accelerate revenue and recognize recoveries immediately rather than over many years through traditional recovery strategies. Second, a debt sale generates immediate cash flow that companies can reinvest into their business. Third, for many companies, a debt sale is operationally simpler than building and maintaining an in-house recovery strategy or managing a large agency and legal network. Finally, in some cases, debt sales are used as a tool to exit a line of business in an orderly and efficient way.

From a legal perspective, we also introduce several concepts that are critical to a successful debt sale, including chain of title, documentation, data integrity, and the purchase and sale agreement. Buyers need to be able to trace ownership of the account, verify the underlying documentation, and rely on accurate data in order to collect on the accounts they purchase. These legal and documentation issues often determine whether a debt sale is successful and how a portfolio will be priced.

One of the key themes of this episode, and the series as a whole, is that debt sales are fundamentally a business decision, but one that lives or dies on legal execution and regulatory compliance. Companies that prepare properly, maintain strong documentation and data, and structure transactions carefully are far more likely to execute successful debt sale programs.

In our next episode, we will build on this foundation and discuss what types of debt can be sold, how portfolios are typically structured, and where the legal and practical boundaries begin to matter.

In today's episode of the Consumer Finance Monitor Podcast Show, our host, Ballard Spahr's Alan Kaplinsky, was joined by colleagues Steven Burt and Melanie Vartabedian to explore a rapidly evolving and increasingly complex area of consumer financial services: residential solar finance.

Building on prior discussions of the broader solar finance landscape, this episode zeroes in on the regulatory and litigation developments that are reshaping the residential solar market in real time. The discussion highlights how an industry that experienced explosive growth over the past decade is now facing heightened scrutiny from regulators, enforcement agencies, and private litigants alike.

From Rapid Growth to Market Headwinds

As Steven explained, the residential solar industry expanded dramatically between 2015 and 2022, driven by:

• Federal and state tax incentives
• Declining equipment costs
• Innovative financing models
• Aggressive direct-to-consumer sales strategies

Growth peaked around 2023, but the market began to slow in 2024 and beyond due to several converging factors:

• Changes to net energy metering policies (particularly in California)
• Rising interest rates impacting financing affordability
• Supply chain constraints
• Increased emphasis on battery storage solutions
• Federal policy shifts, including reduced support for renewable energy and changes to tax credits

These developments have forced industry participants to adapt quickly—often while still operating under legacy business models that are now attracting scrutiny.

A Surge in Government Investigations and Enforcement

One of the most significant themes discussed in the podcast is the sharp rise in government scrutiny.

State attorneys general and consumer protection agencies across the country have launched investigations and enforcement actions targeting:

• Direct-to-consumer sales practices
• Marketing representations about energy savings and tax benefits
• Long-term financing structures, particularly loan-related fees

A notable inflection point came in 2024, when the Consumer Financial Protection Bureau (CFPB) issued a spotlight on solar financing, identifying risks such as:

• Alleged "hidden" dealer or platform fees
• Misleading claims regarding tax credits
• Misrepresentations about system performance and savings

Since then, enforcement activity has expanded across numerous states, with additional investigations ongoing. Notably, even local regulators—such as New York City's Department of Consumer and Worker Protection—have begun to assert jurisdiction, signaling a broader and more aggressive enforcement landscape.

Private Litigation: Class Actions and the "Dealer Fee" Controversy

Parallel to government activity, private litigation has surged. Melanie Vartabedian highlighted two major waves of litigation:

1. Earlier Cases: Sales Practices

Initial lawsuits focused on:

• Unauthorized credit checks (FCRA claims)
• High-pressure or deceptive sales tactics
• Misrepresentations about tax savings and energy production

2. Current Wave: Financing Structures

More recent cases center on dealer fees (also called platform or financing fees), with plaintiffs alleging that:

· These fees are effectively hidden finance charges

· They should be disclosed under the Truth in Lending Act (TILA)

Courts in Minnesota have allowed these claims to proceed past motions to dismiss, rejecting arguments—at least at the early stage—that such fees are merely "seller's points" exempt from disclosure.

While these rulings are preliminary, they have:

· Opened the door to costly discovery

· Encouraged additional class actions and enforcement cases

· Created significant uncertainty regarding how courts will ultimately resolve the issue

The Expanding Role of the FTC Holder Rule

Another important litigation risk involves the FTC Holder Rule, which allows consumers to assert claims against loan holders that they could assert against installers.

This creates potential exposure for:

· Lenders

· Secondary market participants

· Securitization investors

Although liability is generally capped at the amount of the loan, the rule can still create substantial risk, especially where plaintiffs seek rescission of contracts.

Practical Guidance for Industry Participants

The speakers emphasized that companies operating in the residential solar space must take proactive steps to manage risk. Key recommendations include:

1. Strengthen Compliance and Oversight

• Conduct comprehensive reviews of sales and marketing practices
• Ensure clear, accurate, and compliant disclosures
• Align legal and compliance teams with customer service functions to identify emerging issues early

2. Enhance Dealer and Partner Management

• Perform rigorous upfront diligence on third-party installers and sales organizations
• Implement ongoing monitoring and auditing
• Act quickly to address complaints or misconduct

3. Improve Transactional Transparency

• Reassess how pricing and fees—particularly dealer fees—are structured and disclosed
• Evaluate potential exposure under TILA and state consumer protection laws

4. Conduct Portfolio-Level Risk Assessments

• Carefully diligence solar loan portfolios prior to acquisition
• Consider litigation and regulatory risks embedded in originated assets

5. Stay Ahead of Policy and Enforcement Trends

• Monitor federal, state, and local regulatory developments
• Engage with industry groups and legal advisors
• Anticipate—not react to—regulatory changes

What Lies Ahead: The Next 18–24 Months

Looking forward, the panelists expect:

• Continued and expanding enforcement activity, particularly at the state level
• More class actions and private litigation, fueled by early court rulings
• Greater clarity regarding dealer fee treatment, as courts begin to rule on the merits
• Increased scrutiny of sales practices, especially those involving third-party dealers

Importantly, the regulatory and litigation environment is unlikely to ease in the near term. Instead, companies should expect more investigations converting into enforcement actions and greater coordination among regulators.

Key Takeaways

As Alan Kaplinsky summarized, the message for industry participants is clear:

· The residential solar market is entering a more challenging and regulated phase

· Government scrutiny and private litigation are rising in tandem

· Compliance, transparency, and oversight are no longer optional, they are essential

Companies that proactively adapt to this new environment will be far better positioned than those that wait to respond under the pressure of an investigation or lawsuit.

Consumer Finance Monitor is hosted by Alan Kaplinsky, Senior Counsel at Ballard Spahr, and the founder and former chair of the firm's Consumer Financial Services Group. We encourage listeners to subscribe to the podcast on their preferred platform for weekly insights into developments in the consumer finance industry.

On today's episode of the Consumer Finance Monitor Podcast our host, Alan Kaplinsky, discusses the rapidly evolving landscape of federal financial supervision with Sherra Brown, Head of Regulatory Research and Analysis for the Americas at Vixio Regulatory Intelligence. Our conversation focuses on what may be a fundamental shift in supervisory practices at the Consumer Financial Protection Bureau and the implications of parallel changes at the federal banking agencies.

Recent reports suggest that the CFPB may dramatically scale back its supervisory program—potentially reducing the number of examinations from roughly 600 annually to about 70, conducting examinations entirely virtually, narrowing the scope of reviews, and even Introducing a so-called "humility pledge" for examiners. If implemented, these developments would represent a significant departure from the Bureau's prior supervisory posture.

At the same time, the federal prudential banking regulators—the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and Federal Reserve Board—are moving toward a more risk-focused examination model, eliminating "reputation risk" as a supervisory category and signaling a broader effort to reduce regulatory burden.

Below are several key themes from our discussion.

Possible Structural Changes to CFPB Supervision

Sherra and Alan discussed reports that the CFPB could significantly reduce the scope and frequency of its supervisory examinations. The Bureau may move toward a model involving:

1. Fully virtual examinations

2. A dramatically smaller number of exams each year

3. Narrower, risk-focused review areas

4. Greater reliance on institutions' internal compliance testing

The shift could also reflect staffing reductions and broader policy priorities under the current administration.

While virtual examinations are not new, as they were widely used during the COVID-19 pandemic, the potential reduction in exam scope and volume would mark a major change. As Sherra noted, a narrower supervisory footprint raises an important question: is the Bureau fundamentally redesigning its supervisory model or simply doing the minimum necessary while its future remains uncertain?

What a Virtual Examination Looks Like

For institutions that have not experienced a virtual exam, the process is procedurally similar to traditional on-site supervision. Institutions typically receive a document request list and must provide materials electronically. Interviews and meetings with examiners occur via videoconference.

However, the key difference is relational. Virtual supervision makes it harder for examiners and institutions to build the working relationships that often facilitate dialogue and clarification during an on-site review. Data integrity, document accessibility, and centralized record management become even more important in a virtual environment.

Likely Areas of CFPB Focus

Although the Bureau has not yet clearly identified which institutions will be examined, Sherra suggested that the focus will likely be on large banks rather than non-bank entities.

She also noted that several areas historically emphasized by the CFPB appear unlikely to receive the same attention going forward. For example, the Bureau has backed away from certain fair-lending theories such as disparate impact.

One area that appears likely to remain a priority is protections for service members, including compliance with the Military Lending Act.

Prudential Regulators: A Parallel Shift

While the CFPB's future direction remains uncertain, the prudential regulators have continued their examination programs.

One of the most notable developments is the elimination of "reputation risk" as a supervisory category. The OCC has already removed it from examination practices, and both the FDIC and Federal Reserve have indicated similar intentions.

Historically, reputation risk sometimes served as a catch-all category allowing regulators to pressure institutions even when no specific legal violation was identified. Its removal is part of a broader effort to focus supervision on clearly defined financial, operational, and compliance risks.

At the same time, regulators appear to be tailoring examination intensity more carefully based on institutional size and risk profile, potentially reducing the burden on community banks.

Compliance Should Not Be Relaxed

Despite the apparent reduction in federal supervisory activity, Sherra emphasized that institutions should not weaken their compliance management systems.

Several factors make continued vigilance essential:

1. State attorneys general remain active in consumer protection enforcement.

2. Private litigation risk persists.

3. Future administrations could revive aggressive federal supervision, potentially accompanied by look-back reviews.

Strong documentation, robust complaint management processes, and clear audit trails remain essential.

The Growing Role of States

Another important theme from our discussion is the expanding role of state enforcement.

Several states, including New York, California, and Massachusetts, have signaled their intention to fill any perceived gaps left by reduced federal oversight. State regulators and attorneys general continue to focus on issues such as fair lending, consumer protection violations, and deceptive practices.

Accordingly, institutions operating nationally must consider not only federal expectations but also evolving state regulatory priorities.

Five Practical Takeaways

Five key takeaways for financial institutions navigating this changing supervisory environment are:

1. Fewer examinations do not mean less regulatory risk.

2. Complaint management and data analytics will become increasingly important.

3. Documentation discipline is even more critical in a virtual examination environment.

4. Institutions should not weaken their compliance management systems.

5. Board and senior management oversight remain essential.

In short, while federal supervision may be evolving, the fundamental expectations for sound compliance and risk management remain unchanged.

Listeners can access the full discussion on the Consumer Finance Monitor Podcast, where Sherra Brown provides valuable insight into what may be one of the most significant shifts in federal financial supervision in recent years.

Consumer Finance Monitor is hosted by Alan Kaplinsky, Senior Counsel at Ballard Spahr, and the founder and former chair of the firm's Consumer Financial Services Group. We encourage listeners to subscribe to the podcast on their preferred platform for weekly insights into developments in the consumer finance industry.

Artificial intelligence is rapidly transforming the consumer financial services industry. From underwriting and fraud detection to customer engagement and collections, financial institutions are increasingly deploying advanced AI tools to automate processes, personalize services, and improve operational efficiency. We are releasing today, on our Consumer Finance Monitor Podcast show, a discussion of what may be the next major technological shift for the industry: Agentic AI in Consumer Financial Services — AI systems capable of acting autonomously, making decisions, and interacting directly with consumers.

The discussion featured Professor Oren Bar-Gill of New York University School of Law, along with Ballard Spahr partners Joseph Schuster and Adam Maarec. The discussion was hosted by Alan Kaplinsky, the founder and practice group leader for 25 years of the Consumer Financial Services Group and now Senior Counsel. The panel examined how agentic AI differs from earlier forms of automation, the benefits it offers financial institutions and consumers, and the significant legal and regulatory risks it may create.

Below are the key takeaways from the discussion.

What Is Agentic AI?

Agentic AI refers to AI systems that can independently take actions on behalf of users or organizations. Unlike traditional automation, which performs predefined tasks, or generative AI, which primarily produces content, agentic AI systems can:

· Make autonomous decisions

· Interact directly with consumers

· Initiate actions such as transactions or communications

· Learn from prior interactions

In financial services, these systems may soon conduct customer service interactions, initiate collections calls, execute payments, or manage purchasing tasks for consumers.

While these capabilities promise major efficiencies, they also raise complex legal questions regarding accountability, fairness, and consumer protection.

Understanding AI-Driven Consumer Harm

Professor Bar-Gill framed the discussion by examining potential consumer harms associated with AI-powered decision-making. Drawing on his recent book with Cass Sunstein, Algorithmic Harm: Protecting People in the Age of Artificial Intelligence, he explained that the impact of AI depends largely on the type of market in which it operates. The book is available on Amazon here.

Sophisticated vs. Unsophisticated Markets

Bar-Gill distinguishes between:

· Sophisticated markets, where consumers are generally able to make informed decisions

· Unsophisticated markets, where consumers are more likely to misunderstand complex products

In sophisticated markets, AI-driven personalization, such as individualized pricing, can increase efficiency and expand access to products by offering lower prices to consumers with lower willingness to pay.

In contrast, in markets involving complex financial products, such as credit cards, mortgages, or insurance, AI-powered personalization may harm consumers who misjudge product costs or benefits.

For example, if a consumer mistakenly overestimates the value of a financial product, an AI system may set the price just below that mistaken valuation, leading the consumer to pay more than the product is actually worth.

Algorithmic Price Discrimination

One area of growing concern is AI-enabled price discrimination, where algorithms tailor prices to each consumer's willingness to pay.

Examples cited during the discussion included:

· Airlines experimenting with AI-based pricing strategies

· Online retail platforms offering individualized prices for identical products

· Insurance companies using algorithms to optimize premiums

While pricing based on individual risk, such as in insurance underwriting, is widely accepted, pricing based on willingness to pay raises significant consumer protection concerns.

As these practices expand, they are likely to attract increased attention from regulators and lawmakers, particularly at the state level.

AI Use Cases in Consumer Finance

The panel also highlighted several areas where AI is already being deployed across the consumer financial services lifecycle.

Marketing and Customer Acquisition

Financial institutions are using AI to analyze large data sets and create highly personalized marketing campaigns. Large language models can generate customized messaging tailored to specific demographic groups or individual consumers.

While this personalization improves targeting and engagement, it also creates compliance challenges related to:

· Misleading advertising

· Disclosure requirements

· Potential discriminatory targeting

Underwriting and Credit Decisions

AI-driven underwriting tools allow lenders to analyze alternative data, such as cash-flow information, to assess creditworthiness. These tools may expand access to credit for consumers who previously lacked traditional credit histories.

However, they also raise fair lending concerns under laws such as the Equal Credit Opportunity Act and its implementing regulation, Regulation B.

Because many AI models operate as "black boxes," institutions may struggle to explain how decisions are made, an issue that can complicate discrimination analyses and regulatory oversight.

Fraud Detection

AI is particularly powerful in fraud detection, where pattern recognition is essential. Advanced models can analyze transaction behavior in real time to identify suspicious activity while minimizing unnecessary transaction declines.

These tools also allow financial institutions to communicate with customers instantly, confirming transactions or investigating suspicious activity through automated interactions.

Servicing and Collections

Agentic AI may soon conduct both inbound and outbound customer interactions, including:

· Customer service conversations

· Dispute resolution

· Collections calls

In some cases, AI-driven voice systems can conduct conversations that are indistinguishable from human interactions.

While this technology may improve efficiency and reduce costs, it raises legal concerns about consumer deception, harassment, and compliance with debt collection laws.

Core Legal Risks

Despite the novelty of the technology, many of the key legal risks arise from existing laws, not new AI-specific statutes.

Liability for AI Actions

As Joseph Schuster emphasized, AI is a tool, not a liability shield. Institutions remain responsible for the actions of AI systems just as they would for the actions of employees or third-party vendors.

Traditional legal doctrines, including agency law, vicarious liability, and unfair or deceptive acts or practices, continue to apply.

UDAP Risks

AI systems interacting with consumers may create risks under federal and state UDAP laws if they:

· Provide inaccurate information ("hallucinations")

· Fail to deliver required disclosures

· Exhibit overconfidence in uncertain responses

· Engage in manipulative behavioral targeting.

Fair Lending and Discrimination

AI models can unintentionally produce discriminatory outcomes, even when protected characteristics are not used as inputs.

As Professor Bar-Gill noted, future litigation may increasingly focus on disparate impact analysis, which examines whether outcomes disproportionately affect protected classes regardless of the model's internal logic.

Governance and Risk Management

Given these risks, institutions are increasingly adopting governance frameworks for AI deployment.

Common practices include:

· AI governance committees with cross-functional participation

· Model inventories and risk-tiering systems

· Vendor due diligence for AI providers

· Data mapping and validation processes

· Continuous monitoring of AI outputs.

Financial regulators are already asking supervised institutions detailed questions about how AI is being used. Institutions that implement structured governance processes are better positioned to respond to these inquiries.

The Rise of Agentic Commerce

One emerging application of agentic AI involves autonomous purchasing.

For example, a consumer might instruct an AI assistant to plan and purchase supplies for a birthday party. The AI would then select vendors, place orders, and initiate payments using the consumer's stored payment credentials.

But what happens if AI makes a mistake, such as ordering supplies for 1,000 guests instead of 10?

Such scenarios raise difficult questions involving:

· consumer authorization

· merchant liability

· payment network rules

· dispute resolution

These issues are only beginning to receive attention from regulators and industry participants.

Key Takeaways for Financial Institutions

The panel concluded with several recommendations for institutions exploring AI deployment.

First, distinguish beneficial uses from harmful ones. AI can deliver significant consumer benefits, but firms must remain vigilant about potential misuse or unintended harm.

Second, prioritize governance. Robust policies, oversight structures, and risk management processes are essential.

Third, remember that existing laws still apply. AI systems must comply with the same consumer protection, fair lending, and disclosure requirements that govern traditional processes.

Finally, institutions must recognize that failing to adopt AI also carries risks. As fraudsters increasingly deploy advanced technology, financial institutions may need AI tools simply to keep pace.

As AI technology continues to evolve, the legal framework governing its use in financial services will also develop. For now, however, the most important lesson is that innovation must proceed hand-in-hand with careful legal and compliance oversight.

Consumer Finance Monitor is hosted by Alan Kaplinsky, Senior Counsel at Ballard Spahr, and the founder and former chair of the firm's Consumer Financial Services Group. We encourage listeners to subscribe to the podcast on their preferred platform for weekly insights into developments in the consumer finance industry.

We are releasing today on our Consumer Finance Monitor podcast our host Alan Kaplinsky's discussion with Marisa Calderon, President and CEO of Prosperity Now, about two high-profile policy proposals raised or embraced by President Trump as part of a broader populist affordability agenda:

1. A nationwide 10% cap on credit card interest rates for one year.

2. The Credit Card Competition Act (CCCA), long championed by Senator Dick Durbin which would require large credit card issuers to enable at least two unaffiliated payment networks (only one of which could be MasterCard or VISA) on their cards.

Each proposal is framed as pro-consumer. Each has generated significant pushback from banks, card issuers, and trade associations. However, even consumer advocacy groups have raised serious questions about the wisdom of such initiatives. Prosperity Now is a non-profit organization dedicated to advancing economic mobility, with a focus on those facing economic barriers. Each raises fundamental questions about how to balance affordability and access in the consumer credit market.

Our discussion focused on a central theme: affordability is a real and pressing concern, but policy design matters enormously.

Credit Card APRs: A Real Affordability Pressure

As Calderon emphasized, policymakers are not wrong to focus on credit card interest rates. Average credit card APRs now hover around 22%, up sharply from roughly 13% a decade ago. Approximately half of cardholders carry a balance, and many rely on credit cards not for discretionary spending, but as liquidity bridges, covering emergency medical bills, car repairs, groceries, and other essentials.

For lower and moderate-income households, credit cards are often the only readily available, regulated source of short-term liquidity. That makes rising APRs particularly painful.

Calderon's formulation is apt: policymakers have identified the right problem. The harder question is whether they have identified the right solution.

The 10% Interest Rate Cap: Lessons from History

The proposal to impose a flat 10% nationwide cap on credit card interest rates for one year would represent an unprecedented federal intervention into unsecured revolving credit markets.

Credit cards are unsecured and priced for risk. Interest margins help issuers cover expected charge-offs, volatility, and operational costs. If pricing flexibility is removed, lenders cannot simply absorb the loss, they adjust.

Historically, those adjustments take predictable forms:

• Tighter underwriting standards

• Higher minimum credit scores

• Lower credit limits

• Reduced rewards programs

• Increased non-interest fees

• Exit from higher-risk market segments

The likely result, as Calderon noted, is credit contraction, particularly affecting marginal and lower-income borrowers.

The most relevant historical example may be the 1980 credit controls imposed during the Carter Administration, which were rescinded within months after causing severe market disruption. A more targeted example is the 36% APR cap under the Military Lending Act, which illustrates both the importance of bipartisan legislative design and the reality that even well-intentioned caps can reduce access at the margins.

Recent Federal Reserve research on state usury caps reinforces this concern: when interest rate ceilings are imposed, credit to higher-risk borrowers contracts, credit to lower-risk borrowers expands, and delinquency rates do not meaningfully improve. In other words, credit is reallocated, not necessarily improved.

Even a "temporary" cap may have durable consequences. Issuers that exit certain segments or reduce credit lines are not obligated, and may not be economically inclined, to restore them once the cap expires. Credit score impacts and reduced access can linger well beyond the formal life of the policy.

As Calderon put it, blunt price controls are a chainsaw when what is needed is a scalpel.

Affordability in Context: What Drives Household Budgets?

An additional consideration is scale. Research recently highlighted by the Consumer Bankers Association shows that the fastest-growing household expenses from 2013–2024 were healthcare, shelter, food, and vehicles. Credit card interest represents a relatively small share of average household expenditures.

This does not minimize the pain of high APRs, especially for households carrying persistent balances, but it does raise an important structural question: can credit card rate caps meaningfully solve broader affordability challenges rooted in housing, medical costs, food inflation, and transportation?

Credit cards are often the mechanism households use to cope with those rising costs. Constraining access to that liquidity may exacerbate, rather than relieve, financial stress.

The Credit Card Competition Act: Structural Reform or Indirect Price Control?

The second proposal we discussed, the Credit Card Competition Act (the "CCCA"), takes a different approach.

Rather than capping interest rates, the CCCA would require large issuers to offer merchants at least two unaffiliated network routing options (only one of which could be Visa or Mastercard). The theory is that routing competition would reduce interchange fees ("swipe fees"), lowering merchant costs and ultimately consumer prices.

Merchants have generally supported the proposal. Banks and card issuers have strongly opposed it.

The consumer-facing promise is straightforward: lower merchant fees should translate into lower retail prices, but history complicates that assumption.

The Durbin Amendment to the Dodd-Frank Act imposed caps on debit card interchange fees for large issuers and included routing requirements. While interchange revenue declined, Calderon pointed out that empirical evidence suggests that cost savings were not consistently passed through to consumers in the form of lower prices. At the same time, banks offset lost revenue through higher account fees and reduced benefits.

A similar dynamic could unfold in the credit card market. Interchange revenue helps fund:

• Rewards programs

• Fraud detection and prevention

• Customer service infrastructure

• Risk management

If that revenue is compressed, issuers may respond with tighter underwriting, reduced rewards, or new fee structures. As Calderon observed, although the CCCA operates through indirect price pressure rather than a direct APR ceiling, downstream effects could look similar.

Distinguishing Populist Framing From Durable Reform

Both the rate cap and the CCCA are framed as pro-consumer, populist reforms. The political appeal is clear, but distinguishing headline appeal from durable consumer benefit requires careful analysis.

Calderon suggested several guideposts policymakers should consider:

• Access – Does the reform preserve or expand access for low- and moderate-income borrowers?

• Incidence – Who actually captures the gains? Consumers, merchants, intermediaries, or some combination?

• Substitution effects – Does the policy push consumers toward higher-cost, less-regulated alternatives such as payday or fringe products?

• Durability – What happens after implementation? Do markets rebound, or do credit line reductions and underwriting changes persist?

These questions are not ideological. They are structural.

Affordability and access are not opposing values. The policy challenge is designing reforms that alleviate financial strain without narrowing the regulated credit tools families rely on when emergencies arise.

The Bottom Line

Affordability concerns are real. Rising APRs are real. Financial stress among many households is real. But blunt price caps may reduce rates on paper while reducing access in practice. Structural competition mandates may promise savings that do not materialize at the checkout counter.

Durable consumer protection requires careful calibration — the scalpel, not the chainsaw.

For industry participants, policymakers, and advocates alike, the takeaway is straightforward: evidence and market mechanics matter. Populist framing may win headlines, but long-term financial stability depends on policy design that accounts for how credit markets actually function.

As always, we will continue to monitor these proposals and their evolution in Congress and the Administration. It may be noteworthy that President Trump did not mention either proposal during his almost two-hour State of the Union Address on January 24th.

Consumer Finance Monitor is hosted by Alan Kaplinsky, Senior Counsel at Ballard Spahr, and the founder and former chair of the firm's Consumer Financial Services Group. We encourage listeners to subscribe to the podcast on their preferred platform for weekly insights into developments in the consumer finance industry.