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Financial Services Law Insights and Observations

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  • Bipartisan bill introduced to streamline fintech regulation

    Fintech

    On March 4, bipartisan bill, H.R. 1491, was introduced by its co-sponsors to provide federal financial regulatory clarity for fintech startups. According to a press release issued by Congressman David Scott (D-GA), the FINTECH Act of 2019 would: (i) mandate federal financial regulators harmonize and coordinate conflicting regulations that would cover fintech operations; and (ii) establish a Fintech Council to service as a “single point of entry” into the federal financial regulatory system, assigning approved fintechs to one or more designated regulators. The bill was introduced by Scott and by Congressman Barry Loudermilk. Both Congressmen are members of the House Financial Services Committee and co-chair the Fintech and Payments Caucus. The full text of the bill is not yet publicly available.

    Fintech Federal Issues Federal Legislation U.S. House House Financial Services Committee

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  • House Diversity and Inclusion Subcommittee holds first hearing

    Federal Issues

    On February 27, the newly formed Diversity and Inclusion Subcommittee of the House Financial Services Committee held its first-ever hearing to examine trends in diversity in the financial services industry, including management-level diversity and diversity among potential talent pools. The hearing reviewed the November 2017 GAO Report on “Representation of Minorities and Women in Management and Practices to Promote Diversity, 2007-2015” with the Director of Financial Markets and Community Investment of GAO, David Garcia-Diaz, as its only witness. The hearing focused on the report’s conclusion that in the financial services industry, there were marginal increases in minority representation in management positions while women’s representation remained unchanged from 2007 to 2015. Representatives noted the importance of diversity and inclusion in a financial institution’s work force and requested Garcia-Diaz discuss the best practices to increase employment diversity. Among other things, Garcia-Diaz noted that in order to increase diversity financial institutions should (i) engage in broad-based recruitment; (ii) establish mechanisms to hold managers accountable, such as linking manager compensation to diversity goals; and (iii) use data analysis to assess the diversity in the organization in order to develop an intentional plan to address the issue.

    The committee memorandum is available here.

    Federal Issues U.S. House Diversity and Inclusion Subcommittee Hearing

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  • CFPB asks Congress for clear authority to supervise for MLA compliance

    Federal Issues

    On January 17, the CFPB issued a statement from Bureau Director Kathy Kraninger announcing she has asked Congress to grant the Bureau “clear authority to supervise for compliance with the Military Lending Act (MLA).” The statement expresses Kraninger’s interest in protecting servicemembers and their families and notes the requested authority would complement the Bureau’s MLA enforcement work. The announcement acknowledges the recently introduced House legislation, H.R. 442, which would directly grant the Bureau supervisory authority over the MLA, and also includes suggested draft legislation the Bureau sent to both the U.S. House of Representatives and the U.S. Senate (here and here). The draft legislation would amend the Consumer Financial Protection Act to include a section providing the Bureau “nonexclusive authority to require reports and conduct examinations on a periodic basis” for the purposes of (i) assessing compliance with the MLA; (ii) obtaining information about the compliance systems or procedures associated with the law; and (iii) detecting and assessing associated risks to consumers and to markets.

    As previously covered by InfoBytes, in August 2018, then acting Director Mick Mulvaney internally announced the Bureau would cease supervisory examinations of the MLA, contending the law did not explicitly grant the Bureau the authority to examine financial institutions for compliance. A bipartisan coalition of 33 state Attorneys General wrote to Mulvaney expressing concern over the decision and after her confirmation, a group of 23 House Democrats urged Kraninger to resume the examinations. (Covered by InfoBytes here and here.) 

    The Bureau’s request that Congress grant it authority to examine for compliance with the MLA suggests that it does not intend to do so unless Congress acts. 

    Federal Issues CFPB Succession Military Lending Act Military Lending Supervision U.S. House U.S. Senate

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  • House Democrats urge Kraninger to resume MLA examinations

    Lending

    On December 14, Maxine Waters (D-CA) and 22 other House Democrats issued a letter urging the new CFPB Director, Kathy Kraninger, to resume supervisory examinations of the Military Lending Act (MLA). As previously covered by InfoBytes, according to reports citing “internal agency documents,” the Bureau ceased supervisory examinations of the MLA, contending the law does not authorize the Bureau to examine financial institutions for compliance with the MLA. In response, a bipartisan coalition of 33 state Attorneys General sent a letter to then acting Director, Mick Mulvaney, expressing concern over the decision (covered by InfoBytes here).

    The letter from Waters, who is expected to be the next chair of the House Financial Services Committee, and the other 22 Democratic members of the Committee, argues that “there is no question the [CFPB] has the authority and the responsibility to supervise its regulated entities for compliance with the MLA.” As support, the letter cites to the Bureau’s authority to oversee a “wide range of regulated entities,” the establishment of the Bureau’s Office of Servicemember Affairs, and the 2013 amendments to the MLA, which gave the Bureau the authority to enforce the act. The letter also points to the Bureau’s work obtaining $130 million in relief for servicemembers, veterans, and their families through enforcement actions, as well as the 109 complaints the Bureau has received from military consumers since 2011.

    Lending Military Lending Supervision Military Lending Act Compliance U.S. House House Financial Services Committee CFPB State Attorney General Servicemembers

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  • Buckley Sandler Special Alert: Weathering the coming tide of congressional investigations

    Federal Issues

    The results are in: Party control of the U.S. House of Representatives will change for the third time in 12 years, leaving legions of pundits to speculate about what happens next. Prospects for a fundamental change in the way Congress and Washington operate are dim, particularly given that the U.S. Senate remains under Republican control. With new legislation most likely dead on arrival due to the political stalemate on Capitol Hill, the Democrats’ most reliable opportunity to exert their will is almost certainly through congressional oversight and investigations. The last time the Democrats controlled the House during a Republican presidency, following the 2006 midterms, Rep. Henry Waxman remarked that Congress’s oversight powers are “just as important, if not more important than legislation.”

    While it is tempting to dismiss congressional oversight, and the attendant theatrical hearings and testimony as nothing but sound and fury, the reality for companies, executives, and others under the microscope is far less anodyne. Lack of preparation and ill-conceived strategy in responding to congressional investigations heightens the prospect of reputational harm that, unchecked, will frustrate business goals, damage shareholders, and derail — or end — careers.

    * * *

    Click here to read the full special alert.

    Please join us for a Dec. 5 webcast that will delve deeper into these topics and offer some thoughts on navigating the coming tide of congressional investigations. If you have questions about congressional investigations or other related issues, please visit our Congressional Investigations practice page, or contact a Buckley Sandler attorney with whom you have worked in the past.

    Federal Issues Special Alerts U.S. House U.S. Senate

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  • Congressman releases report on small business fintech lending

    Fintech

    On August 17, Congressman Emanuel Cleaver, II (D-MO) released a report detailing his findings from an investigation into the small business lending practices of fintech companies, concluding that the algorithms used in the application process may not reduce the risk of discrimination. The report notes that one company disclosed utilized a third-party fair lending consulting firm to assist in preventing discrimination, but that some survey responses “lacked key information or were willfully vague” about how the algorithms help avoid income-based and racial bias. The report cites to other criticisms of small business lending in the fintech industry, including (i) the use of forced arbitration clauses; and (ii) utilizing personal credit scores to establish a business’ credit worthiness. In contrast, the report emphasizes that fintech lending “can be potentially advantageous for small businesses looking to get a leg up in a competitive market” and that fintech companies often serve markets traditionally ignored by banks. The report concludes with a list of best practices and principles for fintech companies that will lend to small businesses, such as (i) registering with the CFPB’s complaint database; (ii) replicating TILA disclosures required for consumers; and (iii) securing third party fair-lending audits.

    Fintech U.S. House Fair Lending Small Business

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  • FTC testifies before House subcommittees about combating consumer fraud

    Federal Issues

    On July 26, the Director of the FTC’s Bureau of Consumer Protection, Andrew Smith, testified before subcommittees of the U.S. House Committee on Oversight and Government Reform regarding the FTC’s program to combat consumer fraud. The prepared testimony discusses the FTC’s anti-fraud program and highlights the agency’s enforcement actions against illicit companies that pose as government agents, such as the IRS, to convince consumers and small businesses to send them money. The FTC touts the steps taken to spur development of technological solutions to unlawful robocalls, including call-blocking and call-filtering products. The testimony also focuses on the FTC’s efforts to curb payment processors from assisting fraudulent actors in violation of the FTC Act. The FTC notes that the Commission has brought 25 actions against payment processors that failed to comply with requirements to ensure their systems were not being used to process fraudulent merchant transactions. The FTC emphasized that while the “overwhelming majority” of payment processors abide by the law, when certain processors do not, they cause “significant economic harm to consumers and legitimate businesses.”

    Federal Issues Payment Processors Consumer Finance Fraud Robocalls FTC FTC Act U.S. House

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  • House passes National Flood Insurance Program extension

    Federal Issues

    On July 25, the House passed a bill by a vote of 366 - 52 to extend the National Flood Insurance Program (NFIP) through November 30. The “National Flood Insurance Program Extension Act of 2018” (S. 1182) is a short-term fix to extend coverage for lenders and borrowers during the upcoming hurricane season. As previously covered in InfoBytes, last November the House passed H.R. 2874, which would amend and reauthorize the NFIP through fiscal year 2022; however, the Senate Banking Committee has yet to act on the measure. The Senate must now pass S. 1182 to ensure the NFIP does not expire at the end of July.

    Federal Issues U.S. House Flood Insurance National Flood Insurance Program

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  • House passes appropriations bill that includes several financial services provisions, brings CFPB into the appropriations process

    Federal Issues

    On July 19, the House passed H.R. 6147, the “Interior, Environment, Financial Services, and General Government Appropriations Act, 2019” by a vote of 217 to 199. Under the appropriations bill, the CFPB would be brought into the appropriations process, and a change to Dodd-Frank would strike the “for-cause” provision on the president’s authority to remove the director, which has been the subject of significant litigation. (See here for continuing InfoBytes coverage on legal challenges to the CFPB’s constitutionality.) Several other financial services provisions would, among other things, (i) amend the Federal Financial Institutions Examination Council Act of 1978 to create an independent examination review director to evaluate bank examination procedures to ensure consistency; (ii) authorize the Federal Reserve to make Volcker Rule exemption determinations and issue and amend rules under Section 13 of the Banking Holding Company Act; (iii) allow the appropriate federal banking agencies to make process improvements for living will submissions; (iv) amend the Fair Credit Reporting Act (FCRA) to allow the furnishing of positive credit reporting related to a consumer’s performance when making payments under a lease agreement with respect to a dwelling or pursuant to a contract for utility or telecommunications services; and (v) require the Comptroller General of the United States to submit a report on the impact of furnishing consumer information, pursuant to the amendments of the FCRA, to Congress no later than two years after the date of the enactment of this Act. As previously covered in InfoBytes, a similar measure concerning the furnishing of consumer data was also introduced as part of S. 488, which passed the House on July 17 as part of a larger package of securities and banking bills. H.R. 6147 now heads to the Senate.

    Federal Issues U.S. House Federal Legislation CFPB Volcker Rule FCRA Single-Director Structure

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  • House passes bipartisan package of securities and banking bills focusing on capital market regulations

    Federal Issues

    On July 17, the House passed S. 488, the “JOBS and Investor Confidence Act of 2018” (Act) by a vote of 406 to 4. The package of 32 securities and banking bills now comprises Senate bill S. 488, which previously contained an amendment to the Securities Act Rule 230.701(e) and was included as part of the Economic Growth, Regulatory Relief, and Consumer Protection Act S.2155/P.L. 115-174. The Act focuses on capital market regulations and contains many capital formation provisions designed to, among other things, (i) expand access for smaller companies attempting to raise capital; (ii) reduce regulation for smaller companies such as providing federal stress test relief for nonbanks; (iii) revise crowdfunding provisions to allow for crowdfunding vehicles and the registration of crowdfunding vehicle advisers; (iv) exempt low-revenue issuers from Sarbanes-Oxley Act Section 404; (v) grant banks safe harbor when they keep open certain accounts and transactions at the request of law enforcement; and (vi) clarify various rules, review current securities laws for inefficiencies, and establish additional procedures focusing on virtual currency and money laundering efforts. Additional changes would amend a section of the Exchange Act governing SEC registration of individuals acting as brokers or dealers. The Fair Credit Reporting Act would also be amended to permit entities—including HUD—the ability to furnish data to consumer reporting agencies regarding an individual’s history of on-time payments with respect to a lease, or contracts for utilities and telecommunications services, provided the information about a consumer's usage of the service relates to payment by the consumer for such service or other terms of the provision of that service. S. 488 would also allow certain non-profits conducting charitable mortgage loan transactions to use forms required under the TILA-RESPA Integrated Disclosure Rule, and require the director of the CFPB to issue such regulations as may be necessary to implement those amendments. S. 488 now returns to the Senate for further action.

    Federal Issues U.S. House Federal Legislation Securities FCRA SEC Virtual Currency Stress Test Consumer Finance CFPB TRID Mortgages S. 2155 EGRRCPA

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