Regulatory, Enforcement and Litigation Insights on Consumer Financial and Fintech Issues
Throughout 2021, the SEC followed through on its commitment to aggressively enforce the federal securities laws in digital assets markets.[1] These efforts have resulted in the SEC sharpening its focus on cryptocurrency exchanges and lending products.
Continue Reading 2021 Brought SEC Focus on Crypto Exchanges and Lending Platforms
On November 1, 2021, the President’s Working Group on Financial Markets (PWG), along with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) (collectively, the Agencies) issued a Report on Stablecoins (the Report).[1] Stablecoins “are digital assets that are designed to maintain a stable value relative to a national currency or other reference assets.”[2] The Report recommends that Congress act promptly to enact legislation addressing stablecoins[3] and signals the Biden Administration’s focus on this issue and looming enforcement from governing agencies such as the Department of Justice (DOJ), Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC).
The Report provides an overview of stablecoins and decentralized finance (DeFi) platforms more generally; risks and regulatory gaps; and the group’s recommendation. In drafting the Report, the Agencies held discussions with key industry stakeholders, including Coinbase, Kraken, and Stripe. While the Report signals that one day we may see clarity on relevant guidelines related to stablecoins, the Report itself offers little clarity or specific guidance to stakeholders today.
How to provide financial services to limited-English proficiency (“LEP”) consumers has become a pressing legal issue. Both federal and state laws provide requirements and limitations regarding translations of financial documents. Earlier this year, the Consumer Financial Protection Bureau (“CFPB”) published a comprehensive statement encouraging financial institutions to provide services to LEP consumers. The CFPB also took enforcement action against a company for, among other things, deceptively marketing to Spanish-speaking consumers. Following the trend to protect LEP consumers, a new Nevada law, effective October 1, 2021, makes it a deceptive practice to not provide translations for certain financial contracts, agreements and disclosures (“Nevada Law”).
Under the Nevada Law, enacted as Assembly Bill No. 359, any person, who in the course of business, advertises and negotiates certain transactions in a language other than English must provide a translation of the contract or agreement that results from the advertising and negotiations. The translation must include every term and condition of the contract or agreement.
On July 12, 2021, the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) proposed interagency guidance on how banks should manage third-party relationships, including partnerships with fintech companies. The proposal would offer a framework for banks when developing risk management practices for their third-party relationships, taking into account the level of risk, complexity, size of the organization, and the nature of the third-party relationship.
Continue Reading Bank Regulators Propose Interagency Guidance on Fintech Partnerships
After years of litigation, the Office of Comptroller of the Currency’s (“OCC”) special purpose national bank charter (“fintech charter”) survives to see another day. On June 3, 2021, the Second Circuit reversed the district court’s decision denying the OCC’s motion to dismiss, delivering a blow to the New York Department of Financial Services (“DFS”) and paving the way for the OCC to again accept applications for its fintech charter.
Continue Reading OCC’s Fintech Charter Survives After Reversal in the Second Circuit
On March 9, 2021, the Second Circuit heard oral arguments in connection with the New York Department of Financial Services’ (“DFS”) challenge to block the Office of Comptroller of the Currency’s (“OCC”) special purpose national bank charter (“fintech charter”). The lawsuit was filed in the Southern District of New York in September of 2018, shortly after the OCC made available its special purpose bank charter.
The fintech charter would allow certain non-depository fintech companies to operate as “special purpose national banks” under the National Bank Act (“NBA”), which is overseen by the OCC without the burden of state-by-state regulation and licensing. The OCC views deposit-taking as just one of the activities undertaken by banks in the “business of banking” under the NBA. However, critics, including the DFS, argue deposit-taking is essential to the “business of banking,” which should preclude non-depository fintech companies from obtaining national bank protections.
Continue Reading Oral Arguments Held in Challenge to OCC’s Fintech Charter
On March 3, the Securities and Exchange Commission released its examination priorities for 2021. While most of the list echoes priorities from previous years, this year’s version includes a greater concentration on climate-related risk and environmental, social and governance matters.
Read our complete commentary on McGuireWoods’ Subject to Inquiry Blog for highlights from the 2021 examination priorities, which also address Regulation Best Interest compliance, the impacts of the COVID-19 pandemic and a continued focus on complex products.
It was only just over a month ago that President Biden selected David Uejio, a long-time senior leader at the CFPB with a low public profile, to lead the agency temporarily as Acting Director. But already, Mr. Uejio has made very significant changes at the agency, implementing what he calls a “change of direction” with sweeping announcements on a weekly basis. Even as the Senate prepares to consider President Biden’s nominee, current FTC Commissioner Rohit Chopra, to lead the CFPB for a full term at a March 2 hearing, it is time to assess where the agency stands after the Biden Administration’s first month and the likely changes still to come.
Continue Reading The CFPB’s “Change of Direction” After 1 Month: New Goals, More Attorneys
Last week, we reported that on December 30, 2020, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) issued compliance assistance sandbox (“CAS”) approval to Payactiv, Inc. (“Payactiv”) regarding specific aspects of its earned wage access (“EWA”) product.
Payactiv’s Chief Legal Officer, David Reidy, expressed Payactiv’s reaction to the Approval Order this way – “We are grateful for the hard work and commitment the Bureau showed through this whole process. Everyone involved believes in EWA as an important and innovative benefit for workers. I couldn’t be more proud that Payactiv is the first and only EWA provider to be granted this approval.”
New York, California and six other States filed a widely expected lawsuit on January 5 seeking to invalidate the “True Lender” Rule recently issued by the Office of the Comptroller of the Currency (“OCC”). As we previously reported, the OCC’s True Lender Rule — finalized in October and effective since December 29 —provides bright-line tests for determining, in the context of a lending partnership between a national bank (or federal thrift) and a third-party (often a FinTech or other non-bank firm), which entity actually “made” the loan, i.e., which entity was the “true lender.”
Continue Reading States Sue to Set Aside OCC’s True Lender Rule
