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Financial Services Law Insights and Observations


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  • States, Democrats urge card companies to create gun-store MCC

    State Issues

    On September 2, the California and New York attorneys general sent a letter to the CEOs of three credit card companies asking for the establishment of a unique merchant category code (MCC) for gun store purchases, writing that a specially-designated MCC would help companies flag suspicious activity. The letter follows recent requests sent by several congressional Democrats to the same companies urging them to establish an MCC code for guns. According to the Democrats’ letter, MCCs are four-digit codes maintained by the International Organization for Standardization (ISO) that classify merchants by their purpose of business and are used “to determine interchange rates, assess transaction risks, and generally categorize payments.” The letter noted that according to ISO’s criteria, “a new MCC may be approved if (a) the merchant category is reasonable and substantially different from all other merchant categories currently represented in the list of code values; (b) the merchant category is separate and distinct from all other industries currently represented in the list of code values; (c) the proposal describes a merchant category or industry, and not a process; (d) the minimum annual sales volume of merchants included in the merchant category, taken as a whole is, US$10 million; and (e) sufficient justification for the addition of a new code is found.” The letter stated that a “new MCC code could make it easier for financial institutions to monitor certain types of suspicious activities including straw purchases and unlawful bulk purchases that could be used in the commission of domestic terrorist acts or gun trafficking schemes,” and could garner coordination between financial institutions and law enforcement to aid efforts across the federal government to identify and prevent illicit activity. The letters requested feedback to better understand the companies’ positions.

    State Issues New York California Credit Cards Congress State Attorney General

  • FTC issues report to Congress on use of AI

    Privacy, Cyber Risk & Data Security

    On June 16, the FTC issued a report to Congress regarding the use of artificial intelligence (AI), warning that policymakers should use caution when relying on AI to combat the spread of harmful online conduct. In the 2021 Appropriations Act, Congress directed the FTC to study and report on whether and how AI “may be used to identify, remove, or take any other appropriate action necessary to address” a wide variety of specified “online harms,” referring specifically to content that is deceptive, fraudulent, manipulated, or illegal. The report suggests that adoption of AI could be problematic, as AI tools can be biased, discriminatory, or inaccurate, and could rely on invasive forms of surveillance. To avoid introducing these additional harms, the report suggests lawmakers instead focus on developing legal frameworks to ensure no additional harm is caused by AI tools used by major technology platforms and others. The report further suggests that Congress, regulators, platforms, scientists, and others focus their attention on creating frameworks to address the following related considerations, among others: (i) the need for human intervention in connection with monitoring the use and decisions of AI tools intended to address harmful content; (ii) the need for meaningful transparency, “which includes the need for it to be explainable and contestable, especially when people’s rights are involved or when personal data is being collected or used”; and (iii) the need for accountability with respect to the data practices and results of the use of AI tools by platforms and other companies. Other recommendations include use of authentication tools, responsible use of inputs and outputs by data scientist, and using interventions, such as tools that slow the viral spread or otherwise limit the impact of certain harmful content.

    The Commission voted 4-1 at an open meeting to send the report to Congress. Commissioner Noah Joshua Phillips issued a dissenting statement, finding that the report provides “short shrift to how and why AI is being used to combat the online harms identified by Congress,” and instead “reads as a general indictment of the technology itself.”

    Privacy/Cyber Risk & Data Security Federal Issues FTC Artificial Intelligence Congress

  • FTC reports on older adult fraud

    Federal Issues

    On October 18, the FTC issued its annual report to Congress on protecting older adults. Among other things, the report, Protecting Older Consumers, 2020-2021, A Report of the Federal Trade Commission, evaluates fraud trends impacting older adults and provides details on enforcement actions and efforts to combat scams related to the Covid-19 pandemic. According to the report, there were more than 334,000 fraud reports filed by consumers age 60 or older totaling more than $600 million in losses. While the FTC found that older adults were the least likely of any age group to report fraud monetary losses, older adults tended to report losing substantially more money than younger age groups. Older adults were also more likely to report financial losses related to tech support scams, prize, lottery or sweepstake scams, friend or family impersonation, and romance scams. Additionally, as online shopping has increased, the report noted that losses attributed to online shopping fraud among older adults rose sharply during the second quarter of 2020 and remained far higher than pre-pandemic levels in early 2021. The report also discussed significant FTC enforcement actions taken to protect older adults, as well as outreach and education efforts focusing on fraud prevention.

    Federal Issues FTC Consumer Finance Congress Covid-19 Elder Financial Exploitation Enforcement

  • FTC gives Congress report on privacy and security

    Federal Issues

    Recently, the FTC released a report to Congress regarding the Commission’s actions in strengthening measures to link data privacy and competition enforcement, among other things. The report responds to the Joint Explanatory Statement accompanying the Consolidated Appropriations Act of 2021, P.L. 116-260, which directed the FTC to “conduct a comprehensive internal assessment measuring the agency’s current efforts related to data privacy and security while separately identifying all resource-based needs of the FTC to improve in these areas.” The report highlights areas that the FTC is focusing on to improve the effectiveness of the Commission’s efforts to protect Americans’ privacy:

    • Integrating competition concerns. The FTC intends to “spend more time on the overlap between data privacy and competition.” The report also points out that the FTC has a “structural advantage” compared to other agencies and will look with “privacy and competition lenses at problems that arise in digital markets.”
    • Advancing remedies. The FTC is providing relief for consumers and deterring unfair or deceptive privacy and security practices though four remedies: (i) notifying harmed consumers; (ii) obtaining monetary remedies for harmed consumers; (iii) obtaining non-monetary remedial relief for consumers; and (iv) prohibiting companies from benefitting from illegal data collection.
    • Focusing on digital platforms. The FTC intends to increase its focus on the data practices of dominant digital platforms, which includes focusing on order enforcement.
    • Expanding the FTC’s guidance and understanding of the consumer protection and competition implications of algorithms. The FTC intends “to deepen [its] understanding of the consumer protection and competition risks associated with algorithms and to expand upon the guidance that [it has] provided to businesses on using algorithms and AI truthfully, fairly, and equitably.”

    Among other things, the report also urges Congress “to clarify Section 13(b) of the FTC Act and shore up the FTC’s ability to enjoin illegal conduct and revive its authority return to consumers money they have lost, which will greatly assist [the FTC’s] efforts to protect consumers.” The report further notes that the FTC will continue to push Congress to enact privacy and data security legislation, enforceable by the FTC.

    In a statement released on October 1, FTC Chair Lina Khan stated the agency “should approach data privacy and security protections by considering substantive limits rather than just procedural protections, which tend to create process requirements while sidestepping more fundamental questions about whether certain types of data collection and processing should be permitted in the first place.”

    Federal Issues FTC Congress Privacy/Cyber Risk & Data Security FTC Act Competition Enforcement

  • CFPB’s semi-annual report to Congress discusses Covid-19 response

    Federal Issues

    On July 7, the CFPB issued its semi-annual report to Congress covering the Bureau’s work from October 1, 2019, through March 31, 2020. The report, which is required by the Dodd-Frank Act, addresses, among other things, problems faced by consumers with regard to consumer financial products or services; significant rules and orders adopted by the Bureau; and various supervisory and enforcement actions taken by the Bureau. In her opening letter, Director Kathy Kraninger discusses the Bureau’s response to the Covid-19 pandemic, stating that the Bureau has participated in “countless joint statements, virtual co-appearances, and shared broadcasts to stakeholders with [their] prudential partners” and has “directly engage[d] consumers with the right information, at the right time.”

    Among other things, the report highlights first time homebuyers and credit scores as areas in which consumers face significant problems, citing to the Bureau’s Market Snapshot on First-time Homebuyers and the quarterly consumer credit trends report on public records. In addition to highlighting the Bureau’s previous efforts during the reporting period, the report notes upcoming initiatives and plans, including (i) the Taskforce on Federal Consumer Financial Law’s public listening sessions in the fall; (ii) the cost-benefit analysis symposium in July; and (iii) further work on their Covid-19 pandemic responses.

    Federal Issues CFPB Mortgages Credit Scores Credit Report Congress Dodd-Frank Consumer Finance Covid-19

  • CFPB issues 2019 fair lending report to Congress

    Federal Issues

    On April 30, the CFPB issued its annual fair lending report to Congress, which outlines the Bureau’s efforts in 2019 to fulfill its fair lending mandate. According to the report, in 2019 the Bureau continued to focus on promoting fair, equitable, and nondiscriminatory access to credit, highlighting several fair lending priorities that continued from years past such as mortgage lending, student loans, and small business lending. The Bureau also highlighted three policies released over the last year to promote innovation and to facilitate compliance: the No-Action Letter Policy, the Trial Disclosure Program Policy, and the Compliance Assistance Sandbox Policy (covered by InfoBytes here). Additionally, the report discussed the Bureau’s efforts in encouraging consumer-friendly innovation to expand access to unbanked and underbanked consumers and communities. These include: (i) using alternative data in credit underwriting to expand credit access responsibly; (ii) issuing a request for information on the use of “Tech Sprints” (covered by InfoBytes here) to encourage regulatory innovation and stakeholder collaboration; (iii) continuing to enforce fair lending laws such as ECOA and HMDA, including reaching a settlement with one of the largest HDMA reporters nationwide to resolve HMDA reporting allegations; and (iv) engaging with stakeholders to discuss fair lending compliance, issues related to credit access, and policy decisions. The report also provides information related to supervision, enforcement, rulemaking, and education efforts.

    Federal Issues CFPB Congress Fair Lending Supervision Enforcement Alternative Data Fintech Mortgages Student Lending Small Business Lending ECOA HMDA

  • Waters urges exclusion of predatory lenders from PPP loans

    Federal Issues

    On May 1, Chairwoman of the House Financial Services Committee, Maxine Waters (D-CA), sent a letter to the Department of Treasury (Treasury) and the Small Business Administration (SBA) urging them to prohibit payday and car-title lenders from receiving Paycheck Protection Program (PPP) loans, citing harm these types of lenders have caused to consumers. The Congresswoman stressed that “there is no reason why Congress, SBA, or Treasury should bail out these predatory lenders” and encouraged them to instead focus on “providing PPP loans to the millions of responsible small businesses who are pillars in communities across the country and warrant immediate support.”

    Federal Issues Congress House Financial Services Committee Department of Treasury SBA Small Business Lending CARES Act Payday Lending Title Loans Covid-19

  • Federal Reserve provides updates on facilities in Section 13(3) report to Congress

    Federal Issues

    On April 24, the Federal Reserve filed a report with Congress regarding various new credit facilities developed to combat liquidity issues caused by the Covid-19 pandemic. The report provides the initial update to Congress regarding the Primary Dealer Credit Facility, Commercial Paper Funding Facility, and Money Market Mutual Fund Liquidity Facility pursuant to Section 13(3) of the Federal Reserve Act as of April 14, 2020.  

    Federal Issues Covid-19 Federal Reserve Congress

  • Lawmakers request SBA investigation of PPP lenders

    Federal Issues

    On April 23, Senator Elizabeth Warren (D-MA) and Congresswoman Nydia Velazquez sent letters to the Inspectors General (IG) of the Department of Treasury and the Small Business Administration (SBA). On the same day, Senators Schumer (D-NY), Brown (D-OH), and Cardin (D-MD) also sent a letter to the SBA IG. The letters requested that the IGs investigate the administration of loan applications for the SBA Paycheck Protection Program (PPP) in order to detect any preferential treatment provided by lenders to certain applicants. The letter from Warren and Velazquez cited numbers released by the SBA, which they suggested indicated that smaller businesses have been receiving proportionally less of the PPP funds than much larger businesses. Schumer, Brown and Cardin requested that the SBA IG reply to the letter by May 8 with a recommendation on the SBA rules, regulations, and policies and procedures “to ensure small businesses get the money they need and are being treated fairly” by PPP lenders. Their letter expressed concerns that underserved, rural, minority-owned, and women-owned businesses need financial assistance immediately, and the lack of a previously-existing banking relationship should not place them lower in the lender’s queue preventing them from receiving PPP loans.

    Federal Issues Congress Department of Treasury SBA CARES Act Covid-19

  • Treasury and Small Business Administrator urge Congress to appropriate funds for Paycheck Protection Program

    Federal Issues

    On April 15, the U.S. Treasury secretary and Small Business Administration administrator issued a statement urging Congress to appropriate additional funds for the Paycheck Protection Program to meet the high demand from small businesses for relief in response to Covid-19. The statement notes that “SBA will not be able to issue new loan approvals once the programs experiences a lapse in appropriations.”

    Federal Issues Covid-19 Department of Treasury SBA Congress


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