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Financial Services Law Insights and Observations


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  • NYDFS commits to mitigating virtual currency risks

    State Issues

    On May 20, NYDFS Superintendent Adrienne A. Harris emphasized the role regulation plays in protecting consumers from cybercriminals in the virtual currency marketplace. According to Harris, NYDFS is committed to mitigating risks in this space by guarding against sanctions evasion and illicit activity and making sure corporate infrastructure and consumer data are well protected from bad actors. Harris stressed that NYDFS “will continue to improve upon [its] regulation and supervision; engage with key stakeholders on important trends and issues; collaborate with state, federal and international regulators; and strive to be a forward-looking, innovative regulator, including through [its] VOLT initiative,” which supports the department’s efforts to increase transparency and enhance supervision related to virtual currency.

    State Issues Digital Assets Virtual Currency State Regulators NYDFS New York Consumer Protection Financial Crimes Fintech

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  • NYDFS issues industry letter on reverse mortgage lending

    State Issues

    On May 17, NYDFS announced an industry letter to establish its expectations for all institutions engaged in reverse mortgage lending in the State on cooperative apartment units (coop-reverse mortgages) once newly enacted Section 6-O*2 of the New York Banking Law takes effect May 30. The letter noted there is a comprehensive regulatory framework that addresses the marketing, origination, and servicing of reverse mortgages in New York and stated that most of the existing requirements apply equally to coop-reverse mortgages. This includes Title 3 of the New York Code of Rules and Regulations Part 79 (3 NYCRR 79), which establishes various requirements relating to the marketing, origination, servicing, and termination of reverse mortgage loans in New York, and Title 3 of the New York Code of Rules and Regulations Part 38 (3 NYCRR 38), which addresses issues involving, among other things, commitments and advertising for mortgage loans generally. Even so, the letter noted that NYDFS is considering amending its existing regulations to specifically address coop-reverse mortgages, or issuing a separate regulation governing this as a new product. Finally, the letter explained that “institutions that seek to originate, or service coop-reverse mortgages are directed to comply with the provisions of 3 NYCRR 79, and 3 NYCRR 38 in originating or servicing such mortgages” (subject to described clarifications, modifications, and exclusions). However, NYDFS stated that “in the event of any inconsistency between the provisions of Section 6-O*2 and provisions of either 3 NYCRR 79 or 3 NYCRR 38, the provisions of Section 6-O*2 will govern; and in the event of any inconsistency between the provisions of 3 NYCRR 79 and 3 NYCRR 38, provisions of 3 NYCRR 79 will govern.”

    State Issues NYDFS Mortgages New York Reverse Mortgages State Regulators

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  • Remittance provider hints it may challenge CFPB’s funding structure


    On May 20, a global payments provider, which was recently sued by the New York attorney general and the CFPB, filed a pre-motion letter hinting that it will challenge the constitutionality of the Bureau’s funding structure. As previously covered by InfoBytes, the complaint claimed the “repeat offender” defendant allegedly violated numerous federal and state consumer financial protection laws in its handling of remittance transfers. Earlier in the month, the defendant called the allegations “false, inflammatory and misleading,” and took issue with the Bureau’s suggestion that it had “uncovered widespread and systemic issues involving ‘substantial’ consumer harm.” According to the defendant, “data from the CFPB’s own consumer complaint portal strongly suggest otherwise.” (Covered by InfoBytes here.)

    The defendant raised several arguments, including that the “CFPB’s funding structure also violates the Appropriations Clause, requiring dismissal”—a nod to a recent en banc decision issued by the U.S. Court of Appeals for the Fifth Circuit (covered by InfoBytes here), in which several dissenting judges argued that the case should be dismissed because the agency’s funding structure violates the Constitution’s separation of powers and “is doubly removed from congressional review.” The defendant’s pre-motion letter also argued that the Bureau’s complaint should be moved to the Northern District of Texas where the company is headquartered and where the Bureau’s examinations were conducted.

    In response, the Bureau and New York AG filed their own letter responding to the defendant’s proposed grounds for dismissal, countering, among other things, that the case is “adequately pled,” the claims are timely, and that the Bureau’s funding structure is constitutional. Challenging the defendant’s contention that the Bureau’s statutory method of funding violates the Constitution’s appropriations clause, the letter stressed that the U.S. Supreme Court and the U.S. Court of Appeals for the Second Circuit have held that this clause “simply requires that federal spending be authorized by statute,” adding that “[b]oth the Bureau’s receipt of funds and its use of those funds are so authorized.”

    Courts CFPB State Issues State Attorney General New York Consumer Finance Enforcement CFPA Remittance Rule Repeat Offender Regulation E

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  • CFPB, New York reach $4 million settlement with debt collection operation

    Federal Issues

    On May 25, the U.S. District Court for the Western District of New York entered a stipulated final judgment and order in an action taken by the CFPB, in partnership with the New York attorney general, resolving allegations that a debt collection operation based near Buffalo, New York, which includes six companies, three owners, and two managers (collectively, “defendants”), engaged in deceptive tactics to induce consumer payments. (See also CFPB press release here.) As previously covered by InfoBytes, the CFPB filed a complaint in 2020 against the defendants for allegedly violating the CFPA, FDCPA, and various New York laws by using illegal tactics to induce consumer payments, such as (i) threatening arrest and imprisonment; (ii) claiming consumers owed more debt than they actually did; (iii) threatening to contact employers about the existence of the debt; (iv) harassing consumers and third parties by using “intimidating, menacing, or belittling language”; and (v) failing to provide debt verification notices. Under the terms of the settlement, the defendants must pay a $2 million penalty to the CFPB and a $2 million penalty to the New York AG. The judgment provides that if the defendants fail to make timely payments, each penalty amount would increase to $2.5 million. The judgment also permanently bans the defendants from engaging in debt collection operations and prohibits them from engaging in deceptive practices in connection with consumer financial products or services.

    Federal Issues CFPB State Issues State Attorney General Consumer Finance New York CFPA FDCPA Enforcement Settlement

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  • FCC acts to ensure gateway providers stop international robocalls

    Agency Rule-Making & Guidance

    On May 19, the FCC unanimously adopted proposed rules to ensure gateway providers that channel international call traffic comply with STIR/SHAKEN caller ID authentication protocols and validate the identity of the providers whose traffic they are routing to help weed out robocalls. As part of the agency’s robocall mitigation efforts, the proposed rules would require gateway providers to (i) “develop and submit traffic mitigation plans to the Robocall Mitigation Database”; (ii) “apply STIR/SHAKEN caller ID authentication to all unauthenticated foreign-originated Session Initiation Protocol (SIP) calls with U.S. North American Numbering Plan (NANP) numbers”; and (iii) “respond to traceback requests in 24 hours, block calls where it is clear they are conduits for illegal traffic, and implement ‘know your upstream provider’ obligations.”

    “Gateway providers serve as a critical choke-point for reducing the number of illegal robocalls received by American consumers,” the FCC stated in its announcement. “The new rules require gateway providers to participate in robocall mitigation, including blocking efforts, take responsibility for illegal robocall campaigns on their networks, cooperate with FCC enforcement efforts, and quickly respond to efforts to trace illegal robocalls to their source.” Non-compliance may cause a gateway provider to lose its ability to operate. The FCC also announced it is requesting further comments on a proposal to expand robocall mitigation requirements to intermediate providers in the U.S. and not just gateway providers. The agency will also decide whether anti-robocall and spoofing rules should also apply to these intermediate providers, as they are currently not required to certify with the Robocall Mitigation Database.

    Requiring domestic entry points to use STIR/SHAKEN, register in the Robocall Mitigation Database, and comply with traceback requests from the FCC and law enforcement will help the agency “figure out where these junk calls are originating from overseas,” FCC Chairwoman Jessica Rosenworcel said in a statement. “These measures will help us tackle the growing number of international robocalls. Because we can’t have these scam artists multiplying abroad and hiding from our regulatory reach. We also can’t have them hiding from our state counterparts.” To aid efforts, the FCC announced that to date 36 states have signed memoranda of understanding with the agency to share resources and information to reduce robocalls.

    Agency Rule-Making & Guidance FCC Robocalls STIR/SHAKEN State Issues State Attorney General

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  • Oklahoma establishes telephone solicitation restrictions

    State Issues

    On May 20, the Oklahoma governor signed HB 3168, which establishes the Telephone Solicitation Act of 2022. The bill, among other things, prohibits (i) certain sales calls without the prior express written consent of the called party; (ii) commercial telephone sellers or salespersons from using certain technology to conceal their true identity; and (iii) commercial telephone sellers or salespersons from using automated dialing or recorded messages to make certain commercial telephone solicitation phone calls. The bill also establishes a time frame during which a commercial telephone seller or salesperson may make commercial solicitation phone calls. The bill is effective November 1.

    State Issues State Legislation Oklahoma Robocalls Consumer Protection

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  • 9th Circuit: Revived FCRA suit questions reasonableness of furnisher’s investigation


    On May 16, the U.S. Court of Appeals for the Ninth Circuit reversed and remanded a district court’s summary judgment ruling in favor of a defendant furnisher, stating that it is up to a jury to decide whether the defendant’s “reasonable investigation” into the plaintiff’s dispute complied with the FCRA. After the plaintiff defaulted on both his first and second mortgages, the property was foreclosed and sold. Several years later, the plaintiff tried to purchase another home but was denied a mortgage due to a tradeline on his credit report that showed one of his mortgages as past due with accruing interest and late fees due to missed payments. The plaintiff disputed the debt through the consumer reporting agency (CRA) and provided a citation to the Arizona Anti-Deficiency Statute, which abolished his liability for the reported debt. The CRA then told the defendant about the dispute and provided information about the statutory citation. The defendant originally “updated” the plaintiff’s account to show that the debt was being disputed, but continued to report current and past due balances. Yet after the plaintiff again disputed the validity of his debt, the defendant marked the account as “paid, closed” and changed the balance to $0.

    The plaintiff sued, claiming the defendant violated the FCRA by failing to reasonably investigate his dispute and for reporting inaccurate information. The district court granted the defendant’s motion for summary judgment, ruling that the reports it made were accurate as a matter of law and that the defendant had reasonably investigated the dispute. Moreover, “whether the Arizona anti-deficiency statute rendered [plaintiff’s] debt uncollectible is a legal question, not a factual one,” the district court stated, adding that “the FCRA does not impose on furnishers a duty to investigate legal disputes, only factual inaccuracies.”

    The 9th Circuit disagreed, writing that Arizona law required that the plaintiff’s balance be “abolished,” so it was “patently incorrect” for the defendant to report otherwise. In applying Arizona law, the plaintiff had “more than satisfied his burden” of showing inaccurate reporting, the appellate court wrote, explaining that the “situation was no different than a discharge under bankruptcy law, which extinguishes ‘the personal liability of the debtor.’” The 9th Circuit also held that the FCRA does not “categorically exempt legal issues from the investigations that furnishers must conduct.” Pointing out that the “distinction between ‘legal’ and ‘factual’ issues is ambiguous, potentially unworkable, and could invite furnishers to ‘evade their investigation obligation by construing the relevant dispute as a ‘legal’ one,’” the panel referred to an April 2021 amicus brief filed in support of the plaintiff by the CFPB, which argued that the FCRA does not distinguish between legal and factual disputes when it comes to furnishers’ obligations to investigate disputes referred from CRAs. The CFPB recently made a similar argument in an amicus brief filed last month in the 11th Circuit (covered by InfoBytes here). There, the CFPB argued that importing this exemption would run counter to the purposes of FCRA, would create an unworkable standard that would be difficult to implement, and could encourage furnishers to evade their statutory obligations any time they construe the disputes as “legal.”

    Holding that there was a “genuine factual dispute about the reasonableness” of the defendant’s investigation, the appellate court ultimately determined that it would “leave it to the jury” to decide whether the defendant’s investigation had been reasonable. “Unless ‘only one conclusion about the conduct’s reasonableness is possible,’ the question is normally inappropriate for resolution at the summary judgment stage,” the appellate court stated. “Here, as is ordinarily the case, this question is best left to the factfinder.”

    Courts Appellate Ninth Circuit FCRA Consumer Reporting Agency Credit Report State Issues Arizona Consumer Finance

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  • Connecticut amends banking statutes

    On May 17, the Connecticut governor signed S.B. 268, which makes various revisions to state banking statutes. Among other things, the bill establishes that a money transmission license is not transferable or assignable, but a licensee may be acquired under certain circumstances. The bill also establishes that the commissioner cannot approve a state-bank’s loan production office to be established unless the commissioner has considered the out-of-state bank's record of compliance. Additionally, the bill establishes certain definitions, including the meaning of “control”, “control person,” “key individual,” and “passive investor.” The bill is effective October 1.

    Licensing State Issues State Legislation Connecticut Money Service / Money Transmitters

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  • Florida amends MSB provisions

    On May 12, the Florida governor signed HB 273, which amends provisions related to money services business activities. The bill, among other things, revises provisions related to prohibited activities without a license and other requirements for written contracts between a money transmitter or payment instrument seller and an authorized vendor, and provides requirements for a money transmitter that receives virtual currency, among other things. The bill also establishes that “each money transmitter that receives virtual currency, either directly or through an authorized vendor, for the purpose of transmitting such virtual currency from one person to another location or person must at all times, until the transmission obligation is completed, hold virtual currency of the same type and amount owed or obligated to the other location or person.” The bill is effective January 1, 2023.

    Licensing State Issues State Legislation Florida Money Service / Money Transmitters

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  • CFPB affirms states may enforce CFPA and other federal laws

    Agency Rule-Making & Guidance

    On May 19, the CFPB issued an interpretive rule addressing states’ authority to bring enforcement actions for violations of federal consumer financial protection laws, including the CFPA. Though the Bureau is charged with, among other things, administering, interpreting, and enforcing federal consumer financial laws, a category that includes the CFPA itself, the agency said it is not the only enforcer of these laws. According to the interpretive rule, “states can enforce [federal consumer financial laws] to the full extent authorized under those laws—including against entities that are not covered persons or service providers (and thus not subject to liability under section 1036(a)(1)(A)) and including against national banks and Federal savings associations.”

    The interpretive rule establishes:

    • States can enforce any provision of the CFPA, which includes making it unlawful for covered persons or service providers to violate any provision of federal consumer financial protection law. This provision covers the CFPA itself, in addition to its 18 enumerated consumer laws and certain other laws, along with any rule or order prescribed by the Bureau under the CFPA, an enumerated consumer law, or pursuant to certain other authorities.
    • States can pursue claims and actions against a broad range of entities. The interpretive rule states that “the limitations on the Bureau’s authority in sections 1027 and 1029 generally do not constrain States’ enforcement authority.” States can bring actions against a broader cross-section of companies and individuals.
    • States may pursue actions under section 1042 even if the Bureau is pursuing a concurrent enforcement action against the same entity. States are not restricted from bringing enforcement actions in coordination with the Bureau, and may also bring an enforcement action to stop or remediate harm that is not addressed by an action taken by the Bureau against the same entity. “Nothing in the [CFPA] precludes these complementary enforcement activities that serve to protect consumers at both the national and state levels,” the Bureau said in its announcement.

    The Bureau stated the interpretive rule is a “part of the CFPB’s expansion of its efforts to support state enforcement activity,” and noted that it “plans to consider other steps to promote state enforcement of federal consumer financial protection law, including ways to facilitate victim redress.”

    Agency Rule-Making & Guidance CFPB State Issues Enforcement CFPA Consumer Finance

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