CSBS Suit Challenging OCC Fintech Charter Dismissed

For the second time, a federal judge has dismissed a suit brought by the Conference of State Bank Supervisors (“CSBS”) seeking to block the Office of the Comptroller of the Currency (“OCC”) from offering a national fintech banking charter. Judge Dabney Friedrich of the D.C. Circuit again found that the claims brought by the CSBS are not ripe, given that the no fintech charters have been approved or issued by the OCC, and therefore the CSBS lacks standing to bring the suit.

The New York Department of Financial Services (“NYDFS”), a CSBS member, has brought a separate suit on the matter in the Southern District of New York—and in that case, the judge has found the matter is ripe for adjudication and has allowed that suit to continue. In both suits, the plaintiffs allege the OCC’s fintech charter impinges on state sovereignty and exceeds the OCC’s congressional mandate.  Judge Friedrich notes in her opinion that her decision runs counter to the decision in the NYDFS case but disagrees with that decision where it conflicts with the D.C. Circuit’s dismissal of the CSBS case.
Continue Reading Fintech Week in Review: Week of September 6, 2019

CFPB fines company for allegedly deceiving customers

The Consumer Financial Protection Bureau (“CFPB”) issued a consent order against a Texas money transmitter who communicated to customers that it would not be responsible for “errors made by banks or payment agents, or for any other reasons out of our control.” The company, Maxitransfers Corporation, focuses its business on providing remittance services to the Latin American community. The consent order notes that remittance transfer providers are responsible for the errors of agents, contrary to Maxitransfer’s disclosures. The order also alleges several other failings, including a failure to create written policies and procedures relating to the Remittance Transfer Rule, a failure to report error investigations, and treat International bill-pay services as remittances. The consent order does not allege any direct consumer harm.

The consent order requires the company to pay a $500,000 fine, maintain proper policies and procedures and a compliance program to ensure compliance with the Remittance Transfer Rule and train its agents, employees, and service providers.
Continue Reading Fintech Week in Review: Week of August 30, 2019

U.S. Developments

California Proposes Regulations to Implement New Disclosure Requirements for Commercial Financing

Recently, the California Department of Business Oversight (“CA DBO”) issued proposed regulations to implement SB 1235, a 2018 law that, in certain situations, requires consumer-like disclosures for certain commercial financing transactions. The law has a few notable exemptions, including depository institutions, financings in excess of $500,000, transactions secured by real property, and closed-end loans that involve a principal of less than $5,000. The CA DBO is accepting public comment on the proposed regulations until September 9, 2019.

Once the regulations are adopted, the 2018 law will take effect. The 2018 law requires that regulations be promulgated to create disclosures to commercial financing transactions under the California Financing Law that include the following:
Continue Reading Fintech Week in Review: Week of August 19-23, 2019

U.S. Developments

Federal Reserve to Build Real-Time Payments System

After years of speculation, the Federal Reserve announced this week it will create a real-time payments system, which it expects to be live by 2023 or 2024. The system, the FedNow Service, was announced by Federal Reserve Governor Lael Brainard during a speech at the Federal Reserve Bank of Kansas City. During the announcement, Brainard highlighted the strong support for the project the Federal Reserve received during its public comment period, noting that 90 percent of the comments called for the creation of the system. The system will allow near-instant transfers of funds 24 hours a day, 7 days a week, between depository institutions eligible to hold accounts at Federal Reserve Banks.  Eligible depository institutions will also be able to designate a service provider or agent to submit or receive payment instructions on the institutions’ behalf. The FedNow Service will be designed for payments of $25,000 or less.
Continue Reading Fintech Week in Review: Week of August 9, 2019

U.S. Developments

FinCEN and Others Issue Joint Statement on BSA/AML Examinations

The Financial Crimes Enforcement Network (FinCEN) and several other federal banking regulators, including the Federal Deposit Insurance Corporation, National Credit Union Administration, the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve, issued a joint statement on Bank Secrecy Act and Anti-Money Laundering (BSA/AML) examinations of bank compliance programs. The joint statement does not establish new requirements, but rather is an effort to provide additional transparency regarding the risk-based approach these regulators take when conducting their examinations.
Continue Reading Fintech Week in Review: Week of August 2, 2019

U.S. Developments

Regulatory Developments

House Task Force Looks to Allow Alternative Data for Credit Scoring

A newly formed U.S. House of Representatives task force, the Financial Technology Task Force, held a hearing this week to discuss a proposed bill that would allow new types of data to appear on consumer credit reports, including items like rent and phone payments. Proponents of the bill argue that in an era of more people renting, a large population of consumers could have positive payment histories excluded from their credit reports under the existing regulations.

Consumer advocates at the hearing cautioned lawmakers that some lower-income consumers could be hurt by the inclusion of this alternative data, including tenants who withhold rent payments due to substandard living conditions.
Continue Reading Fintech Week in Review: Week of July 26, 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 May 6–10, 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 29 – May 3, 2019

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 Week in Review: Week of April 1 – 5