For 48 years, under eight presidents, Philadelphia lawyer Alan Kaplinsky has been helping lenders battle consumer advocates and regulators.
From banks seeking to "export" high-fee credit cards from such states as Delaware in the late 1970s, to the expansion of mortgage lending to "subprime" borrowers in the 1990s, to the fight to keep graduates and dropouts from writing off college loans in bankruptcy in the 2000s, Kaplinsky has been a leading counselor to banks and financiers. His most original legacy may be the Arbitration Waiver, which obliges consumers and employees to submit to private dispute settlement, instead of joining lawsuits against big corporations.
Under President Trump and the Republican Congress, "this is the most deregulatory environment that I can remember. Reagan would be next," marveled Kaplinsky, 72, last week at a Center City coffeeshop near his office at the headquarters of law firm Ballard Spahr LLP. "This is great for our clients."
And yet it wasn't at all clear, when Trump was elected in 2016, that the reaction against regulation would also be good for Kaplinksy's professional practice, which grew from 15 regulatory and litigation lawyers, to 120, after passage of the 2010 Dodd-Frank bank-reform bill under President Barack Obama.
The law set up the Consumer Financial Protection Bureau (CFPB), billed as the first federal banking agency designed to fight for bank customers against bank ripoff fees and shady practices, instead of the usual government focus on keeping banks healthy and solvent.
The Obama reforms were "a watershed event," Kaplinsky told me, his brown eyes widening under brows that match his bushy mustache. His countenance is familiar to readers of his blog, www.cfpbmonitor.com, which has tracked the agency in detail since 2011 and now has a full-time lawyer-manager, Barbara Mishkin.
The bureau, with a single powerful executive (instead of the usual agency board of staggered-term commissioners) with powers to sue banks, "was manna from heaven" for lawyers. but less favorable for lenders. As the bureau filed cases against dozens of banks, some the industry reached out to Kaplinsky for help, and he staffed up. "I said, 'this is a really big opportunity for us.
And then came 2016, when "nobody expected Trump to win. I had figured CFPB would be there forever. I could just coast into retirement with Hillary in there for eight years," with the government suing more banks and Kaplinsky's team defending. Trump, who had pledged to "neuter" the consumer agency, "was going to have a huge negative impact on our practice," Kaplinsky said.
Time to pivot. His group met the day after the election. As under President Ronald Reagan, the lawyers figured, there would be a rush of new, non-traditional lenders taking advantage of loosened enforcement. These new lenders use new smartphone-compatible technology to speed loans, and exploit the wave of customer data now available from social media, retailers, and other consumer trackers. Soon, Ballard was representing these financial-technology (fintech) firms and their start-up-lender clients. "There's been a lot more interest in this since the Trump election. It's become a more attractive space," Kaplinksy said.
The firm also re-focused on defending banks from Democratic state attorneys general who have tried to fill the enforcement "void" left as Trump pulls back. "In Pennsylvania, Josh Shapiro is the first attorney general in decades to really become an important factor" in pressuring lenders, Kaplinsky said. "We probably have close to a dozen investigations here. We never used to worry about the Pennsylvania attorney general. Now people are concerned."
Add it up, and, "knock on wood, the decline in business, as a result of the CFPB turning from an elephant into a mosquito, has been completely offset by other stuff we're doing," Kaplinsky said. Since Trump aide Mick Mulvaney became acting bureau chief and his Obama-appointed predecessor Richard Cordray went off to campaign for governor of his native Ohio, the agency is "not nearly as scary."
Last weekend the White House named Kathy Kraninger to replace Mulvaney's temporary appointment and become the next director. Kraninger is "a surprise" because she lacks a background in financial regulation, Brian Gardner, analyst at Keefe, Bruyette & Woods, the New York investment bank, said in a letter to clients Monday. Most likely "the nomination will be generally positive for consumer lenders" if Kraninger sticks to Mulvaney's policy of avoiding "regulation by enforcement" and shrinking her own agency's budget so it can't keep suing banks.
After a year as a judge's law clerk, Kaplinsky joined Wolf Block Schorr & Solis-Cohen in 1971, then became general counsel for Jack Alter's Teachers' Service Organization, a pioneering Philadelphia high-rate lender that became Advanta Corp. As usury laws and lending limits loosened under the Carter administration, he returned to Wolf Block at the end of the 1970s and built a banking law practice, with Advanta as a client. After Reagan's election, Kaplinsky helped Pennsylvania banks find legal ways to avoid the state's old laws and boost loan rates.
In 1995, Philadelphia banker Betsy Zubrow Cohen recruited him to Ballard, which represented her husband Edward Cohen's energy businesses. Ballard leaders including litigation chief (and future chairman) Arthur Makadon (now deceased) asked Kaplinsky to build a bank regulatory and consumer finance practice. Kaplinsky joined the American Bar Association's Committee on Consumer Financial Services and made a lot of speeches, recruiting national clients. Their credit card and home loan portfolios were growing explosively, boosting profits, and attracting waves of class-action litigation on behalf of unhappy borrowers and their canny lawyers.
Besides defending the banks, Kaplinsky takes credit for the Arbitration Waiver, an agreement that forces bank customers (and, more recently, corporate employees) to accept arbitration to settle disputes, instead of suing or joining well-financed class-action lawsuits. Kaplinsky had feared that the bureau under Cordray would effectively ban mandatory arbitration. The Trump administration has favored the practice, protecting Kaplinsky's legacy.
"We made a lot of money defending those suits. So you could say this goes against our self-interest," Kaplinsky told me. "But I felt class actions were being abused. It bothered me. I felt it could be really helpful to my clients" to get masses of consumers to waive arbitration. "I was thinking of the long term. I never played short term."
Has Trump fixed the U.S. economy? "You'd have to be awfully naive to think this upward trajectory we are on will stay forever," Kaplinsky said. "It never does. There will be an economic downturn again."
Have Kaplinsky and his colleagues in effect shepherded banks through another cycle in America's boom-and-bust banking history, with wreckage ahead? "Have they been making good loans? I don't know the answer to that."