To help you keep abreast of relevant activities, below find a breakdown of some of the biggest events at the federal and state levels to impact the Consumer Finance Services industry this past week:
- On March 24, the Federal Reserve Board of Governors (Federal Reserve) denied Wyoming-based Custodia Bank’s request for membership in the Federal Reserve System based on four factors:
- Managerial Factor: Custodia’s risk management and controls relating to compliance with the Bank Secrecy Act (BSA), and U.S. sanctions were insufficient;
- Financial Factor: Custodia’s long-term viability would be contingent upon the longevity of the digital asset markets, which according to the Financial Stability Oversight Council, “is driven in large part by speculation and sentiment, and is not anchored to a clear economic use case”;
- Corporate Powers Factor: Custodia’s business model places emphasis on digital asset-related activities that are “novel and unprecedented for state member banks,” and Custodia seeks to engage in “uninsured deposit-taking” — both of which would potentially render Custodia susceptible to runs and contagion; and
- Convenience and Needs Factor: Under Regulation H, which outlines the requirements that state-chartered banks must adhere to upon becoming members of the Federal Reserve, the Federal Reserve considers the convenience and needs of the community to be served, and Custodia has not demonstrated it can operate in a safe and sound manner.
For more information, click here.
- On March 23, the U.S. Court of Appeals for the Second Circuit held that the Consumer Financial Protection Bureau’s (CFPB) funding structure is constitutional — splitting from the U.S. Court of Appeals for the Fifth Circuit’s decision in Community Financial Services Association of America v. Consumer Financial Protection Bureau, which concluded that Congress violated the Constitution’s appropriations clause when it created a “perpetual self-directed, double-insulated funding structure.” The U.S. Supreme Court will review the Fifth Circuit’s decision next term. For more information, click here.
- On March 23, the U.S. Department of Education announced that it will hold virtual public hearings on April 11-13 to receive stakeholder feedback on potential issues for future rulemaking sessions. Potential topics include third-party servicers and related issues, such as reporting, financial responsibility, compliance, and past performance requirements as a component of institutional eligibility for participation in the Title IV, HEA federal student financial assistance programs under 34 CFR 668.25 and 682.416. For more information, click here.
- On March 23, the Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy published investor alert “Exercise Caution with Crypto Asset Securities,” highlighting four broad points:
- Companies offering digital assets or related activities (i.e., staking) may not be in compliance with disclosure-related federal securities laws;
- Digital assets are volatile;
- The rising popularity of digital assets creates an environment potentially ripe for fraud; and
- Understanding risk is imperative when investing.
For more information, click here.
- On March 23, the Federal Trade Commission (FTC) issued a notice of proposed rulemaking with the stated goal to make it easier for consumers to cancel recurring subscriptions and memberships. The proposed rules contained a “click-to-cancel” provision, requiring sellers to make it just as easy for consumers to cancel their enrollment as it was to sign up. For more information, click here.
- On March 22, the SEC filed a civil enforcement action against Justin Sun and three of his wholly owned companies: Tron Foundation Limited (Tron), BitTorrent Foundation Ltd. (BitTorrent), and Rainberry, Inc. (formerly BitTorrent). The SEC’s complaint alleged that Sun, through Tron and BitTorrent, offered and sold unregistered “crypto asset securities” Tronix (TRX) and BitTorrent (BTT). Further, the SEC alleged that Sun and his companies engaged in fraudulent “wash trading,” which involves the simultaneous purchase and sale of a particular tradable asset to increase the asset’s perceived trading volume although this type of transaction activity often does not result in change in beneficial ownership of the assets. Lastly, the SEC also charged multiple celebrity influencers with endorsing TRX and BTT without disclosing to their followers that they were compensated by Sun for marketing TRX and BTT. For more information, click here.
- On March 22, the SEC issued a Wells Notice to Nasdaq-traded cryptocurrency exchange Coinbase, Inc. In the notice, the SEC informed Coinbase that it preliminarily determined that certain digital assets Coinbase listed on its exchange platform — Coinbase’s staking service Coinbase Earn; Coinbase Prime, an institutional custodial service; and Coinbase Wallet, a consumer-based self-custodial asset wallet — may each be in violation of either the Securities Act of 1933 or the Securities Exchange Act of 1934. For more information about the notice, click here. For more information about Coinbase’s response to the notice, click here.
- On March 22, the FTC staff requested information on the business practices of cloud computing providers, including issues related to the market power of these companies, impact on competition, and potential security risks. In a request for information, FTC staff seeks information about the competitive dynamics of cloud computing, the extent to which certain segments of the economy rely on cloud service providers, and the security risks associated with the industry’s business practices. In addition to the potential impact on competition and data security, FTC staff also are interested in the impact of cloud computing on specific industries, including health care, finance, transportation, e-commerce, and defense. For more information, click here.
- On March 21, the CFPB launched an improved survey of credit card issuers that can help consumers and families compare interest rates and other features when shopping for a new credit card. For more information, click here.
- On March 20, the White House released its annual publication “Economic Report of the President,” authored by the Council of Economic Advisers. Chapter 8 contains a section titled, “The Perceived Appeal of Crypto Assets.” According to the report, “[A]lthough it has been argued that crypto assets may provide other benefits, such as improving payment systems, increasing financial inclusion, and creating mechanisms for the distribution of intellectual property and financial value that bypass intermediaries that extract value from both the provider and the recipient,” “crypto assets have brought none of these benefits.” For more information, click here.
- On March 20, the CFPB announced that approximately 4,394 HMDA filers can now obtain their 2022 Home Mortgage Disclosure Act (HMDA) Modified Loan Application Register (LAR) data on the Federal Financial Institutions Examination Council’s HMDA Platform. The published data contains loan-level information filed by financial institutions and modified to protect consumer privacy. For more information, click here.
- On March 20, the CFPB published a final rule in the Federal Register to make non-substantive technical corrections and updates to CFPB and other federal agency contact information found within Regulations B, E, F, J, V, X, Z, and DD, including federal agency contact information. For more information, click here.
- On March 17, the U.S. Department of Housing and Urban Development (HUD) announced that it submitted a final rule titled, “Restoring HUD’s Discriminatory Effects Standard,“ to the Federal Register for publication. The final rule rescinds HUD’s 2020 rule, governing Fair Housing Act disparate impact claims and restores the 2013 discriminatory effects rule. In the final rule, HUD emphasizes that the 2013 rule more consistently aligns with how the Fair Housing Act (FHA) has been applied in the courts and in front of the agency for more than 50 years, and it more effectively implements the FHA’s broad remedial purpose of eliminating unnecessary discriminatory practices from the housing market. For more information, click here.
- On March 17, the Office of the Comptroller of the Currency (OCC) released new enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with national banks and federal savings associations. For more information, click here.
- On March 16, the FTC announced that it launched an inquiry into the small business credit reporting industry, ordering five firms in that industry to provide the commission with detailed information about their products and processes. For more information, click here.
- On March 16, the Conference of State Bank Supervisors announced a public comment period for proposed uniform state licensing standards for mortgage companies. Public comments will be accepted at firstname.lastname@example.org until May 15 at 5 p.m. ET. The final requirements will be built into the Nationwide Multistate Licensing System in the future. For more information, click here.
- On March 27, the California Department of Financial Protection and Innovation (DFPI) issued a warning to student loan borrowers about student debt relief scams. Specifically, DFPI warns borrowers that many companies contacting student loan borrowers that claim to provide services to assist borrowers with managing or reducing their student loan repayments charge a fee for services that federal loan servicers provide for free or that the borrower can complete on his/her own. DFPI reminds borrowers, however, that federal student loan servicers cannot charge borrowers for applying for loan forgiveness, income-driven repayment plans, deferment, forbearance, or for filing any other paperwork. Additionally, DFPI reminds borrowers that federal loan services do not charge application or processing fees to consolidate student loan debt or for the borrower to switch payment plans. In its warning, DFPI also provides a helpful list of ways a borrower can identify a debt relief scam, which include, among other things, being alert when a person or company: (1) sends unsolicited phone calls, emails, or letters in the mail, claiming that the borrower is eligible for student loan forgiveness; (2) requests a borrower’s Federal Student Aid log-in and PIN; (3) demands payment upfront to apply to student loan forgiveness; (4) requires the borrower to sign a contract with the company for their services and demands payment authorization; or (5) uses an email address or website that does not end with “.gov.” For more information, click here.
- On March 29, the New Mexico Financial Institutions Division of the Regulation and Licensing Department’s (NM FID) new rule on the New Mexico annual percentage rate (NM-APR) will become effective. Previously, New Mexico’s 36% APR cap on loans of $10,000 or less under the Small Loan Act (SLA) and Bank Installment Loan Act (BILA) became effective on January 23. The new rule, however, among other things, excludes charges based solely on a borrower’s individual behavior after the extension of credit that cannot reasonably be predicted at the time of the NM-APR disclosure. For more information, click here.
- On March 22, Iowa Governor Kim Reynolds signed SF133 into law. The bill provides that the only obligation that a financial institution that purchases retail installment contracts with voluntary debt cancellation coverage has upon prepayment in full is to notify the relevant motor vehicle dealer within 30 days of a payment in full of an installment contract. The bill also provides that the dealer shall determine whether the consumer is entitled to a refund of voluntary debt cancellation coverage and issue the refund within 60 days of notice. For more information, click here.
- On March 21, Virginia Governor Glen Younkin approved HB1544, which requires that the information statement provided to a consumer include a statement of a customer’s right to receive a free copy of the consumer’s credit report annually from each of the three nationwide consumer reporting agencies. The bill goes into effect on July 1. For more information, click here.
- On March 20, Florida Governor Ron DeSantis (R-FL) proposed legislation, prohibiting the use of a federally adopted central bank digital currency (CBDC) as money within the state. Specifically, the legislative proposal includes certain prohibitions and protections:
- Expressly prohibiting the use of a federally adopted CBDC as money within Florida’s Uniform Commercial Code (UCC);
- Instituting protections against a central global currency by prohibiting any CBDC issued by a foreign reserve or foreign sanctioned central bank;
- Calling on other states to join Florida in adopting similar prohibitions within their respective UCCs.
For more information, click here.
- On March 15, North Dakota Governor Doug Burgum signed SB 2119, which revises provisions related to money transmitters. The act outlines provisions related to consistent state licensure, application for licensure, information requirements for certain individuals, and reporting and recordkeeping requirements. For more information, click here.
- On March 13, North Dakota Governor Doug Burgum signed SB 2090, which, among other things, revises licensing requirements for residential mortgage lenders. The act outlines provisions related to application for licensure; licensing fees; surety bond and minimum net worth requirements; license renewal, expiration, revocation, suspension, and surrender; recordkeeping requirements; prohibited acts and practices; prohibitions on advance fees; and permitted maximum charges for loans and installment payments. For more information, click here.
- On March 10, the Colorado Department of Regulatory Agencies published a consumer advisory titled, “When Cryptocurrency Exchanges Fail Consumer Beware – Scams Abound.” The advisory discusses the collapse of defunct cryptocurrency exchange FTX and declares that the conditions that led to FTX’s implosion also may act as catalysts for crypto-related fraud schemes that scammers create to “cash in” on persons affected by failed exchanges. For example, one type of fraud scheme that frequently occurs against the backdrop of a failed cryptocurrency exchange is the “recovery scam,” which involves a fraudster who attempts to persuade an aggrieved party that his/her money can be recovered from the failed exchange for a “fee.” For more information, click here.
- On March 7, the California DFPI filed a notice of proposed rulemaking with the Office of Administrative Law, seeking to add several sections to Title 10, Chapter 3 of the California Code of Regulations relating to the California Consumer Financial Protection Law, the California Financing Law, the California Deferred Deposit Transaction Law, and the California Student Loan Servicing Act. For more information, click here.