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Biden Administration releases stablecoin recommendations
On November 1, the U.S. Treasury Department announced that the President’s Working Group on Financial Markets (PWG), with the FDIC and the OCC (collectively, “agencies”), released a report on stablecoins, which are a kind of digital asset intended to maintain a stable value relative to the U.S. dollar. The report noted that stablecoins may be more widely used in the future as a means of payment, which Secretary of the Treasury Janet L. Yellen said could increase “risks to users and the broader system.” Additionally, Secretary Yellen considers current stablecoin oversight to be “inconsistent and fragmented.” Among other things, the report discussed gaps in regulatory authority to reduce these risks. The report recommended that Congress promptly enact legislation to address the risks of payment stablecoins and ensure that payment stablecoins and payment stablecoin arrangements are subject to consistent and comprehensive federal oversight and to “increase transparency into key aspects of stablecoin arrangements and to ensure that stablecoins function in both normal times and in stressed market conditions.” According to the announcement, “[s]uch legislation would complement existing authorities with respect to market integrity, investor protection, and illicit finance, and would address key concerns,” including: (i) risks to stablecoin users and stablecoin runs; (ii) payment system risk; and (iii) systemic risk and concentration of economic power.
While Congress examines legislation on stablecoin, the report recommended that the Financial Stability Oversight Council consider steps for addressing risks, such as “the designation of certain activities conducted within stablecoin arrangements as, or as likely to become, systemically important payment, clearing, and settlement (PCS) activities,” which would be subject to an examination and enforcement framework. The report also recommended that stablecoin issuers “comply with activities restrictions that limit affiliation with commercial entities,” to maintain the separation of banking and commerce. Additionally, the report discussed that, in addition to existing AML/CFT regulations, stablecoin arrangements and activities may implicate the jurisdiction of the SEC and/or CFTC. Therefore, to prevent misuse of stablecoins and other digital assets, the announcement noted that Treasury “will continue leading efforts at the Financial Action Task Force (FATF) to encourage countries to implement international AML/CFT standards and pursue more resources to support supervision of domestic AML/CFT regulations.”
The same day, Treasury released a fact sheet on the PWG report, which clarified, among other things, the purpose of the report, risks posed by stablecoins, and the agencies’ recommendations. In a statement released by OCC acting Comptroller of the Currency Michael J. Hsu, he emphasized his support for the recommendations highlighted in the report pointing out that, “[s]tablecoins need federal prudential supervision to grow and evolve safely.” In a statement released by CFPB Director Rohit Chopra, he noted that though the CFPB was not a member of the PWG, the Bureau “will be taking several steps related to this market,” such as the CFPB’s orders to six large U.S. technology companies seeking information and data on their payment system business practices (covered by InfoBytes here), among other things.
SEC awards $2 million to whistleblower
On October 29, the SEC announced that it awarded a whistleblower more than $2 million for providing information and assistance leading to a successful SEC enforcement action, as well as an action by the DOJ. According to the redacted order, the whistleblower voluntarily provided the same original information to the SEC and the DOJ, which prompted the opening of the investigations, as well as extensive ongoing assistance throughout the investigations. According to the SEC, the whistleblower had previously received an award for contributing to an SEC enforcement action based on the same information that supported the award for the related action, and was eligible for this award as a result of the recent amendments clarifying the types of actions that may be considered “related” under the whistleblower rules.
The SEC has awarded approximately $1.1 billion to 224 individuals since issuing its first award in 2012.
FinCEN renews GTOs covering 12 metropolitan areas
On October 29, the Financial Crimes Enforcement Network (FinCEN) reissued the renewal of its Geographic Targeting Orders (GTOs). The GTOs require U.S. title insurance companies to identify the natural persons behind shell companies that pay “all cash” (i.e., the transaction does not involve external financing) for residential real estate in the 12 major metropolitan areas covered by the orders. The renewed GTOs are identical to the April 2021 GTOs (covered by InfoBytes here). The purchase amount threshold for the beneficial ownership reporting requirement remains set at $300,000 for residential real estate purchased in the covered areas. The renewed GTOs take effect November 1 and end April 29, 2022, and cover certain counties within the following areas: Boston, Chicago, Dallas-Fort Worth, Honolulu, Las Vegas, Los Angeles, Miami, New York City, San Antonio, San Diego, San Francisco, and Seattle.
FinCEN FAQs regarding GTOs are available here.
DFPI addresses MTA licensure requirements in new letters
Recently, the California Department of Financial Protection and Innovation (DFPI) released two new opinion letters covering aspects of the California Money Transmission Act (MTA) related to bitcoin automated teller machines (ATMs) and kiosks and the Agent of Payee exemption.
- Bitcoin ATM Kiosk. The redacted opinion letter explains that the sale and purchase of bitcoin through ATMs/kiosks described by the inquiring company is not activity that is subject to licensure under the MTA. DFPI states that the customer’s purchase of bitcoin directly from the company “does not involve the sale or issuance of a payment instrument, the sale or issuance of stored value, or receiving money for transmission.” In each instance, the transaction would only be between the customer using the ATM/kiosk and the company, the bitcoin would be sent directly to the customer’s virtual currency wallet, no third parties are involved in the transmission, and the company does not hold digital wallets on behalf of customers. DFPI reminds the company that its determination is limited to the presented facts and circumstances and that any change could lead to a different conclusion. Moreover, the letter does not relieve the company from any FinCEN or federal regulatory obligations.
- Agent of Payee Exemption. The redacted opinion letter analyzes a proposed future service to be provided by the inquiring company and determines whether the service meets the agent of payee exemption from the MTA. The company and its global affiliates “provide a global, fully integrated suite of back-end service, including sales compliance management, fraud prevention, risk management, tax and regulatory fee calculation, billing optimization, and remittance services to manufacturers, merchants, and retailers” (collectively, “brands”) that want to sell or license products and services to shoppers. The company proposes a future service, which will allow brands to sell products directly to shoppers and transfer the products to the shoppers. The company will not take title to or purchase the products and will continue to provide its suite of back-end services including payment processing, tax and regulatory fees calculations, and refund processing. The company’s contracts with the brands appoint the company as the agent of the brands for facilitating product sales and receiving payments and funds from shoppers. Agreements will also be entered between the company and the shoppers with terms that state a shopper’s payment to the company is considered payment to the brand, which extinguishes the shopper’s payment liability. The company will accept funds for the sale of products on behalf of the brands, and at the conclusion of the sale, will settle the funds paid by the shoppers and remit sales taxes to the appropriate authorities. The company will be the entity responsible for paying and reporting taxes accrued by the sales to shoppers.
DFPI states that the company will “receive[] money for transmission,” thus triggering the license requirement in the MTA, by receiving funds from the shoppers in the sales transactions. However, the company qualifies for the Agent of Payee exemption because the company will be the recipient of money from the shoppers as an agent of the brands pursuant to a written contract, and payments from the shoppers to the company as the agent will satisfy the shoppers’ payment obligation to the brands. DFPI further notes that refunds facilitated by the company on behalf of the brands will be a reversal of the original transactions with the shoppers, and therefore will not require licensure. Finally, DFPI notes that by contract, the company will be legally responsible for paying local sales taxes on transactions. According to the agreement, because the company will pay taxes on its own behalf, and will not be paying taxes owed by the shoppers, its tax payments will not constitute money transmission. DFPI reminds the company that its determination is limited to the presented facts and circumstances and that any change could lead to a different conclusion.
CFPB reaches $850,000 settlement with debt collectors
On October 26, the U.S. District Court for the District of Maryland entered a stipulated final judgment and order against defendants (a debt collection entity, its subsidiaries, and their owner) in an action alleging FCRA and FDCPA violations. As previously covered by InfoBytes, the Bureau filed a complaint against the defendants in 2019 with alleged violations that included, among other things, the defendants’ failure to ensure accurate reporting to consumer-reporting agencies (CRAs), failure to conduct reasonable investigations and review relevant information when handling indirect disputes, and failure to conduct investigations into the accuracy of information after receiving identity theft reports before furnishing such information to CRAs. The Bureau separately alleged that the FCRA violations constitute violations of the CFPA, and that the defendants violated the FDCPA by attempting to collect on debts without a reasonable basis to believe that consumers owed those debts.
Under the terms of the order, the defendants—who neither admitted nor denied any of the allegations except as specified in the order—are required to, among other things, (i) update existing policies and procedures to ensure information is accurate before it is furnished to a CRA or before commencing collections on an account; (ii) ensure policies and procedures are designed to address trends in disputes; and (iii) hire an independent consultant, subject to the CFPB Enforcement Director’s non-objection, to conduct a review to ensure management-level oversight and FCRA and FDCPA compliance. The defendants must also submit a compliance plan and pay an $850,000 civil money penalty.
CFPB publishes Regulation F debt collection compliance guidance
On October 29, the CFPB released information on validation notices to help facilitate compliance with requirements in the Regulation F debt collection final rule. As previously covered by InfoBytes, in October 2020 the CFPB issued its final rule (effective November 30) amending Regulation F, which implements the Fair Debt Collection Practices Act, addressing debt collection communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. The CFPB released guidance for debt collectors offering instructions on how to provide certain validation information, including using the “Itemization Table” in the model validation notice as well as examples of how the table might be completed for different types of debts. The guidance also provides, among other things, examples of itemization tables for the collection of multiple debt owned by the same consumer.
The Bureau also issued new FAQs related to Regulation F that address validation information generally and validation information related to residential mortgage debt. Among other things, the FAQs: (i) specify the validation information debt collectors must provide consumers who owe or allegedly owe a debt; (ii) clarify that while the use of the model validation notice provided in Appendix B of the final rule is not required, debt collectors must comply with the validation information content and format requirements in Regulation F; (iii) specify that a debt collector can make changes to the model validation notice and still obtain the validation information content and format safe harbor with certain limitations; (iv) state that a debt collector does not need to provide the itemization-related information in a validation notice provided the debt collector follows a special rule for certain residential mortgage debt; (v) outline validation information that may be omitted if using the Mortgage Special Rule, and clarify that generally if a debt collector uses the Mortgage Special Rule with the model validation notice, the debt collector may still receive a safe harbor as long as certain criteria is met; (vi) define “most recent periodic statement” for purposes of the Mortgage Special Rule; and (vii) clarify that under the Mortgage Special Rule, a debt collector “uses the date of the periodic statement provided under that Special Rule as the itemization date.” As previously covered by InfoBytes, the Bureau issued FAQs last month discussing limited-content messages and the call frequency provisions under the Debt Collection Rule in Regulation F.
OCC updates Retail Lending booklet
On October 28, the OCC issued Bulletin 2021-52 announcing the issuance of version 2.0 of the “Retail Lending” booklet of the Comptroller’s Handbook. The booklet rescinds OCC Bulletin 2017-15, “Retail Lending: New Comptroller's Handbook Booklet” (covered by InfoBytes here) and the “Retail Lending” booklet of the Comptroller’s Handbook, version 1.1. Among other things, the revised booklet: (i) reflects changes to laws and regulations since the last update of this booklet; (ii) reflects OCC issuances published and rescinded since the last update of this booklet; (iii) clarifies supervisory guidance, sound risk management practices, and legal language; and (iv) alters some content for clarity purposes.
FDIC releases September enforcement actions
On October 29, the FDIC released a list of administrative enforcement actions taken against banks and individuals in September. During the month, the FDIC made public six orders consisting of “one Consent Order, two terminations of Consent Orders, one Order to Pay Civil Money Penalty, one Order Terminating Decision and Order to Cease and Desist, and one Order of Termination of Insurance.” Among the orders is an order to pay a civil money penalty imposed against a Nebraska-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank “[m]ade, increased, extended, or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without requiring that the collateral be covered by flood insurance,” and also allegedly “[f]ailed to comply with proper procedures for force-placing flood insurance in instances where the collateral was not covered by flood insurance at some time during the term of the loan.” The order requires the payment of a $24,000 civil money penalty.
The FDIC also issued a consent order to a Utah-based bank, which requires the bank to take measures to correct current alleged violations (and prevent future violations) of TILA, RESPA, E-Sign Act, ECOA, CRA, and TISA, as well as the statutes’ implementing regulations. The bank neither admitted nor denied the alleged violations but agreed to, among other things, develop a sound risk-based compliance program and implement an effective training program to ensure compliance.
FTC issues warning regarding false money-making claims
On October 26, the FTC announced that it is putting businesses on notice that pitch money-making ventures that deceive or mislead consumers regarding potential earnings. According to the announcement, the FTC utilized its Penalty Offense Authority to remind businesses of the law and deter them from breaking it by sending a Notice of Penalty Offenses to over 1,100 companies. The notice puts these businesses on notice that they may incur significant civil penalties if they or their representatives make claims regarding money-making opportunities that run counter to FTC administrative cases. The Notice of Penalty Offenses permits the FTC to seek civil penalties against a company that engages in conduct it knows is unlawful and has been determined to be unlawful in an FTC administrative order, other than a consent order. The FTC added that the Notice highlighted a number of practices that the FTC determined to be unfair or deceptive in prior administrative actions. In general, the cases determined that it was unlawful to make false, misleading, or deceptive representations regarding the profits or earnings that may be anticipated by a participant in a money-making opportunity, including representations that participants will make a profit. The Notice also outlined other practices that the FTC has decided to be unfair or deceptive, such as falsely telling consumers they do not need experience to earn income or that they must act immediately to participate. Companies receiving the Notice also received a copy of the recently issued Notice of Penalty Offenses concerning endorsements and testimonials, as companies frequently use testimonials to advertise money-making opportunities. The FTC also pointed out that “[a] recipient’s presence on this list does not in any way suggest that it has engaged in deceptive or unfair conduct.”
FTC increases dark patterns enforcement
On October 28, the FTC announced a new enforcement policy statement warning companies against using illegal dark patterns that could “trick or trap consumers into subscription services” which are sometimes used by sellers in automatic renewal subscriptions, continuity plans, free-to-pay or free-to-pay conversions, and pre-notification plans. According to the FTC, the agency is enhancing its enforcement due to increasing complaints about the financial harms caused by deceptive sign-up tactics, including unauthorized charges or continuous billing that is impossible to cancel. The policy statement, among other things, “puts companies on notice that they will face legal action if their sign-up process fails to provide clear, up-front information, obtain consumers’ informed consent, and make cancellation easy.” According to the enforcement policy statement, businesses are required to follow three requirements, or be subject to law enforcement action: (i) disclose clearly and conspicuously all material terms of the product or service; (ii) receive the consumer’s express informed consent prior to charging them for a product or service; and (iii) provide easy and simple cancellation to the consumer.