On March 8, the Consumer Financial Protection Bureau (CFPB) proposed to delay the October 1, 2017, effective date of the rule governing Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z) (“Prepaid Rule”) by six months, to April 1, 2018 (an in-depth analysis of the rule can be found here). The delay would address industry concerns about the ability to comply with packing requirements for prepaid cards sold at retail locations. In the final Prepaid Rule, providers of prepaid accounts are not required to pull and replace prepaid account access devices and packaging materials with noncompliant disclosures that were produced in the normal course of business prior to October 1, 2017. Nonetheless, some providers believe that they should pull and replace noncompliant packaging, to avoid the communication of misleading information to consumers. This, industry participants say, may not be feasible due to increased demand on a limited number of card and packaging manufacturers. In addition, the CFPB noted industry concerns about “complexities arising from the interaction of certain aspects of the rule with certain business models and practices.” We understand that this may refer, in part, to financial products that do not fit neatly into the category of “prepaid accounts,” which are covered by the Prepaid Rule, or “checking accounts,” which are exempt. Delaying the effective date will “allow the [CFPB] to more closely evaluate concerns raised by industry participants … that they assert are posing particular complexities for implementation.” The CFPB is seeking comment on whether it should extend the effective date of the Prepaid Rule, and if so, whether six months is an appropriate length of time for such a delay. Comments must be received within 21 days of the date this proposal is published in the Federal Register. The CFPB is not proposing to delay the effective date of the requirement to submit prepaid account agreements to the CFPB in Regulation E § 1005.19(f)(2), which effective date is October 1, 2018.
The attempts of the New York State Department of Financial Services (NYDFS) to more closely regulate online lenders suffered a setback, when the Assembly rejected Governor Cuomo’s proposal to include such authority in its budget bill. As discussed in the February 13 edition of the Fintech Flash, the governor’s 2018 proposed budget had included a proposed amendment to New York’s Licensed Lender Law that would “[a]llow the Department of Financial Services...to better regulate the business practices of online lenders.” The Assembly also rejected a provision to ban “bad actors,” as determined by the New York Superintendent of Financial Services, from working in a state-regulated financial institution. The budget bill remains subject to amendment, as well as consideration by the state Senate.
On March 10, Republican members of the House Financial Services Committee sent a letter to Comptroller Thomas J. Curry urging the Office of the Comptroller of the Currency (OCC) not to “rush” its decision on whether to create a special purpose national bank charter for fintech companies. The letter further stated that the “OCC should provide a full and fair opportunity for stakeholders to see the details of the special charter, solicit feedback, and allow the incoming Comptroller the opportunity to assess the special purpose charter.” Comptroller Curry’s term expires in April of 2017. The letter went on to state that “If the OCC proceeds in haste to create a new policy for “fintech” charters without providing the details for additional comment, or rushing to finalize the charter prior to the confirmation of a new Comptroller, please be aware that we will work with our colleagues to ensure that Congress will examine the OCC’s actions and, if appropriate, overturn them.” As discussed in the January 25 edition of the Roundup, the OCC’s proposal to establish a special purpose national bank charter for fintech companies previously had come under fire from Democratic senators and state banking regulators. However, Republican calls for a deliberative process may be grounded less in opposition to the proposed charter and more in the desire for a Republican appointed comptroller to preside over its implementation.
In a speech on March 9, Comptroller Thomas J. Curry of the OCC addressed the condition of the federal banking system and commented on issues of importance to community banking institutions. He discussed the resiliency of the banking system in light of capital and liquidity requirements implemented in the wake of the 2008 financial crisis and highlighted efforts to lighten the regulatory burdens of such institutions, including recently streamlined “Call Reports” and expanded examination cycles for qualifying institutions. However, Comptroller Curry indicated more should be done to help community institutions. First, he called on Congress to help reduce compliance costs by exempting community institutions from the Volcker Rule. Second, he asked Congress to make it easier for thrifts to expand their business models, such as increasing commercial lending or some types of consumer credit, without incurring the expense of changing their governance structures. This recommendation follows on the March 8, 2017, introduction of parallel bills in the House of Representatives (HR 1426) and Senate (S 567) to amend the Home Owners’ Loan Act to allow federal savings associations to elect to operate as national banks.
The Financial Industry Regulatory Authority (FINRA) announced on March 8 that it has filed a proposal with the Securities and Exchange Commission (SEC) to streamline competency exams and facilitate opportunities for professionals seeking to enter or re-enter the securities industry. FINRA rules currently require individuals who work for a FINRA-regulated firm in various capacities to demonstrate their qualifications by passing specific exams. These individuals must be associated with a FINRA-regulated firm to be eligible to take FINRA qualification exams. The proposal revises the current exam structure to eliminate duplicative testing and barriers to demonstrating and maintaining qualifications. Once a proposal is filed with the SEC, SEC staff reviews it to determine whether it is consistent with the requirements of the Securities Exchange Act of 1934. SEC staff may request changes or amendments to the proposal. The SEC then publishes the proposal for comment in the Federal Register. In general, the comment period is open for 21 days following publication.
Enforcement & Litigation
On March 7, the United States Attorney’s Office for the Eastern District of New York announced the sentencing of an individual defendant to 15 years in prison and $2.5 million in forfeiture in connection with a loan modification scheme. The defendant may also be subject to additional restitution under the Mandatory Victims Restitution Act. The Federal Bureau of Investigation (FBI), the Department of Housing and Urban Development (HUD), and the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) also participated in the investigation of the individual. View the Enforcement Watch blog post.
On March 7, the Federal Trade Commission (FTC) announced that the United States District Court for the Eastern District of Texas entered a stipulated order prohibiting a national debt relief provider from making misleading claims about its debt relief services. The court also entered a $9 million judgment against the defendants, with all but $510,000 suspended based on their financial conditions. View the Enforcement Watch blog post.
On February 15, the Massachusetts Appellate Division of the District Court Department found in Midland Funding, LLC v. Juba, No. 16-ADMS-40011, that a debt buyer violated the Massachusetts Debt Collection Practices Act (MDCPA) and the Massachusetts Consumer Protection Act (Chapter 93A) by attempting to collect on a consumer debt it had purchased without being a licensed debt collector in the Commonwealth of Massachusetts. View the LenderLaw Watch blog post.
The Yale Entrepreneurial Society and Goodwin will host YES Boston 2017 for a panel discussion on financial technology and networking reception. Welcome and introduction remarks will be provided by Goodwin partner Bill Schnoor and Stephen Kelleher, Senior Director of BNY Mellon. The panelists include: Jeremy Allaire, Founder, Chairman and CEO of Circle Internet Financial, Inc., Sean Belka, SVP/Director of Fidelity Center for Applied Technology/Fidelity Labs, Ralph Dangelmaier, CEO of BlueSnap, Inc., Robert Erman, Managing Director Head of Client Solutions Innovation BNY Mellon Technology Solutions, Sarah Hodkinson, VP Marketing of TripAdvisor, Inc. and Board Member of Radius Bank and Benjamin Malka, General Partner of F-Prime Capital. For further details, please email Events@goodwinlaw.com.
Consumer financial services companies are facing unprecedented regulatory and enforcement scrutiny and mounting litigation, and there is no sign of change coming anytime soon. That is why it is essential that in-house and outside counsel have a mastery of new class action trends, emerging theories of liability, the latest enforcement actions and regulatory initiatives, and the most effective defense and settlement strategies. It is with this in mind that American Conference Institute has developed its 28th National Conference on Consumer Finance Litigation & Regulatory Enforcement returning to its New York City east coast location. Thomas Hefferon, chair of the firm's Consumer Financial Services Litigation Practice, will serve as co-chair of this conference and partner Sabrina Rose-Smith will be a speaker on the “Student Loans and PayDay Loans: Managing Increased Regulatory Scrutiny, Litigation, and Assessing Proposed Rules by the CFPB on Payday Loans” panel. For additional information, please visit the event website.
The 2017 Blockchain Technology and Digital Currency National Institute will take place on April 10, 2017, in New York City. This special program is dedicated to in-depth analysis of the emerging legal issues and the latest legal events concerning digital currencies, like Bitcoin, and blockchain technology. It will be an informative and exciting opportunity for anyone interested in better understanding the interplay of the law, digital currencies and blockchain technology. The speakers and panels will explore topics including blockchain innovations and opportunities; emerging intellectual property issues; global regulatory efforts; and recent law enforcement actions. Grant Fondo, a chair of Goodwin’s Digital Currency and Blockchain Technology Practice and partner in Goodwin’s Securities Litigation and White Collar Defense Group, will be a featured speaker. For more information, please visit the event website.
Goodwin is pleased to present this event created specifically to address issues faced by trustees, officers and in-house counsel at colleges, universities and research institutions. We are delighted to present David Greene, President of Colby College, as our keynote speaker. David is a highly respected leader in education and business and will provide an inspiring perspective on his experience with public/private partnerships focused on revitalizing cities and neighborhoods where schools are located. The symposium will also feature a panel discussion with in-house counsel at higher education institutions concerning the relationships between schools and their students, as well as interactive sessions led by industry experts and thought leaders on privacy and cybersecurity and recent developments in 403(b) plan excessive fee litigation. For more information, please visit the event website.