Weekly Fintech Focus
- The FDIC appoints its first chief innovation officer.
- The OCC issues a final rule to clarify the role of supervisory guidance.
- The Biden CFPB issues its first enforcement action, alleging abusive and deceptive practices against an immigration bond company.
- FATF is moving forward with issuing updated guidance on virtual assets and risk-based supervisory approaches.
FDIC Appoints First Chief Innovation Officer
On February 16, 2021, the Federal Deposit Insurance Corporation (FDIC) appointed Sultan Meghji as the agency’s first Chief Innovation Officer. Meghji has been made responsible for leading the FDIC’s efforts to promote the adoption of innovative technologies across the financial services sector. Specifically, according to the FDIC Chairman Jelena McWilliams, the FDIC hopes this appointment will enable “innovative ways to utilize technology to modernize bank supervision, enable community banks to adopt technological solutions, and bring more underserved people into the financial fabric of our nation.”
Previously, Meghji co-founded Neocova, a financial technology firm providing secure, cloud-native, artificial intelligence-based software for community banks and credit unions and has experience with implementing digital banking in Kenya, Tanzania, and Uganda, and working with fintechs and central banks to create peer-to-peer banking solutions. In the past, Meghji was advisor to the U.S. Treasury, the Group of Seven (G7), the Office of the Comptroller of the Currency (OCC), and the Federal Bureau of Investigation (FBI).
OCC Issues Final Rule to Clarify the Role of Supervisory Guidance
On January 19, 2021, the Office of the Comptroller of the Currency (OCC), in concert with other federal financial regulatory agencies, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, the National Credit Union Administration (NCUA), and the Consumer Financial Protection Bureau (CFPB) finalized rules clarifying the legal status of supervisory guidance. In an earlier post on January 19, 2021, we had discussed the impact of the CFPB’s final rule that clarified the difference between regulations and supervisory guidance. These agencies had been considering proposed rules that would largely codify the 2018 Interagency Statement Clarifying the Role of Supervisory Guidance. As a consequence of the final rule issued by the OCC, supervisory guidance unlike a law and regulation will not have the force and effect of law. Supervisory guidance will outline supervisory expectations, priorities, or articulate the OCC’s views regarding appropriate practices for a given subject are but the OCC will not take enforcement action (or issue supervisory criticism for failure to comply with supervisory guidance). This final rule will become effective 30 days following publication in the Federal Register.
Biden CFPB’s First Enforcement Action Targets Abusive Practices by Immigration Bond Company
The CFPB recently announced its first enforcement action under new leadership. The complaint, filed in federal court in Virginia, alleges that a company that offered to pay for detained migrants immigration bonds to secure their release from federal detention abused those consumers by demanding large upfront fees and exacting large monthly payments while hiding or misleading consumers about the true cost of the services. The company represented to consumers that the company had paid the consumer’s bond and that the consumers then had to pay back the debt under the terms provided by the company. By leading consumers to believe that they owed the company a debt for services rendered to obtain the bonds, the CFPB believes that the company is a “covered person” subject to its jurisdiction. The enforcement action fits with Acting Director Uejio’s focus on racial inequities.
To obtain repayment, the company would make false threats to take legal action, sold the accounts into collection, reported consumers to credit bureaus, and threatened to re-detain or deport consumers for nonpayment. Additionally, the company presented its agreements to its clients in mostly the English language despite knowing that most did not speak English. The company also rushed the enrollment process to coerce consumers to obtain the company’s services.
The CFPB believes that these actions are abusive acts or practices in violation of the CFPB’s prohibitions against unfair, deceptive, or abusive acts or practices (UDAAP) as they “materially interfered with consumers’ ability to understand the terms and conditions of [the company’s] offers of credit.” In addition, the CFPB also considers the company’s actions to be deceptive under the CFPB’s UDAAP prohibitions because the company falsely represented the company’s services and falsely threatened legal action against the consumers.
Finally, the CFPB’s complaint also alleges that the principals of the company violated the law by knowingly or recklessly providing substantial assistance to the company in carrying out its deceit and abusive acts or practices. The alleged substantial assistance arose through the individuals’ work to approve the company’s policies and practices, exercising authority over the company’s call center and filed representatives, reviewing quality assurance reports, overseeing the training of representatives and their compensation structure, overseeing the handling of consumer complaints, approving the content of the consumer agreements, and approving new clients.
FATF to Move Forward on Crypto Guidance and Risk-Based Approaches
On February 25, 2021, the Financial Action Task Force (FATF) concluded its latest plenary meeting to work on strengthening global safeguards to detect, prevent, and disrupt financing for criminal activities and terrorism. In a statement, Treasury Secretary Janet L. Yellen welcomed FATF’s actions to “enhance operational efforts designed to identify terrorist financiers and develop additional guidance in consultation with the private sector on virtual assets and proliferation finance.”
As part of FATF’s actions, it approved new guidance for FATF members to encourage supervisors to apply a risk-based approach to their activities to combat money laundering and terrorist financing. The new guidance will be published in March and will provide guidance about how to implement risk-based supervision.
The FATF also agreed to engage in a public consultation on amendments to its June 2019 guidance about anti-money laundering and counter-terrorism financing issues related to virtual assets and virtual asset providers. The public consultation draft will be published in March with final updated guidance to be released this summer. The updated guidance will include guidance on how FATF standards should apply to stablecoins, how to implement the travel rule, and how to manage risks of P2P transactions.