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Indiana enacts SB 220 on cyber incident notification guidelines
On March 11, the Governor of Indiana signed SB 220 (the “Act”) which will add cyber incident notification guidelines for financial institutions. The Act defined the term "corporation" as the following entities organized in Indiana, including a (i) bank; (ii) trust company; (iii) corporate fiduciary; (iv) savings bank; (v) savings association; (vi) industrial loan and investment company with federal deposit insurance; (vii) credit union; and (viii) bank of discount and deposit.
According to the Act, a corporation will be required to inform the director of the department about a reportable cyber incident or notification incident following the same protocol mandated by the corporation's federal regulatory body or deposit insurance provider. If a corporation does not have a federal regulatory body or deposit insurance provider, it must report the cyber incident to the director of the department using the procedures outlined in U.S.C. 12 CFR 748.1(c), which despite typically applying to federally insured credit unions, will also apply to corporations. The Act will go into effect on July 1.
Utah amends provisions on notifications and definitions of commercial financing transactions
On March 13, the Governor of Utah signed into law SB 25, a bill that amended certain provisions related to commercial financing transactions, specifically repealing provisions related to disclosing commercial financing transactions and adding the requirement that a party subject to the notification requirement must submit evidence of registration with the NMLS. The bill also amended Section 7-27-101 of the Laws of Utah, to update the definition of the term “broker” and separate it from the term “provider.” Under Section 7-27-202, the bill removed certain disclosures for commercial financing transactions, including disclosures previously required for open-end credit plans after disbursing funds. Additionally, under Section 70C-1-302, the bill updated two more defined terms: “Commissioner” and “Nationwide database.” Lastly, under Section 70C-8-202, the bill amended certain notification requirements, specifically indicating the party shall file a notification via the NMLS, and such notification will be required annually on or before December 31. The bill will go into effect on May 1.
FTC fines two fintech firms $59 million for PPP loan practices
On March 18, the FTC announced enforcement actions against two companies that allegedly made “false promises” to small businesses seeking Paycheck Protection Program (PPP) loans. Both companies have agreed to settle with the FTC to resolve alleged violations of the Covid-19 Consumer Protection Act and the FTC Act.
According to the FTC’s complaint on the first company—a company that offers online financing products to small businesses—and its subsidiary allegedly engaged in a pattern of deceptive and unfair conduct by quoting shorter processing times for consumers’ applications, despite being aware of the significant delays. The companies also allegedly ignored consumers’ requests to withdraw their pending applications frequently. The FTC further alleged that roughly 40 percent of the companies’ consumers had their applications canceled or rejected. The proposed stipulated order included a prohibition against misrepresentations, an injunction concerning the companies’ application practices (which had prohibited them from failing to allow consumers to promptly withdraw their applications), and a $33 million judgment for monetary relief. The companies must also comply with reporting requirements detailed in the settlement.
The FTC’s complaint against the second company—an online platform offering PPP financing services to small businesses—and its CEO, alleged that respondents made deceptive claims to consumers, many of whom were eligible but never received funding because the respondents failed to fix known technical issues with their system or provide consumers with assistance. According to the complaint, the company claimed that processing a loan would only take 24 hours through the “fast lane” service, but the company’s chat support was slow, as were its review and processing times. The FTC noted that the time-sensitive nature of PPP funding meant any delays had significant impacts on consumers. In addition to the $26 million monetary judgment, the settlement with the company and its CEO prohibited them from making any deceptive, false, or unsubstantiated claims about financial services or products.
Utah amends its Consumer Sales Practices Act
On March 13, the Governor of Utah signed HB 443 (the “Act”), also known as the Utah Consumer Sales Practices Act Amendments, into law. The Act will amend class action lawsuits and will clarify provisions related to “targeted solicitations” involving financial information. According to the Act, “targeted solicitation” will be defined as any written or oral advertisement for a product or service that (i) is addressed to the consumer’s personal account; (ii) contains specific account information (iii) is offered by a supplier that is not sponsored by or affiliated with the financial institution managing a consumer’s personal account; and (iv) is not authorized by the financial institution managing the consumer’s personal account. The Act will go into effect on May 1.
Indiana enacts HB 1284 regarding change in terms for deposit accounts
On March 12, the Governor of Indiana signed HB 1284 which codified a new chapter regarding a contract for a deposit account between a depository institution and a consumer may be changed occasionally, subject to the terms of the deposit account agreement. The bill will provide that after continued use of the deposit account by the consumer after a modification to the agreement has been disclosed through written notice by the depository institution, then it will be considered clear or “prima facie” evidence that the consumer will accept the new terms. The depository institution must provide written notice of the changes at least 30 days before the effective date of any change to the deposit account agreement. The bill will go into effect on July 1.
Utah amends credit report disclosures to protect consumers
On March 13, the Governor of Utah signed into law HB 99, a bill that amended certain provisions related to consumer credit protections. Specifically, the bill made an addition to the Credit Services Organizations Act at Utah Code 13-21-7.5, adding a disclosure requirement when a credit services organization provides a credit report to a consumer. The disclosure must identify the consumer reporting agency that provided the information, the credit score model used to calculate the score, and the minimum and maximum possible scores under the model. This bill will go into effect May 1.
CBO report outlines strengths and risks of the FHLBank system
Recently, the Congressional Budget Office (CBO) released a report on the Federal Home Loan Banks’ (FHLBanks) role in the financial system, outlining their strengths and risks in the larger financial system. The CBO noted that FHLBanks are insulated from failure because their main activity, granting advances to members, was “overcollateralized and benefits from the banks’ super-lien position.” On accounting this year, the CBO estimated that in FY 2024, FHLBanks will receive $7.3 billion in subsidies, driven by new debts and reductions in debt-service costs. The CBO also estimated that in FY 2024, FHLBanks will issue $800 billion of debt and make advances of $560 billion. The CBO listed three potential risks FHLBanks could pose to the broader financial system: first was a risk to taxpayers in the event the FHLBank system failed and required government support; second was the risk that any FHLBank stress could spill over into other financial areas; and third was the risk of losses to the FDIC Deposit Insurance Fund from FHLBanks’ collateralized lending and their “super-lien positions.” However, the CBO’s report noted that FHLBanks pose less of a risk than Fannie Mae, Freddie Mac, or other commercial banks. Further, there have never been any credit losses on an FHLBank advance. Despite these strengths, CBO noted that FHLBanks could still fail in an economic crisis.
Wyoming SF 96 amends regulations for banks offering custodial or fiduciary services for digital assets
On March 15, the Governor of Wyoming signed SF 96 (the “Act”), which amended regulations for banks offering custodial or fiduciary services for digital assets, made conforming adjustments, and set an effective date. The Act clarified the commissioner’s ability to petition for discharge of receivership duties at the commencement of a bankruptcy proceeding. With respect to digital asset custodial services, the Act included two new provisions which detailed how (i) a bank will be permitted to offer custody services for stablecoin reserves as long as these services align with the guidelines of the Act and adhere to the commissioner's rules and regulations; and (ii) a supervised trust company chartered within Wyoming will be authorized to offer custodial services for digital assets, provided that it would meet the requirements of the Act and follow the commissioner's rules and regulations. The Act will go into effect on July 1.
Washington State enshrines new act on uniform special deposits
On March 13, the Governor of Washington State signed into law SB 5801, enshrining a new chapter titled the Uniform Special Deposits Act. The law will apply to special deposits under account agreements that intend to establish a special deposit. In Section 5, a “special deposit” is characterized as a bank deposit for the benefit of two or more beneficiaries, denominated in a currency for the purposes stated in the account agreement, and “subject to a contingency.” The law further described the process for determining a permissible purpose, payment to a beneficiary by a bank, and the duties and liability of the bank, among others. It also described that, unless provided for in the account agreement, special deposits will terminate five years after the date it was first funded. The Uniform Special Deposits Act will go into effect July 1.
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.