Attorneys

George R. Calhoun Member

/ P (202) 524-4147

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A business counselor at heart, George R. Calhoun V is a litigator who knows how to win in a courtroom, at the settlement table, or in arbitration. By putting his clients’ goals and objectives first, he is adept at devising case strategies that achieve his clients’ definition of success.  George is chair of Ifrah’s Financial Services practice.

George’s practice primarily focuses on the litigation of complex disputes for clients in a broad array of disciplines, including contracts, consumer financial services, securities regulation, corporate disputes, real estate, fraud, bankruptcy, and other business claims. He has an extensive background in dispute resolution, having appeared before numerous state and federal courts on behalf of clients ranging from publicly traded companies to large multi-national corporations to individuals.  He also regularly appears before bankruptcy courts on behalf of creditors and other interested parties.  George currently serves as Vice Chair to the Corporate Counseling and Litigation Subcommittee of the American Bar Association’s Business Law Section. Prior to joining Ifrah, George was Special Counsel at an Am Law 100 firm where he focused on complex litigation and business disputes.

Teaming with other Ifrah attorneys in niche areas like digital media, millennial marketing, e-commerce, health care, and iGaming, George is called upon to review compliance programs, contracts, and advertising materials through the lens of a litigator, helping to mitigate possible litigation claims or enforcement actions. He is able to apply nearly two decades of traditional business litigation experience to Ifrah’s emerging internet and technology company clients, anticipating and addressing possible contractual issues, investment disputes, or other business issues.

At Ifrah, George embraces the “hands on” approach that is part of the firm’s culture and enjoys working closely with clients on their most important matters. Through a combination of lean staffing, early case assessment strategies, and a keen understanding of both legal and business goals, George leverages the best of a boutique law practice while drawing on his “big law” experience to provide efficient and effective counsel.

Professional + Community

  • American Bar Association; Member; Vice Chair to Corporate Counseling and Litigation Subcommittee of the Business and Corporate Litigation Committee
"How The Trump Administration Could End The Federal Ban On State-Regulated Sports Betting," Legal Sports ReportFebruary 1, 2017
George Calhoun, Speaker, "Litigation Forum: Litigation vs. ADR – Practical Issues From Drafting to Enforcement," Association of Corporate Counsel, National Capitol RegionOctober 6, 2016
"Accusation Superhighway: Is IC3 Hurting Emerging Online Businesses?," Corporate Compliance InsightsSeptember 22, 2016
George Calhoun, Speaker, "CFPB’s Proposed Arbitration Ban – What You Need To Know," American Bar AssociationJuly 20, 2016

Ifrah Law Negotiates Complete Withdrawal of All Counts of Possible Class Action Suit

A former contractor for a long standing firm client filed a class action suit in the Eastern District of Virginia (the famed “Rocket Docket”) based upon alleged tax and Fair Labor Standard Act infringement claims in connection with contract services purportedly provided by the plaintiff to our client in connection with a government contract for security services at an overseas military base.

Ifrah’s team, led by partner George Calhoun, first succeeded in attaining a swift dismissal of the class action tax claims based on the inapplicability of the tax statute at issue to purported employee misclassification.  The plaintiff also was forced to amend its complaint to eliminate its employment law claims because the FLSA does not apply to contractors or employees based overseas. The client was thus relieved of the initial threat of a large scale and costly class action suit.

The plaintiff nonetheless continued to pursue the suit against our client based on an individual breach of contract claim. Through the effective discovery conducted by Ifrah’s litigation group, we were able to limit any possible claims by the plaintiff.  Most tellingly, we established that the plaintiff had made – and was making – inconsistent claims in his discovery responses and in a lawsuit brought against a third party.

Based on these facts, Mr. Calhoun persuaded opposing counsel to dismiss all claims, ultimately relieving our client from any financial or legal liability.

 

The Blacklisting Rules Are Coming: What Federal Contractors Need to Know

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The Federal Acquisition Regulation final rule implementing the “Fair Play and Safe Workplaces” Executive Order 13673 was issued on August 25, 2016, and the rule goes into effect on October 25, 2016. This new regulation presents a significant change – and potential challenge – for major government contractors.

President Obama signed Executive Order 13673, often referred to as the “Blacklisting” order, on July 31, 2014. The stated goal of the order is to “increase efficiency and cost savings in the work performed by parties who contract with the Federal Government by ensuring that they understand and comply with labor laws.” On their face, the Order and regulations provide new instructions for Federal contracting officers to consider a contractor’s compliance with certain Federal and State labor laws as a part of the determination of contractor “responsibility” that contracting officers must undertake before awarding a Federal contract. But what do the Blacklisting Order and the final rule really do?

Mandatory Reporting of Labor Law Violations

The new rule imposes significant reporting obligations on federal contractors during the procurement process. Ultimately, contractors and subcontractors will need to report three years of labor law violations once the rule is fully in effect. Labor law violations encompass violations of the Fair Labor Standards Act, the Occupational Safety and Health Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and ten other federal laws and orders. According to the final rule, there are three types of actions that constitute reportable violations: “administrative merits determinations,” arbitral awards or decisions, and civil judgments. Contractors must supply basic information about the violation, including the nature of the violation and identifying information, and also have the option of submitting evidence of mitigating factors and remedial measures. This information will be stored on a publicly available, searchable website.

Acknowledging this reporting is a significant burden, there is a phase-in period to allow companies to get up to speed. When the rule becomes effective on October 25, 2016, the reporting requirements will only be effective for procurements of $50 million or more and only for prime contractors. But after six months, on April 25, 2017, contractors bidding on prime contracts of $500,000 or more will need to make the relevant disclosures. On October 25, 2017, subcontractors become subject to the rule as well. Additionally, while the reporting time frame is ultimately the three preceding years, for the first year the rule is in effect, reporting will only reach back for one year. The reporting window will be expanded by a year each year thereafter, until the three-year reporting period is completely phased in on October 25, 2018.

New Paycheck Transparency Requirements

The Blacklisting Order and final rule also institutes requirements for contractors in how they communicate wage information to workers. As of January 1, 2017, contractors and subcontractors must provide a detailed wage statement, including hours worked, overtime hours, rate of pay, and any additions made or deductions taken, to every worker performing under a federal contract. Additionally, prior to beginning work, the contractor must indicate to the worker whether they will be considered an employee or an independent contractor, and if an employee, whether they are exempt or non-exempt. These notifications must be provided to workers in English and any other language used by a “significant portion” of the workforce.

Restrictions on Pre-dispute Arbitration

On the same date the reporting requirements begin the phase-in process – October 25, 2016, the requirements surrounding arbitration agreements will go into full effect. Companies with federal contracts or subcontracts of $1 million or more may not require workers to enter into pre-dispute arbitration agreements for disputes based on Title VII claims or torts related to sexual assault or harassment. The only exception will be for employees covered by a collective bargaining agreement that has negotiated the contract with an agreement to arbitrate prior to the contractor bidding on the covered contract.

The Government’s Obligations Under the New Rule

Under the new rules, the Government has obligations as well. Each agency must designate an Agency Labor Compliance Advisor (“ALCA”) to implement the reporting program. The ALCA will be the central point of contact for the agency and all matters related to Blacklisting reporting. This includes helping contractors achieve compliance with the rules and recommending labor compliance agreements. On the date the rule goes into effect, the Department of Labor will release a list of the ALCAs and their contact information.

Not the First Attempt at Blacklisting

President Bill Clinton has tried this once before. On December 20, 2000, just weeks before the end of his final term, he issued similar blacklisting rules. These rules would have required federal contractors to certify whether they violated any federal, state, or foreign labor, employment, tax, environmental, antitrust, or consumer protection law in the prior three years. A violation was defined as any incident running afoul of the various laws supported by “pervasive evidence.” That is, no formal ruling or determination of liability had to have been made to create a reportable violation. Further, contracting officers would have had complete authority to determine if the violations disqualified the contractor from reporting and were not obligated to allow bidding contractors an opportunity to respond to potentially disqualifying violations.

While the temporal element is the same as the current rule, the list of reportable violations far exceeded the list of labor law violations as contemplated now. Contractors and various industry groups aggressively opposed the 2000 proposed rule, and several lawsuits were filed in an attempt to block implementation. Nonetheless, the rule went into effect on January 19, 2001 – the day before President Clinton left office. However, in March 2001, President George W. Bush ordered suspension of the rule and began the process for overturning it. By the end of 2001, the Bush Administration had successfully revoked this rule.

Next Steps for Contractors

Contractors shouldn’t expect the 2016 rule to meet the same fate as the 2000 version. While both rules bear some similarities, the current rule is much narrower and better defines what constitutes a reportable violation. Some industry groups have publicly contemplated lawsuits against the 2016 rule, none have been filed yet. With the looming deadline, contractors should start making plans to establish a compliance regime.

While compliance with labor laws is a worthy goal, the new regulation also will have significant costs.  It reduces an employers’ ability to require arbitration, which likely will result in increased, costly litigation and possibly class action litigation if future labor disputes arise.  Similarly, for existing disputes decided in arbitration, it eliminates the benefit of confidentiality by requiring public disclosure concerning any adverse award.

The new regulation does provide some additional compliance options for contractors in advance of official implementation. Companies may undergo a voluntary preassessment by the Department of Labor. Beyond helping companies become acquainted with the rules, participation in this program will be considered a mitigating factor in future acquisitions. The preassessment, however, the DOL may require companies to enter into labor compliance agreements.

Federal contractors should start taking internal steps to ensure compliance in advance of the effective dates. Companies should work with their internal teams, including legal, human resources, and IT support, to ensure that the necessary records are being kept and to design a reporting and monitoring program for the future. Companies should also review their new hire policies, to ensure that proper notifications are made to all workers in the required languages.

While this is a final rule and set to go into effect in the coming weeks, the matter is far from settled. Legal challenges to the rule once implemented may arise in the courts. And, as with any new rule, the devil is always in the details, so companies will likely not know the full impact of the rule until attempting compliance during the procurement process.

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CFPB Scare Tactics: The New Arbitration Rules

Closeup of torn legal contract

Recently, I wrote about the CFPB’s plans to issue new regulations restricting arbitration clauses in certain consumer contracts.  Today, the agency announced those new rules and CFPB Director Richard Cordray is expected to discuss them at the agency’s field hearing in Albuquerque, New Mexico.  As expected, the new rules eliminate the use of class action waivers and otherwise restrict the availability of arbitration in consumer contracts, including those involving credit transactions, automobile leases, debt relief services, consumer depository accounts, check cashing, credit monitoring/reporting, and debt collection.  The CFPB admits that it intends to “incentivize” greater legal compliance through the “in terrorem” deterrent impact of the new rules.   In other words, the CFPB wants the prospect of increased class action litigation to scare companies into treating consumers better.

The new proposed rules are available at the CFPB’s website along with over 350 pages of supplementary information explaining the proposed rulemaking.  The CFPB proposal prohibits “companies from putting mandatory arbitration clauses in new contracts that prevent class action lawsuits.”  See Proposed § 1040.4(a).  Companies would still be able to include arbitration clauses in their contracts, but could not restrict access to class litigation and the arbitration provisions must include specific language provided by the CFPB.

In addition, in practical terms, the CFPB has just designated itself as the overseer of U.S. arbitral bodies in direct contrast to existing laws and rules that provide very limited court oversight and review of arbitration decisions.[1]  The proposed rules would require covered companies to submit detailed information about any of their consumer arbitrations to the CFPB.  See Proposed § 1040.4(b).  The CFPB states that it will gather, and may publish, this data so that it may gain “insight into whether companies are abusing arbitration or whether the process itself is fair.”  Although the rule provides for redaction of personal information, this new practice threatens to undermine the confidential nature of arbitrations and thereby limit one of arbitration’s principle benefits.  It is not yet clear how the CFPB might conclude that consumer arbitrations are “unfair” or what they might do in response to such a determination.

Regardless of whether the proposed regulations will succeed in scaring companies into greater legal compliance, if the rules become effective, companies should expect a marked increase in consumer class action litigation.  The newly announced regulations are not final, however, and interested parties will have an opportunity to comment before the rules become effective.   Interested parties have 90 days from the publication of the proposed rule in the Federal Register to comment and we expect multiple objections from the financial industry this summer.  The comments likely will include practical examples of the benefits of consumer arbitration provisions, critiques of the agency’s study of consumer arbitration that formed the basis of the proposed regulations, and proof of the detrimental impact that an increase in class actions will have on the business community, especially on smaller businesses.  Any potentially covered company should consider commenting on the CFPB proposed regulations, either directly or through trade associations.

Once the rules are final, companies will only need to comply with the new regulations prospectively; the provisions of the Dodd-Frank Act authorizing the CFPB to regulate arbitration provide that any new rules will be binding 180 days after their effective date.  So any arbitration agreement entered into prior to, or within six months of, the new rule’s effective date is not subject to the new restrictions.  This gives potentially covered companies some breathing space to review and, if necessary, modify their existing contracts.

Although many in Congress do not support the newly proposed rules, given current political realities, there are unlikely to be any legislative changes to the proposed rules or the CFPB’s authority.  As a result, we expect that something close to the proposed rule will become effective later this year.  Following that, there likely will be multiple court challenges to the new rules and the CFPB’s authority to issue them.  In the meantime, all potentially affected companies should:

  • Review their existing contracts and arbitration programs to determine whether their existing contract forms would violate the proposed regulations;
  • Prepare alternative contract language if existing forms will no longer be permitted; and
  • Consider whether their existing pricing structure and litigation positions make sense in the coming world.[2]

Whatever the goal, companies are unlikely to be scared into greater legal compliance; most companies already strive to comply with the law.  We anticipate that the CFPB’s proposed rules will have many unintended consequences.  In the short term, the increase in class action litigation will be a boon for many lawyers.  Consumers with legitimate claims, however, may find that the class action process results in smaller payouts over which they have less control.  And as companies adjust to this new environment, they will pass on the increased costs of increased class litigation to customers and likely will further tighten credit standards and product availability to reduce potential claims.

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[1] Under Section 9 of the Federal Arbitration Act, a court must confirm an arbitration award unless it is vacated, modified, or corrected in accordance with Sections 10 and 11.5 of the FAA, i.e. where the award was procured by corruption, fraud, or undue means or there was an evident material miscalculation or mistake in the award.

[2] For example, companies may wish to withdraw from the American Arbitration Association’s Consumer Clause Registry.  For that matter, the AAA and similar arbitral organizations are sure to lose significant business as the consumer arbitration market is sure to shrink significantly if the new rules become effective.

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New Jersey Issues Bulletin Clarifying Licensure Standards for Internet Gaming

Today, the New Jersey DGE issued a “Director’s Advisory Bulletin” clarifying how it would apply its suitability rules to gaming license applicants who conduct internet gaming in other jurisdictions.  If you offer a game that is illegal in any jurisdiction, the DGE will consider you unsuitable and bar you from the New Jersey market.  The new Bulletin clarified what New Jersey considers illegal:  If you operate in a “grey market” jurisdiction where internet gaming laws are ambiguous – or no affirmative enforcement actions have been taken – you’re probably good to go where NJ licensure is concerned.  But if you operate in a jurisdiction where the relevant authorities have taken affirmative action to prevent internet gaming activity, it will be considered a “black market” and you may be ineligible for a New Jersey license.  Make sure you know what a black market is and stay out!

As a prerequisite to any gaming license determination, the DGE must determine whether an applicant is “suitable” for licensure under the New Jersey Casino Control Act.  Internet gaming companies operating illegally in other jurisdictions will be unable to establish the “good character, honesty, and integrity required for a New Jersey gaming license.  Operating a legal internet gaming business in another jurisdiction presumably poses no obstacle to suitability.  Today’s Bulletin was a result of the DGE’s struggle with how to determine “suitability” when internet gaming companies operate in jurisdictions – as is often the case – where the legality of online gaming is “unclear or inconsistent.”  The DGE deemed such jurisdictions “grey markets.”  Recognizing that it was in no position to opine on the laws of these grey market jurisdictions, the DGE opted not to adopt a standard that would have imposed its own views on the laws or actions (or inaction) of other sovereign jurisdictions.  For practical purposes, this means that New Jersey has adopted a suitability standard of “if it’s not prohibited there, you are permitted here.”

Instead, the DGE will deem an applicant unsuitable based on its operations in other jurisdictions only if the applicant has conducted gaming operations in a “black market” jurisdiction: one in which the online gaming is clearly illegal or where the jurisdiction has “taken affirmative, concrete action to enforce” its anti-gaming law.  The DGE listed civil and criminal complaints and the issuance of formal cease and desist letters as examples of such affirmative actions.  Where a jurisdiction has refrained from taking any affirmative steps to prevent an internet gaming market to develop, the DGE will consider that jurisdiction to be a “grey market.”

The Bulletin does, however, leave substantial ambiguity concerning the hot area of daily fantasy sports (“DFS”).  Some states, like Alabama and New York, have issued cease and desist letters or taken other actions to prevent the operation of DFS sites in their states.  New Jersey’s Bulletin clarifies that those states should now be considered “black markets” and operation of DFS in those states could cause an applicant to be found unsuitable by the DGE.  The attorney generals of several other states have issued opinions declaring that DFS constitutes illegal gambling.  But unlike Alabama and New York, many of those jurisdictions have taken no affirmative action to enforce any law against DFS operators.  It remains unclear how the DGE will address those jurisdictions.  It could, however, consider the operation of a DFS business in those states as a prohibited “black market” activity.

For internet gaming companies, many of which operate both internationally and in multiple U.S. states, the DGE’s newly announced standard provides welcome clarity to companies looking to do business in the Garden State.  Companies currently operating in New Jersey, or hoping to do so in the future, should work with their counsel to ensure that they are not operating in any “black market” jurisdiction.

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Arbitration Under Fire: Brace Your Company for Less Contract Freedom and More Class Actions

Close-up Of Judge Reading Contract Paper At Desk In Courthouse

Since the Federal Arbitration Act (FAA) of 1925, the United States has had a policy preference for arbitration, even when an arbitration provision includes language barring class action litigation.  We saw this most recently in December 2015 when the Supreme Court reversed a decision by a California Court of Appeal to invalidate a class-arbitration waiver within a service agreement between DirecTV and its customers.[1]  But not everyone thinks arbitration is so great a thing.  Encouraged by consumer groups and trial lawyers, federal regulators are pushing for limits on arbitration provisions in consumer contracts.

At its core, the debate is about whether companies may compel consumers to arbitrate rather than litigate disputes and – perhaps more significantly – bar consumers from class action remedies as part of the arbitration requirement.  Critics of mandatory arbitration say that it restricts consumer redress and is tantamount to a deceptive trade practice because the arbitration provisions are usually contained in the “fine print” of a contract.  The new rules being proposed reportedly are designed to eliminate mandatory arbitration provisions and facilitate class action litigation.

Despite the criticisms of consumer groups, arbitration often is cheaper and more effective for both individual consumers and companies.  By interfering with Americans’ freedom of contract to prevent the use of mandatory arbitration, the government could severely damage U.S. business interests by exposing them to a marked increase in expensive class action litigation.  In turn, that would result in more limited choices and increased costs for consumers.

The government’s efforts to eliminate mandatory arbitration provisions in consumer-related contracts have been highlighted in several recent agency actions.  In its list of near-term goals, the Bureau of Consumer Financial Protections (CFPB) said that new rules to govern arbitration in consumer contracts would be a priority in 2016. The Department of Education announced that it, too, was reviewing mandatory arbitration provisions in college enrollment contracts.  And despite multiple appellate decisions to the contrary, the National Labor Relations Board (NLRB) again concluded that class action waivers in arbitration agreements infringe on an individual’s rights under Section 7 of the National Labor Relations Act.

All of this has happened in the space of three months, indicating a clear effort by the government to diminish businesses’ ability to require arbitration that shields them from often frivolous and costly class action litigation.  The acts of some Congressmen have made this agenda even more transparent.  In February 2016, Senator Patrick Leahy introduced a bill that would modify the scope of the FAA and curtail the use of mandatory arbitration.  The bill is unlikely to pass in the current Republican Congress, but Congress previously empowered federal agencies to curtail the use of mandatory arbitration provisions on a significant, but more limited, basis.

The CFPB’s current actions were authorized by the 2010 Dodd-Frank Act[2], which barred the use of arbitration clauses in certain mortgage contacts[3] and gave the SEC power to ban or restrict the use of arbitration in other disputes. Deepak Gupta, then the CFPB’s senior counsel for enforcement strategy, stated that prohibiting or restricting mandatory arbitration would be “the single most transformative thing the bureau can do” for consumers.[4]  In March 2015, the CFPB released a 728-page study of arbitration in consumer contracts, which was criticized by some academics and trade groups for misstating the impact of mandatory arbitration provisions on consumers.  Since then, members of Congress have engaged in deeply partisan squabbling over the need for additional rulemaking on consumer arbitration or to limit class action litigation in other ways.

Despite the criticism and opposition, CFPB director Richard Cordray reiterated the agency’s plans to release new rules aimed at banks and other financial firms. Earlier comments by the agency confirm that the new rules will be designed to prevent arbitration clauses from restricting class action remedies.  We think such changes would quickly spread to encompass telephone, Internet, and other commonplace consumer agreements.

American companies should be concerned with how executive agencies, e.g., the CFPB, the Department of Education, and the NLRB, will carry out their plans to introduce regulations that restrict the use of arbitration clauses in a broad range of consumer contracts.  We will not be surprised to see some companies restrict their consumer offerings or increase prices to account for these new rules.  If you work in American business, we urge you to take notice of these changes and review how to protect your company from undue litigation in future contracts. Among other options, you should analyze the inclusion of non-mandatory arbitration provisions, the separation of class-action waivers from arbitration provisions, and the option of raising prices to contend with increased litigation.

[1] DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463 (2015).

[2] Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010). The Dodd-Frank Act was passed without a single Republican vote in the Senate.

[3] Id. § 1414.

[4] Carter Dougherty, CFPB Finds Arbitration Harms Consumers, Presaging New Rules, BLOOMBERG BUS., March 10, 2015, available at http://www.bloomberg.com/news/articles/2015-03-10/cfpb-finds-arbitration-harms-consumers-in-study-presaging-rules.

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CFPB No-Action Letters Are No Help

CFPB

In the age of handheld banking apps, private funds transfer systems, and digital currencies, ensuring that new products are fair to consumers and compliant with existing – and sometime archaic – regulations are difficult tasks. The Bureau of Consumer Financial Protection (“CFPB”) recently finalized a new policy for providing “no-action letters” (“NALs”) to companies seeking to introduce new consumer finance products and technologies. Although the CFPB’s stated goal was to ensure transparent and efficient markets that “facilitate access and innovation,” it has failed to hit that target. The CFPB’s new policy is a step in the right direction, but the benefits of the new policy are limited and applicants will run commercial and legal risks in seeking the limited shelter offered by the agency.

Not only will NALs offer limited protection, they will be available only in exceptional circumstances where there is both regulatory confusion and a new product. The CFPB said that it is devoting only limited resources to this program and expects to issue only two or three NALs per year. The restrictive nature of this policy will minimize the value of the agency’s much-needed guidance. The limited scope of the new policy stands in contrast to the SEC’s no-action policy, where NALs are important tools for market participants and their counsel in conducting business. Although NALs are rare in the bank regulatory context, the SEC has recognized that many issuers and securities law practitioners closely monitor such letters, and often view them as “the most comprehensive secondary source on the application of [the federal securities] laws.” (1)

There is considerably less guidance as to CFPB regulations and a more robust no-action policy would provide much needed clarity for market participants and innovators. Under the new policy, market participants considering bringing a new product to market may request a “no action letter” (“NAL”) from the agency. The request for a NAL must contain 15 categories of information, including: a description of the new product (including how it functions); the product’s timetable, an explanation of its substantial benefit to consumers; a “candid explanation” of the potential consumer risks posed by the product; an explanation of the source(s) of the regulatory uncertainty to be addressed by the NAL; and a promise to share data about the product’s impact on consumers. Examples of products that might qualify for a NAL include the early intervention credit counseling program proposed by Barclays PLC and Clarifi (a consumer credit counseling service), which was an early CFPB Project Catalyst research pilot.

The benefit from any NAL issued by the CFPB will be limited. The proposed relief offered is a statement that the CFPB “staff has no present intention to recommend initiation of an enforcement or supervisory action against the requester in respect to the particular aspects of its product…” This amounts to “we won’t take action – unless we do.” While the CFPB is unlikely to take enforcement action with respect to a new product shortly after issuing a no-action letter, the proposed letters are in no way binding and offer little more protection than the existing process of informal consultation. This weakness may be ameliorated over time as courts have an opportunity to weigh in on the impact of CFPB no-action letters and the agency develops a track record for its handling of these issues.

Submitting a request for a NAL could create commercial or regulatory risk for an applicant. From a cost standpoint, preparation of such an application will be a significant undertaking, especially for smaller companies. Because the process is only available for products that are close to market ready, potential applicants will have invested significant sums to prepare their new product. A company in this position may not want to run the risk that the CFPB denies the NAL request, which might delay or prevent it from bringing the new product to market altogether. The publication of the NAL might also give competitors a chance to duplicate or improve on the innovation before or shortly after it reaches the market.

The process also entails legal risks. The NAL application process requires the company’s lawyers to explain why they think the legality of the proposal is “substantially uncertain” but nonetheless should be resolved in the company’s favor. If the CFPB determined that the product is not in compliance with any pertinent law or regulation, the application effectively will be converted to an admission of wrongdoing that would bar the product from the market. (2)

Because the CFPB will publish each NAL that it issues, the non-binding letters also may highlight potential compliance issues to other regulators (and potential consumer litigants), none of which will be bound by the NAL.

By creating such a restrictive process, the CFPB has offered innovators little opportunity to save costs if their product is deemed non-compliant, and no real protection if it is. In many instances, it is questionable that the new no-action policy offers substantially more comfort to a market participant than they could already obtain through informal discussions with the agency. But because there is little existing guidance on CFPB regulations, the new process is welcome, even if limited. The new policy will be particularly useful for companies introducing products at the edge of current law. Deciding whether to seek a NAL will require careful consultation with a company’s lawyers to navigate the potential legal and business risks.

(1) Expedited Publication of Interpretative, No-Action and Certain Exemption Letters, Securities Act Release No. 6764, [1987-1988 Transfer Binder] Fed. Sec. L. Rep. (CCH) 84,228, at 89,053, 89,054 (Apr. 7, 1988). 10 Thomas P. Lemke, The SEC No-Action

(2) The CFPB limited its new policy to new services and technologies. It would make little sense to seek guidance for existing products where the application itself could be seen to be an admission of wrongdoing.

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Tuesday, Apr 25, 2017

Ifrah Law’s Jessica Feil to Speak at GiGse 2017

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