On April 7, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray testified before the Senate Banking Committee during the CFPB’s Semi-Annual Report to Congress. While Director Cordray’s exchanges with the senators were less heated than the House hearing several weeks earlier, the CFPB’s fair lending enforcement actions in the indirect auto lending space continued to be a source of conflict, with several senators questioning the authority, eligibility and methodology used by the CFPB. Director Cordray defended the CFPB’s use of enforcement actions, rather than rulemaking, arguing that it is “good, solid law enforcement,” that most of the actions involved deception, and that it would be “compliance malpractice” for companies not to take note of the enforcement actions to improve their own practices. In response to questions concerning the regulation of Fintech companies, Director Cordray stated that Fintech companies should not be permitted to take unfair advantage in the marketplace by “arbitraging the regulatory system” and not taking seriously the regulatory requirements placed on banks and regulated institutions. He noted that Fintech companies “hold a lot of promise,” but that innovation is not free from risk, and that the CFPB will continue to monitor trends in the industry. On the issue of payday loans, on which a new rule is expected to be released shortly, Director Cordray stated that he envisions three types of businesses providing small-dollar loans: payday lenders, community banks and credit unions, and Fintech companies with new business models. He also fielded questions on the arbitration study and proposed rule (which is expected this spring), small business lending, the regulatory burden impacts on smaller institutions, pre-paid cards, and the CFPB’s no-action letter policy.
On April 11, in a keynote speech at the 2016 Innovate Finance Global Summit in London, Harriett Baldwin, economic secretary to the Treasury, said the U.K. government would establish a panel designed to “oversee the overarching strategy for U.K. Fintech and ensure the delivery of key initiatives.” Baldwin also indicated that the U.K. government intends to create an information hub for Fintech startups, with the goal of making it easier and more cost-effective for them to find basic resources, such as accounting services, to get off the ground. The panel “also will have its very own delivery support function, which will monitor and drive initiatives to fruition. It will accelerate the time to market of government and industry initiatives, ensuring that they are targeted where they will add most value," Baldwin said.
Thirteen of the online lending sector's largest firms made $15.91 billion in U.S. loans in 2014, up 700% from 2010, according to a report published Friday by the California Office of Business Oversight. In the first six months of 2015, the same firms extended $12.47 billion in credit nationwide, the report found. The numbers were collected as part of a four-month-old inquiry by California officials into the marketplace lending industry. The report sheds new light on some key aspects of the industry, including the interest rates lenders charge and the percentage of defaults.
Enforcement & Litigation
On April 8, the FSOC appealed a federal judge's recently unsealed decision rescinding the FSOC’s designation of MetLife as a systemically important financial institution. The appeal follows a U.S. District Judge’s determination, discussed in the March 30 edition of the Roundup, that the FSOC made an arbitrary and capricious decision that failed to assess MetLife’s vulnerability to financial distress and failed to consider the economic effects of subjecting the insurer to stricter regulation. Treasury Secretary and FSOC Chairman Jacob Lew said in a statement ahead of the formal appeal that the FSOC’s "authority to designate nonbank financial companies is a critical tool to address potential threats to financial stability."
The SEC announced that the co-chief of the Division of Enforcement’s Asset Management Unit, Marshall S. Sprung, is planning to leave the agency in April. Co-chief Anthony Kelly will continue to lead the unit following Mr. Sprung’s departure.
Goodwin Procter News
LendIt USA, the world's largest lending event, took place on April 11-12, in San Francisco, and brought together more than 4,000 members of the global online lending ecosystem. Goodwin Procter was a sponsor. For questions, please contact Goodwin participants Michael Whalen, Anna Dodson and Fred Lim.
On April 16 in Cambridge, MA, the MIT Fintech Conference will bring together entrepreneurs and thought leaders to discuss the most innovative business models and ideas that are changing the face of finance as we know it. Goodwin Procter is a sponsor.