As we previously explained, the Consumer Financial Protection Bureau’s (“CFPB”) recently finalized Advisory Opinion Policy allows any person or entity to request an advisory opinion from the agency.  When the CFPB finalized that Policy on November 30, 2020, it concurrently issued its first two advisory opinions: one addressing earned wage access (“EWA”) programs, and one concerning private education loan products.  This article specifically comments on the important EWA advisory opinion.

EWA programs generally allow employees to access wages they have already worked for and accrued, but have not yet been paid.  In its EWA advisory opinion, the CFPB stated that EWA programs incorporating several specific features do “not involve the offering or extension of ‘credit,’” and thus, do not fall under the purview of Regulation Z, which implements the Truth In Lending Act (“TILA”).

Continue Reading CFPB Unveils In First Advisory Opinion That TILA Does Not Apply to Certain Earned Wage Access Products

The Consumer Financial Protection Bureau (“CFPB”) announced in March 2020 that it would develop a new advisory opinion program under which it would publish in the Federal Register responses to questions seeking clarification of ambiguities in federal consumer financial law.  On November 30, 2020, the CFPB issued a final Advisory Opinion Policy (“AO Policy”) setting forth specific procedures for its Advisory Opinion Program.

Opinions issued under the AO Policy will be interpretive rules under the Administrative Procedure Act that respond to a specific need for clarity on a statutory or regulatory interpretive question.  See 5 U.S.C. § 553(b).  Each advisory opinion will include a summary of the material facts or covered products, and the CFPB’s legal analysis of the issue.  The CFPB expects that its advisory opinions will apply not only to the requestor, but also “to similarly situated parties to the extent that their situations conform to the summary of material facts or coverage in the advisory opinion.”

Continue Reading CFPB Finalizes Advisory Opinion Program Opening Door for Those Seeking Clarity on Ambiguous Statutory or Regulatory Questions

The recent final rule (the “Rule”) implementing the Fair Debt Collection Practices Act (“FDCPA”) only directly governs parties defined as “debt collectors” by the FDCPA, principally meaning those who collect delinquent debt for others.[1]  However, this Rule from the Consumer Financial Protection Bureau, accompanied by a 560-page Preamble, will also likely influence the collection activities of “creditors” — i.e., those collectors that fall outside that “debt collector” definition — in various ways.[2]  The Rule also will affect how creditors should work with the debt collectors they hire.  In this Alert, we focus specifically on these different impacts of the Rule on creditors.  The Rule will take effect one year from the date it is published in the Federal Register.

Continue Reading What Creditors Need to Know About the Final Debt Collection Rule

On October 27, the North American Securities Administrators Association[1] held its 2020 symposium on Fintech and Cybersecurity. A key theme of the symposium was the impact that the pandemic has had on fintech, cybersecurity, and regulating the financial markets  –  given that regulators and securities industry professionals are largely working from home. The panelists also discussed new technological innovations that are likely to impact both the fintech industry and cybersecurity.

Continue Reading 2020 NASAA Fintech and Cyber Security Symposium – A Download of Key Comments

On October 27, 2020, the Office of the Comptroller of the Currency (OCC) issued its final rule setting the test for determining who the ‘true lender’ is in a loan transaction, including in the context of a lending partnership between a federally-chartered bank and a non-bank third party. The final rule adopts the two-pronged test set forth in the OCC’s proposed ‘true lender’ rule issued in July of this year – a bank is the ‘true lender’ if, as of the date of origination, the bank (1) is “named as the lender in the loan agreement,” or (2) “funds the loan.”  The rule further clarified that if one bank funds the loan but another bank is named as the lender in the loan agreement, the bank identified in the loan agreement will be considered the ‘true lender’ of the loan. That clarification is consistent with the fundamental rule of the Truth-in-Lending Act, which always makes the party on the loan agreement the “creditor” on that loan.

Continue Reading OCC Issues Final ‘True Lender’ Rule To Provide Clarity For Bank Lending Partnerships

Announcements Mark Out a Clearer Path, but MSAs and Gifts Still Require Careful Review

Last week, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) announced significant changes to how it will view the legality of Marketing and Services Agreements (“MSAs”) under the Real Estate Settlement Procedures Act (“RESPA”).  Most strikingly, the Bureau formally rescinded its controversial Compliance Bulletin 2015-05:  RESPA Compliance and Marketing Services Agreements (Oct. 8, 2015) (“2015 MSA Bulletin”).  MSAs historically have been used as a way for settlement service providers to gain access to additional potential customers via paid advertising and marketing services.  But the 2015 Bulletin, issued after a string of Bureau RESPA enforcement actions, expressed the view that virtually all MSAs should be scrutinized and pose a high risk of violating RESPA’s prohibitions on paid referrals and/or the splitting of unearned fees.[1]

In addition to rescinding the prior guidance, the Bureau last week also released a slew of new “Frequently Asked Questions” (“FAQs”) on the legality of MSAs, gifts and promotional activities, and other RESPA matters.  In all, the Bureau’s actions last week on MSAs in particular amount to a further repudiation of aggressive RESPA interpretations that the agency advanced during the last decade.

Continue Reading CFPB Rescinds RESPA Bulletin on Marketing and Services Agreements and Publishes Important FAQs

On July 22, 2020, the Office of the Comptroller of Currency (“OCC”) proposed a new rule in the federal register, concerning when a bank or savings association is a “true lender,” when the loan is sold or assigned to different entities. The comment period for the OCC’s proposed rule ended on September 3, 2020, with mixed results.

Continue Reading OCC’s Attempt at Clarifying “True Lender” Principle Met with Mixed Results

California’s financial services regulator soon will likely have a new name and a significantly expanded mission after state lawmakers passed legislation on August 31, 2020 that would revamp the agency in the image of the U.S. Consumer Financial Protection Bureau, signaling an increased focus on fintech in particular.

In a last-minute push before adjourning for the year, the California legislature sent the California Consumer Financial Protection Law (“CCFPL”) to Governor Gavin Newsom for his approval, which is expected.  The CCFPL would change the name of the state’s current financial services regulator, the Department of Business Oversight (“DBO”), to the Department of Financial Protection and Innovation (“DFPI”). The reorganization of the California regulator under the CCFPL includes greatly expanded jurisdiction, rule-making authority, and enforcement resources to prosecute unfair, abusive, or deceptive acts or practices (“UDAAP”). The bill would take effect on January 1, 2021.

Continue Reading The New California Consumer Financial Protection Law

On July 31, 2020, Varo Money Inc. announced that it was granted a national bank charter by the U.S. Office of the Comptroller of the Currency (OCC).  The charter will allow Varo, a mobile banking fintech, to launch a national bank and offer a range of financial services and products that are backed by the Federal Deposit Insurance Corp (FDIC).

The announcement marks a historic moment for fintech companies, as Varo will become the first fintech company to obtain a national bank charter with the OCC.

Continue Reading Mobile Banking Startup Varo Money Becomes First Fintech Company Granted a National Bank Charter

It did not take long for the Office of the Comptroller of the Currency’s (“OCC”) May 29 Final Rule codifying the valid-when-made principal to face challenges in court. On July 29, the attorneys general for New York, California and Illinois filed suit in the Northern District of California to block the rule, which extended the National Bank Act’s (“NBA”) preemption of state usury laws to any assignee or transferee of a loan originated by a national bank. The OCC issued the rule to reinforce the long-standing doctrine that the terms of a loan as originated by a bank remain valid even after that loan is sold or transferred to a non-bank entity (“Valid-When-Made” doctrine), after that principle was called into question by the Second Circuit’s decision in Madden v. Midland Funding LLC, 786 F.3d 246 (2d Cir. 2015). The OCC’s codification of the Valid-When-Made doctrine was an attempt to create legal certainty in the lending industry and has the potential to increase access by permitting non-banks, including fintechs, to acquire loans without worrying that the loan terms will be subject to more restrictive state usury laws.

In their complaint for declaratory and injunctive relief, New York, California and Illinois describe the OCC’s rule as “federal overreach,” arguing that it is “arbitrary and capricious” and beyond the OCC’s powers. They further argue that the rule will foster predatory lending by permitting non-banks to partner with national banks to avoid state interest rate caps.  More specifically, the states argue that the OCC’s oversight is limited to national banks, and thus it does not have authority to extend federal preemption to other entities. They argue that the OCC’s Final Rule does not meet the preemption standard set forth in the Dodd-Frank Act – that only state laws that “prevent or significantly interfere with the exercise by a national bank of its powers” are preempted – because the OCC failed to undertake the required evidence-based, case-by-case analysis in making its preemption determination. 12 U.S.C. § 25b(b)(1)(B). New York, California and Illinois claim that the OCC’s Final Rule harms both the states’ fiscal interests and their quasi-sovereign interests in protecting consumers and promoting fair lending marketplaces. In light of these arguments, New York, California and Illinois ask the court to find that the OCC’s promulgation of the rule violated the Administrative Procedure Act, and ask the court to set aside the OCC’s Final Rule.

By all appearances, the OCC intends to vigorously fight the suit. The acting head of the OCC, Brian Brooks, has argued that there is no merit to the criticisms of the rule as facilitating predatory lending. He defended the Final Rule, explaining that it creates certainty for banks and makes “more credit available to people.”

The case will proceed before District Judge Jacqueline Scott Corley, as the State of California declined to proceed before the Magistrate. Look-out for developments on this case as it proceeds.