InfoBytes Blog

Chopra pens comment letter on appraisal issues, including bias, related to not-for-profit player’s oversight

On March 18, the Director of the CFPB, Rohit Chopra, in his capacity as a voting member of the FFIEC, released a comment letter regarding the recent Appraisal Subcommittee hearings. He opened on how the appraisal process was governed not by a governmental agency, but instead by a not-for-profit corporation leading to “key issues” related to appraisal bias. Despite its private status, this organization was governed by the Appraisal Subcommittee which monitors and reviews the organizational structure of the not-for-profit appraisal corporation. Chopra outlined several issues gleaned from the four hearings: First, Chopra noted “severe deficiencies” with the not-for-profit’s conflict of interest policies, noting that the Executive Branch’s conflict of interest policies for employees spanned 77 pages, while the not-for-profit’s policy was less than 10. Second, the not-for-profit has an “insular and contorted governance structure” that favors private over public interests. And third, the Appraisal Foundation’s governance processes, such as electing its President, lack transparency. Chopra highlighted these three examples and described the overall lack of accountability as “deeply troubling” because the not-for-profit was one of the most powerful players when it comes to appraisals.

Federal Issues Appraisal Nonprofit CFPB

DFPI concludes MTA licensure not required for donations to NPOs

Recently, the California Department of Financial Protection and Innovation (DFPI) released a new opinion letter covering aspects of the California Money Transmission Act (MTA) related to certain agent of payee requirements. The redacted opinion letter examines whether the inquiring company’s product for donations to nonprofit organizations (NPOs) is exempt from the MTA. DFPI also reviewed whether: (i) money held by the company in an operating account, related to MTA-exempt activities such as NPO donations, is stored value; and (ii) closed loop transactions, and specific bank-issued open-loop gift cards without cash access, are exempt from the MTA. The Washington state-headquartered company sells reward programs to businesses that are used to incentivize purchases by their customers, reward customer loyalty, and reward employee performance. The opinion letter does not address closed loop gift cards and open loop gift cards, as DFPI previously issued an opinion letter regarding these products on February 19, 2020, nor does it address a yet-to-be introduced reward program that deposits cash into a recipient’s account or provides credit to a specified credit card as the company already acknowledges that this service constitutes regulated activity under the MTA. 

However, the opinion letter does address circumstances when an NPO donation is selected by a recipient from the company’s reward options. In this instance, the reward amount is transferred from the company’s operating account to its custodial bank account designated “For the Benefit Of Customers” held at a national bank. The company then “aggregates contributions to each NPO and distributes these amounts, less its 8% administrative fee, directly to the NPOs on a weekly basis.” According to the company, “[f]unds do not move out of the NPO Account until these payments are made and the NPO Account is not used for any purposes other than NPO Donations.” DFPI concluded that the company’s current NPO agreement satisfies the agent of payee requirements for exemption from the MTA, and that as such, NPO donations are not a regulated activity. Specifically, the company’s NPO agreement provides that the company is appointed as the NPO’s agent and is obligated to remit all funds collected on the NPO’s behalf to the NPO. Receipt of the funds from the company’s client “constitutes receipt by the NPO, even if the NPO does not receive the funds from [the client].” The company, and not the client or recipient, is solely responsible to the NPO, DFPI said, adding that “[c]lient funds temporarily being held in [the company’s bank] operating account in prepayment for closed loop gift cards, bank-issued open loop gift cards, and NPO donations are not stored value.”

Licensing State Issues DFPI Nonprofit California Money Transmission Act California State Regulators