Weekly Fintech Focus
- The CFPB issues a statement providing flexibility to credit card issuers as they obtain consent from customers to receive disclosures electronically under Regulation Z and the E-Sign Act.
- The OCC announces a new acting Comptroller and includes FinTech Charters among its focuses
- The OCC issues a rulemaking on digital banking transformation, seeking comment on the ways its regulations should change in response to advances in technology and market trends.
- The House Financial Services Committee holds a hearing on the digital dollar and its place in making stimulus payments.
- SEC’s FinHub to host virtual meet-ups.
- Amazon and Goldman Sachs introduce new credit line for U.S.-based merchants.
- FBI issues warning to mobile banking app users.
The CFPB Issues Statement Providing Electronic Disclosures Flexibility for Card Issuers
On June 3, 2020, the Consumer Financial Protection Bureau (CFPB) issued a statement providing flexibility to credit card issuers when providing disclosures to consumers. The CFPB notes that it recognizes that as part of the pressures card issuers are facing due to COVID-19, the CFPB recognizes that card issuers are handling more phone calls with less staff. Card issuers are subject to Regulation Z, which requires that card issuers provide written disclosures to consumers or obtain the consumer’s consent to receive disclosures electronically in compliance with the E-Sign Act.
The CFPB will take a flexible supervisory and enforcement approach during the COVID-19 pandemic with regard to card issuers’ electronic provision of disclosures for account opening and temporary rate or fee reductions. The statement is specifically aimed at the provision of these disclosures over the phone. The CFPB intends not to cite violations of these disclosure rules during the COVID-19 pandemic. To take advantage of this statement, a card issuer must obtain both the consumer’s oral consent to the electronic delivery of written disclosures and oral affirmation of the consumer’s ability to access and review the electronic written disclosures. The CFPB also expects that card issuers will retain evidence that this consent is retained, and the issuer takes reasonable steps to verify the consumer’s electronic contact information, such as by confirming that the consumer’s email address is accurate.
The OCC Announces New Acting Comptroller and Includes FinTech Charters Among Focuses
On May 29, 2020, the Office of the Comptroller of Currency (OCC), the primary federal regulator of national banks, announced Brian P. Brooks as the new Acting Comptroller. In one of his first statements as Acting Comptroller, Mr. Brooks stated that “specifying what the parameters of the ‘fintech charter’ and other special purpose charters should be” is a vital component in maintaining a federal banking system that is responsive to the needs of Americans. Among other things, Mr. Brooks’ statements indicate that he plans continue to expand OCC efforts to enable fintech companies to become federally regulated financial institutions.
The OCC authority includes the ability to charter special purpose national banks. In July 2018, the OCC began accepting applications for fintech charters, designed to assist fintech companies in becoming federally regulated financial institutions. The OCC fintech charters were promptly challenged by the New York Department of Financial Services (NYDFS) as an impermissible expansion of OCC authority over state rights. Following a U.S. District Court for the Southern District of New York decision in favor of the NYDFS, the OCC appealed to the U.S. Court of Appeals for the Second Circuit. The OCC appeal in defense of its authority to issue special-purpose charters for fintech companies is currently awaiting a decision in the Second Circuit.
The OCC intends to meet challenges facing banks both today and in the long run by focusing on the following: (1) building responsible innovation to help the banking system keep up with changes in the way American consumers and businesses manage their finances; (2) enhancing the strength of the federal banking system by enhancing the scope and relevance of the national charter; (3) ensuring banks serve their entire community through fair access to credit, capital, and financial services; and (4) providing OCC employees engaging, rewarding, and challenging career opportunities.
Please click here for Mr. Brooks’ full statement.
The OCC Requests Comments to Update Outdated Regulatory Requirements and New Digital Technology and Innovation
On June 4, 2020, the OCC asked for public comments on a Notice of Proposed Rulemaking (NPR) to update or eliminate outdated regulatory requirements that no longer reflect the modern financial system. The agency also published an Advance Notice of Proposed Rulemaking (ANPR) on digital banking technologies and activities. The NPR seeks to make changes to 12 CFR 7, which include:
- incorporating and streamlining OCC interpretations addressing permissible derivatives activities for national banks;
- expanding the ability of national banks to choose corporate governance provisions under state law; and
- codifying OCC interpretations of the National Bank Act relating to capital stock issuances and repurchases.
(excerpted from OCC News Release 2020-76)
Additionally, the ANPR seeks comments on 12 CFR 7, subpart E, and 12 CFR 155, and other banking issues related to digital technology and innovations. Issues the OCC asks for comment include:
- whether the legal standards in 12 CFR 7, subpart E, and 12 CFR 155 are sufficiently flexible and clear in light of the technological advances that have transformed the financial industry during the last two decades;
- whether these legal standards create unnecessary hurdles or burdens to innovation for banks;
- whether there are digital banking activities or issues that are not covered by these rules that the OCC should address (e.g., digital finders’ activities, certain software, and correspondent services);
- what activities related to cryptocurrencies or cryptoassets are financial services companies or bank customers engaged in and what are the barriers or obstacles to further adoption of crypto-related activities in the banking industry;
- how is distributed ledger technology used or potentially used in activities related to banking; and
- how are artificial intelligence and machine learning techniques used or potentially used in activities related to banking.
(excerpted from OCC News Release 2020-76)
The comment periods for the NPR and ANPR end on August 3, 2020.
Please click here for a link to the OCC News Release.
Please click here for the NPR and here for the ANPR.
Financial Services Committee Discusses Digital Dollar for Stimulus Payments
On June 11, 2020, the U.S. House Financial Services Committee Task Force on Financial Technology held a virtual hearing to discuss ways to get underbanked and unbanked Americans stimulus payments more efficiently. In the hearing, the Committee discussed a centrally backed digital currency and digital wallets to create an open transparent digital dollar. Both Chairman Stephen F. Lynch and Ranking Member Rep. Tom Emmer in their opening remarks highlighted the need for technology to provide banking access to Americans in the wake of COVID-19. The digital dollar was in early drafts of the House of Representatives COVID-19 relief bill but was not included in the final Coronavirus Aid, Relief, and Economic Security Act (CARES) bill. Several House bills that have been introduced in recent months to help support underbanked and unbanked Americans have included a digital dollar or Federal Reserve bank account as potential solutions.
The Task Force members and panelists highlighted how a digital dollar could help Americans located in “banking deserts” and quicken stimulus payments to approximately 31 million Americans who are still awaiting CARES Act stimulus checks from the government. Specifically, Rep. Warren Davidson submitted a letter co-signed by other Task Force members asking the Secretary of the Treasury to look for ways to integrate blockchain technology in the government’s response to the COVID-19 crisis. In Rep. Davidson’s remarks, he expressed concern over lack of laws in the digital asset space and has previously introduced the Token Taxonomy Act, which “would help regulators, industry and consumers have certainty and clarity about when securities law would apply to distributed ledger based projects.” The Token Taxonomy Act would exclude digital tokens from the definition of “security” and provide guidance on how the SEC may approach cryptocurrency regulation.
The Task Force memorandum includes a draft bill of the “Faster Stimulus Payments and FedAccounts Act.” The draft bill would provide for monthly direct stimulus payments into a qualifying individual’s existing bank account or a new FedAccount, prepaid debit cards, or checks. Additionally, the draft bill would require member banks to open a new FedAccount and the Federal Reserve Banks to create accounts for all eligible individuals.
Please click here for a video of the hearing and here for the Committee memorandum.
Please click here for a Forbes article discussing the hearing.
SEC’s FinHub to Host Virtual Meet-Ups
The U.S. Securities and Exchange Commission’s Strategic Hub for Innovation and Financial Technology (FinHub) announced the launch of virtual peer-to-peer meet-ups as an extension to its 2019 initiative of in-person meetings. These meet-ups provide the fintech communities the opportunity to speak with FinHub staff throughout the country to discuss issues they experience with their work.
The first week’s theme for the virtual meet-ups will be regulatory technology (Regtech) as FinHub notes that financial services firms are increasingly leveraging technology to strengthen and optimize their compliance programs.
Please refer to the FinHub’s website for more information on the schedule and how to register.
Amazon and Goldman Sachs Introduce New Digital Credit Line for U.S.-Merchants
Amazon introduced a new digital credit line for U.S.-based merchants with its partner bank, Goldman Sachs, enabling small business owners on Amazon’s platform to receive credit lines of up to $1 million. These revolving credit lines will come with a fixed annual interest rate of 6.99% to 20.99%.
Notably, the credit offers are facilitated through Goldman Sachs’ Marcus brand and mark the first time that Amazon has let a financial institution make underwriting decisions for the hundreds of thousands of sellers on Amazon. These merchant credit lines will compete with the term loans that Amazon currently offers through a corporate credit facility from Bank of America.
FBI Issues Warning to Mobile Banking App Users
Coinciding with the surge of mobile banking application usage amid the COVID-19 pandemic, the FBI issued a warning that advises the public to be cautious when downloading apps on mobile devices, as some could be “concealing malicious intent.” Specifically, the FBI warns against malware that can create a false version of a bank’s login page atop a legitimate app whereby customers may unwittingly provide their real banking information without knowing it.
To protect against this potential fraud, the FBI and industry experts recommend that the public use multi-factor authentication when accessing their banking information in addition to using strong passwords.