Fintech Week in Review: Week of May 24, 2019

FDIC Settles Payday Lending Lawsuit and Issues Summarizing Policy Statement

On May 22, the Federal Deposit Insurance Corporation (“FDIC”) announced that it had resolved the litigation of Advance America et al. v. FDIC et al. in the U.S. District Court for the District of Columbia.  In that case, the plaintiffs alleged that the FDIC and the Office of the Comptroller of the Currency overstepped their regulatory authority in connection with a 2013 initiative by the U.S. Department of Justice known as “Operation Choke Point.”  Under Operation Choke Point, federal regulators investigated banks servicing targeted business sectors, including payday lending.  Advance America Cash Advance and its co-plaintiffs asserted that FDIC officials acted to cut off payday lending businesses’ access to U.S. banks and financial services. Continue Reading

Fintech Week in Review: Week of May 6–10, 2019

CFPB Proposes Changes to Debt Collector Rules

On May 7, 2019, the Consumer Financial Protection Bureau (“CFPB”) detailed a plan to update the Fair Debt Collection Practices Act. The proposed rule would reduce the number of phone calls collectors can make to debtors, while providing clarity as to how collectors can use other communication methods, like email and text messages. The rule would limit the number of calls a collector can make to collect a specific debt to seven per week. Additionally, if a collector engages in a telephonic conversation with the debtor, the collector must wait a week before calling the debtor again. The rule, however, would not limit the number of emails or text messages that a debt collector can send to try and collect on an outstanding debt. The plan would clarify that emails and text messages are governed by the same rules as phone calls, including a bar on contacting consumers before 8AM or after 9PM and contacting consumers at their workplaces in the majority of situations. The proposed rule would also provide sample templates for how collectors could provide required disclosures when making electronic communications. Debtors could opt-out of any of the communication methods under the proposed rule. The proposed rule applies to third-party collectors who are typically either sold the debt from the original creditor or hired by the original creditor to collect on their behalf. The CFPB is inviting public comments on the proposed rule before finalizing any changes to the existing rule. Continue Reading

Fintech Week in Review: Week of April 29 – May 3, 2019

U.S. Developments

Regulatory Updates

OCC Seeks Comments on Proposed Innovation Pilot Program

The Office of the Comptroller of the Currency (“OCC”) is soliciting public comment on its proposed Innovation Pilot Program. Similar to state-level regulatory sandbox models, the proposed program would allow OCC-supervised financial institutions, including those working with third-party vendors, to apply to test pilots of potential products and services and receive early regulatory input from the OCC. Eligible entities may propose a pilot individually or collaborate with multiple banks in a consortium. The OCC will consider proposals at various stages of development, from proof of concept to live testing of pilots. To enter a pilot, an eligible entity will have a preliminary discussion with the OCC about the proposed pilot, and then after the discussion submit an expression of interest (an “EOI”) that addresses the description of the pilot, including a summary of proposed controls and safeguards and the desired OCC engagement. The OCC will then evaluate the pilot to determine if it is a fit for the program. OCC engagement in a pilot will last no less than three months and no greater than 24 months, with the duration subject to a case-by-case determination by the OCC. During the pilot, the entity will be required to submit periodic reports on its progress. The proposed program comes out of the OCC’s existing innovation office, but is separate from its new fintech national bank charter. The OCC’s Chief Innovation Officer, Beth Knickerbocker, has noted that blockchain technology could be an option for these pilot projects, and the OCC is going to consider how it supervises such activity by banks. Continue Reading

Fintech Week in Review: Week of April 8-12, 2019

FinTech Issues Discussed at SEC Speaks Conference

At Practicing Law Institute’s annual SEC Speaks conference, SEC leadership and staff showcased the agency’s 2018 successes and outlined upcoming initiatives. Highlights in the cryptocurrency and FinTech industries included the SEC’s analytical framework for digital assets, published last week by the SEC’s Strategic Hub for Innovation and Financial Technology (FinHub). The SEC also touted cooperation credit given in its recent action against Gladius Network, LLC, which was resolved without penalties after Gladius self-reported and agreed to return ICO funds to investors and register its tokens as securities.

For more information on cryptocurrency, visit our Virtual Currency Report blog.


Fintech Week in Review: Week of April 1 – 5

U.S. Developments

Regulatory Updates

New Rules for Prepaid Cards, Digital Wallets, and P2P Transfer Apps Become Effective

As reported in this blog last year, the U.S. Consumer Financial Protection Bureau (“CFPB”) created a final rule implementing the Electronic Fund Transfer Act (“Regulation E”) and the Truth in Lending Act (“Regulation Z”). Originally released in October 2016, with an effective date of October 1, 2017, the final rule was delayed several times and finally became effective on April 1. The rule means that consumer protection measures like those for unauthorized charges and errors that have applied to products such as debit cards in the past will now apply to prepaid cards, digital wallets (e.g., Google Wallet), and person-to-person payment applications (e.g., Venmo and PayPal). Notable exclusions to the new rule include gift cards and applications like Apple Pay that do not store any value. Many providers now covered by the law have already adjusted their product offerings and terms of service to prepare for the new rule. Frequent delays in the effective date and numerous opportunities to make changes to the final rule have resulted in these platforms being subject to an increasingly complex regulatory framework. Continue Reading

FinTech Regulatory Week in Review: Week of March 11 – 15


Fed Board Delays New Same Day ACH Processing Window Until March 2021

The effective date of the new same-day Automated Clearing House (“ACH”) processing window (which would expand the end-of-day deadline to originate same-day transactions by two hours to 4:45 p.m. ET (1:45 p.m. PT)) has been deferred by six months to March 19, 2021.  The Federal Reserve Board of Governors (the “Fed Board”) has informed the national administrator of the ACH network (the “NACHA”) that the Fed Board currently cannot commit to change the Federal Reserve services necessary to enable the new window by June 30, 2019 (the deadline that was agreed upon per Supplement #1-2018 to the NACHA Operating Rules provided for in the rule). Continue Reading

ISDA Publishes Guidelines for Smart Derivatives Contracts

The International Swaps and Derivatives Association (ISDA) has published the first in a series of guidelines for what it colloquially refers to as “smart derivatives contracts” (the Guidelines).* A smart derivatives contract is a derivative that incorporates software code to automate aspects of the derivative transaction and operates on a distributed ledger, such as a blockchain. This series of papers is intended to “provide high-level guidance on the legal documentation and framework that currently governs derivatives trading, and to point out certain issues that may need to be considered by technology developers when introducing technology into that framework.” Read the full post on our sister blog, Derivatives and Repo Report.

Fintech Week in Review: Week of October 29 – November 2

U.S. Developments

Regulatory Updates

 FinCEN Issues Advisory on FATF’s Updated Recommendations

On October 31, FinCEN published an advisory on the international Financial Action Task Force’s (FATF’s) updated list of jurisdictions with serious regulatory deficiencies in anti-money laundering and combatting the financing of terrorism (AML/CFT). The advisory focused on North Korea (DPRK) and Iran, and FinCEN reminded financial institutions of their obligations when dealing with those jurisdictions.

Continue Reading

Fintech Week in Review – Week of October 8-12

International Developments

Policy Updates

IMF and World Bank Launch Bali FinTech Agenda

On October 11, 2018, the International Monetary Fund (“IMF”) and the World Bank Group launched the Bali FinTech Agenda, “a set of 12 policy elements aimed at helping member countries to harness the benefits and opportunities of rapid advances in financial technology that are transforming the provision of banking services, while at the same time managing the inherent risks.”  The 12 policy elements advance a pro-fintech  agenda of fostering innovation and development of new technologies across the globe.  Notably, the Bali FinTech Agenda emphasizes the importance of developing clear and predictable legal frameworks that keep pace with innovation.

The above is a summary of one of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.  These are the Fintech updates that ties to the post Blockchain in Review – Week of October 8-12, 2018 from our sister blog, VirtualCurrencyReport.

Federal Bank Regulators Issue Joint Statement on Collaborative BSA/AML Compliance

On October 3, 2018, a group of federal bank regulators and FinCEN announced in a joint statement that banks and credit unions could collaborate and share resources to manage their Bank Secrecy Act (“BSA”) and anti-money laundering (“AML”) obligations.  A collaborative arrangement does not modify or abrogate any of the bank’s BSA/AML obligations, and the joint statement merely provides examples and guidance for how banks can manage their obligations more effectively and efficiently.

Banks that may be best served by a collaborative arrangement are those with a community focus, and lower-risk profiles for money laundering or terrorist financing.  Utilizing a collaborative arrangement requires each bank to carefully consider its own individual risk profile.  In light of sound principles of corporate governance and bank safety and soundness, each bank should enter into such an arrangement only after conducting appropriate due diligence, including adequate documentation, evaluation of legal restrictions on such an arrangement, and establishment of appropriate oversight.

Nothing in the joint statement alters the four pillars of a bank’s BSA/AML compliance program: (1) a system of internal controls to ensure ongoing compliance; (2) independent testing of BSA/AML compliance; (3) designating a BSA compliance officer; and (4) training appropriate personnel.  With appropriate limits, each of these pillars can be addressed through a collaborative arrangement.

Sharing resources through a collaborative arrangement helps banks to meet their BSA/AML compliance obligations by providing access to specialized expertise, at reduced cost, that may be difficult to obtain in some markets.  The joint statement provides examples of how collaborative arrangements can be utilized to meet a bank’s BSA/AML compliance needs.

  • Internal Controls – Banks can work collaboratively to develop BSA/AML policies and procedures, including risk-based customer identification and account monitoring systems.
  • Independent Testing – Some banks may have difficult identifying an employee to conduct an independent set of the BSA/AML compliance program. A collaborative arrangement allows personnel at one bank to conduct the independent test at another bank.  Banks should ensure that appropriate safeguards are in place to ensure confidentiality.
  • Designating a BSA Compliance Officer – This pillar may not be appropriate for a collaborative arrangement because of the risks to the confidentiality of suspicious activity reports and the need for coordination of day-to-day BSA/AML compliance needs. Further, a BSA officer of more than one bank may have difficulty establishing effective communication channels with each bank’s board and senior management.  It may be more feasible for such an arrangement if the banks are affiliated.
  • Training Personnel – The availability and cost of an effective and qualified BSA/AML instructor may be a challenge in some markets. A collaborative arrangement may help banks to hire the right person needed to appropriately train bank personnel.

Please click here for the press release and here for the joint statement.