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Financial Services Law Insights and Observations


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  • House passes resolution to nullify SEC’s rule on crypto accounting guidance


    On May 8, the U.S. House of Representatives passed H. J. Res. 109, the first step in an attempt to nullify the SEC’s Staff Accounting Bulletin No. 121 (SAB 121) under the Congressional Review Act. SAB 121 describes how the SEC expects entities to account for and disclose their custodial obligations to “safeguard crypto-assets held for their platform users,” and has been in effect since April 11, 2022. As previously covered by InfoBytes, in October 2023, the GAO found SAB 121 was a rule, not guidance, making SAB 121 subject to the Congressional Review Act.

    Securities Accounting SEC Congress Agency Rule-Making & Guidance Congressional Review Act

  • State attorneys general push Congress on federal consumer privacy legislation

    Privacy, Cyber Risk & Data Security

    On May 8, the Attorney General of California, Rob Bonta, and 15 other state attorneys general wrote a letter to Congressional leaders following the introduction of the American Privacy Rights Act (APRA) in Congress. The attorneys general encouraged Congress to set a “federal floor, not a ceiling” for consumer privacy rights, as APRA preempts state law under its current draft. The letter highlighted how states have “played a critical role” in setting new data privacy standards without curbing business practices or developments in technology. In addition, the attorneys general expressed concern that the APRA would limit some attorneys general to issue civil investigative demands (CIDs) because their CID authority would require a violation of state or federal law before issuance. The APRA, however, provided that “a violation of [the APRA] or a regulation promulgated under [the APRA] may not be pleaded as an element of any violation of [a state] law.” Despite these concerns, the attorneys general did express their support for other provisions of APRA, such as data minimization by default, stronger consent requirements, and protections for minors.

    Privacy, Cyber Risk & Data Security Congress California State Attorney General HIPAA

  • GAO calls for the FDIC to address outstanding recommendations

    On April 30, GAO sent a letter to the FDIC on its outstanding recommendations, emphasizing the importance of two priority recommendations, which pertained to blockchain technology and fintech. Regarding blockchain technology, the letter stressed the need for the FDIC and other financial regulators to establish a formal mechanism to identify and address blockchain-related risks. Despite the regulator's coordination, the response to crypto-asset risks had been criticized as untimely. With respect to fintech, this recommendation would have the FDIC and relevant agencies clarify the appropriate use of alternative data in loan underwriting for banks that partner with fintech lenders. The letter also called for the FDIC's attention to additional high-risk areas, including IT management, human capital, federal real property, cybersecurity, and the personnel security clearance process.

    Bank Regulatory Federal Issues GAO FDIC Bank Supervision Congress Fintech Blockchain

  • FTC report to Congress suggests legislative enhancements on consumer protection

    Federal Issues

    On April 10, the FTC issued a report addressed to Congress detailing its efforts to collaborate with state attorneys general (AGs) from across the U.S. on consumer protection law enforcement goals. The report, titled “Working Together to Protect Consumers: A Study and Recommendations on FTC Collaboration with the State Attorneys General,” was issued pursuant to the FTC Collaboration Act of 2021 and included legislative recommendations to enhance the FTC’s consumer protection efforts. The report followed a request for information issued by the FTC in June 2023, seeking public comments on how the FTC might improve collaboration with state AGs to protect consumers from fraud and ensure fairness in the marketplace.

    The FTC's report was divided into three main sections:

    1. The first section outlined the existing collaborative practices between the FTC and state AGs, detailing their shared roles in combating frauds and scams, the respective law enforcement authority of the FTC and the AGs, and the ways federal and state enforcers can share the information they gather, including through networks such as the Consumer Sentinel Network consumer complaint database.
    2. The second section described best practices to ensure effective collaboration between the FTC and state AGs, including strong information-sharing practices and coordination of enforcement actions. It also suggested ways to expand the sharing of technical resources and expertise between federal and state agencies.
    3. The third section provided legislative recommendations aimed at improving collaboration efforts by providing the FTC with clearer authority to pursue legal actions. This section emphasized a request for Congress to restore the FTC’s authority to seek monetary refunds for consumers who have been defrauded, following a 2021 U.S. Supreme Court decision holding that such relief was not available to the Commission (covered by InfoBytes here). Additionally, this section suggested giving the FTC independent authority to seek civil penalties and clear authority to take legal action against facilitators of unfair or deceptive practices.

    In its report to Congress, the FTC emphasized the importance of a collaborative approach to consumer protection among enforcement agencies and states, continuing to seek ways to strengthen its ties with state AGs to address future challenges.

    Federal Issues FTC Congress State Attorney General Consumer Protection

  • Senator Warren invites student loan servicer to testify before Congress

    Federal Issues

    On March 18, Senator Elizabeth Warren (D-MA) sent a letter to a large student loan servicer, inviting its executives to testify at an upcoming hearing hosted by the Banking, Housing, and Urban Affairs Subcommittee on Economic Policy on April 10. The hearing will focus on the servicer’s performance, student loan borrowers’ experience with return to repayment, and the Public Service Loan Forgiveness (PSLF) program. The letter alleged the servicer “mishandl[ed]” borrowers return to repayment after the pandemic by impeding public servants’ access to PSLF relief, among other things. Senator Warren also alleged the servicer failed to perform “basic servicing functions” for PSLF borrowers which led to a backlog of public service workers’ forms eligible towards receiving credit on their student debts. The letter further alleged the servicer implemented a “call deflection scheme” to redirect borrowers' calls from customer service representatives. Testifying would give the servicer the chance to provide context to the allegations, Warren said.

    Federal Issues Congress Testimony Student Loan Servicer Consumer Finance Consumer Protection

  • Banking associations petition District Court for summary judgment against CFPB’s Final Rule on small business lending


    On March 1, several banking associations (plaintiffs) petitioned a district court under a motion for summary judgment in an ongoing case against CFPB’s Final Rule in §1071, claiming that the Final Rule goes beyond the scope of the CFPB’s rulemaking authority. (For rule, see 88 Fed. Reg. 35150 from May 31, 2023). As previously covered by InfoBytes, the Court last ordered granting motions for a preliminary injunction against the CFPB and its small business loan rule. The rule expanded the number of data points to 81 so certain lenders––including women-owned, minority-owned, and small businesses––would be required to disclose to covered financial institutions. The plaintiffs argued that the Final Rule would be a “fruitless attempt to capture the complexity of small business lending” given the number of extraneous data fields and would not fulfill the underlying purpose of the rule set forth by ECOA. That purpose would be to “facilitate enforcement of fair lending laws and enable communities, government entities, and creditors to identify business and community development needs and opportunities for credit for women-owned, minority-owned, and small businesses.”

    In their argument, the banking associations alleged that the CFPB had exceeded its statutory authority by requiring the extra data disclosures, that the data would not provide any tangible benefit, and that implementation of the rule is arbitrary and capricious as it ignores the significant costs that will be incurred by requiring lenders to provide such a large amount of extra information. The plaintiffs emphasized that while Congress granted the CFPB the power to add data points to information a lender might be expected to disclose, the CFPB exceeded its authority in adopting the Final Rule and that its only consequence “will be the imposition of a staggering compliance burden on lenders” and ultimately reduce opportunities for small businesses.

    Courts CFPB Small Business Section 1071 ECOA Congress

  • Alabama judge finds the Corporate Transparency Act unconstitutional, DOJ quickly appeals


    On March 1, the federal district court in the Northern District of Alabama entered a final declaratory judgment concluding that the Corporate Transparency Act (CTA) is unconstitutional. The plaintiffs, including a non-profit small business association consisting of more than 60,000 small business members as well as an individual small business owner, sued the Treasury Department, Secretary Janet Yellen, and FinCEN Acting Director Himamauli Das in their official capacities, alleging that the CTA’s mandatory disclosure requirements violate the First, Fourth, Fifth, Ninth, and Tenth Amendments and exceed Congress’s authority under Article I of the Constitution.

    Corporations, LLCs, or other similar entities that are either “(i) created by the filing of a document with a secretary of state… or (ii) formed under the law of a foreign country and registered to do business in the United States” are required to provide certain beneficial ownership information, as well as disclose any related changes to FinCEN under the CTA, excluding exempt entities. The CTA was passed in 2021 as part of the National Defense Authorization Act and required most entities incorporated under state law to disclose beneficial ownership information to FinCEN to prevent financial crimes often committed through shell corporations. In September 2022, FinCEN issued a final rule implementing the CTA, which went into effect on January 1 of this year, and required currently existing entities and five million new entities formed each year from 2025 to 2034 to disclose the identity and information of any “beneficial owner” to FinCEN (see Orrick Insight here).

    According to the court, the CTA exceeds the Constitution’s limits on Congress’s power and does not have a strong enough connection to any of Congress’s listed powers to be considered a necessary or appropriate way to reach Congress’s policy objectives. The court rejected the government’s claims that the CTA is covered by various constitutional provisions, including the Commerce Clause, Taxing Clause, Necessary and Proper Clause, and Congress’s powers related to foreign affairs and national security.

    The judgment permanently enjoined the Department of the Treasury and FinCEN from enforcing the CTA against the plaintiffs and as a result they are not required to report beneficial ownership information to FinCEN at this time. The order does not ban enforcement of the CTA and its beneficial ownership disclosure requirements to FinCEN generally.

    On March 11, the U.S. Department of Justice filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit after U.S. District Judge Liles C. Burke’s March 1 ruling.

    Courts Alabama Corporate Transparency Act Constitution Congress FinCEN Department of Treasury

  • GAO report calls for FDIC, Fed to fix bank supervision issues

    On March 6, the U.S. Government Accountability Office (GAO) released a report to congressional requesters, including Senator Sherrod Brown (D-OH), Chairman of the U.S. Senate’s Committee on Banking, Housing, and Urban Affairs, regarding the Fed and FDIC’s communication of supervisory concerns related to the 2023 banking issues and the agencies’ procedures for escalating concerns. The report found that while both regulators generally met their requirements for communicating concerns, the Fed’s escalation procedures lacked clarity and specificity, which could have contributed to delayed enforcement last year.

    The GAO recommended that the Fed revise its escalation procedures to be more precise and include measurable criteria. The Fed agreed with the recommendation and acknowledged that clearer examination procedures could help in addressing supervisory concerns more promptly. For the FDIC, the GAO recognized that the FDIC already updated its escalation procedures in August 2023 and will intend to implement further revisions to respond promptly. The GAO report also suggested that Congress amend the FDI Act to incorporate noncapital triggers related to unsafe banking practices before they affect capital.

    Bank Regulatory Federal Issues FDIC Federal Reserve Bank Supervision GAO Congress

  • Treasury opens comment period for financial inclusion initiatives

    Federal Issues

    On December 22, 2023, the Treasury released its request for information to develop a national strategy for financial inclusion. Financial inclusion is loosely defined by the Treasury as expanding accessibility, developing financial security, and expanding opportunities for Americans to build wealth, including closing the racial wealth gap among underserved communities, where “discrimination… [has] resulted in significant disparities in access to… financial products and services across… communities, including low-income and low-wealth communities and [minority groups].” The Treasury’s initiative fulfills its requirements from the Financial Services and General Government Appropriations Act portion of the 2022 omnibus spending bill known as the Consolidated Appropriations Act, 2023, and will help the Treasury advance its strategic vision for financial inclusion and create a roadmap for any future actions. The Treasury offers its request for information to identify opportunities through “policy, government programs, financial products and services, technology, and other tools and market infrastructure.” Comments can be submitted here and will be open until February 20, 2024.

    Federal Issues Department of Treasury Congress

  • CFPB report analyzes college banking and credit card agreements

    Federal Issues

    On December 19, the CFPB released a report titled College Banking and Credit Card Agreements: Annual Report to Congress, which found that some college-sponsored financial products marketed towards students have less advantageous terms and conditions, and higher fees compared to typical market products.

    According to the report, when colleges decided to subcontract with third-party financial service providers to facilitate the application of federal financial aid, they entered “college banking agreements” offering deposit accounts for students, which can function as debit or prepaid cards. The report distinguished between colleges that pay for certain service providers to facilitate the processing of federal financial aid disbursements (referred to as Tier One college banking arrangements), and colleges that are paid by certain service providers to offer deposit accounts and prepaid cards to the student population (referred to as Tier Two college banking arrangements). Tier Two account issuers paid colleges an aggregated of over $19.6 million in 2022. The CFPB observed that some colleges’ financial product partners charge students overdraft fees, despite the general industry trend to move away from such fees.  The CFPB also warned in its report that certain overdraft fees can violate the CFPA.

    The report also found that students at HBCUs and Hispanic-servicing institutions on average pay higher fees per account. The CFPB also noted several other additional fees charged to students by financial institutions, including (i) dormant account fees; (ii) deposit and withdrawal fees for student ID cards that also function as prepaid cards; and (iii) “sunset” fees imposed on students to pay after graduation or reaching a certain age.

    Regarding partnerships in credit cards, the CFPB noted that although the passage of the CARD Act reduced the profitability of marketing credit cards on college campuses, thousands of new accounts between colleges and credit card issuers are opened every year. The CFPB also noted that college students maintain a high level of reliance on credit cards to cover costs and it indicated that it “will continue to research evolving practices” to understand how credit cards are being marketed to college students.

    Federal Issues CFPB Consumer Protection CARD Act Congress


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