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NYDFS issues proposed amendment to third-party debt collection rules
On December 15, NYDFS announced a proposed amendment to 23 NYCRR 1, which regulates third-party debt collectors and debt buyers. The proposed amendment factored in findings from NYDFS investigations, which revealed instances of abusive and deceptive debt collection practices, as well as consumer debt collection complaint data. According to acting Superintendent Adrienne A. Harris, the “proposed amendment requires clear communication on consumer debt obligations and ensures the consumer has the right information to dispute the validity of the debt.” The proposed regulation will mitigate predatory debt collection by taking measures to ensure consumers only pay debts they owe and only pay them once. Harris added that the proposed amendment will offer enhanced consumer protections by increasing transparency, requiring enhanced disclosures, reducing misleading statements about consumer debt obligations, and limiting harassment by placing stricter limits on debt collection phone calls than those currently imposed under federal regulations. Among other things, the proposed amendment also:
- Defines “communication” as “the conveying of information regarding a debt directly or indirectly to any person through any medium.”
- Defines “creditor” as “any person or such person’s successor in interest by way of merger, acquisition, or otherwise, to whom a debt is owed or allegedly owed.”
- Amends the definition of “debt collector” to include “any creditor that, in collecting its own debts, uses any name other than its own that would suggest or indicate that someone other than such creditor is collecting or attempting to collect such debts.” The definition also includes certain exemptions, such as persons “performing the activity of serving or attempting to serve legal process” in the judicial enforcement of a debt “or serving, filing, or conveying” other specified documents pursuant to rules of civil procedure, but that are “not a party to, or providing legal representation to a party to, the action[.]”
- Requires collectors to clearly and conspicuously send written notification within 5 days after an initial communication with a consumer letting the consumer know specific information about the debt, including (i) validation information; (ii) the type of reference date used to determine the itemization date; (iii) account information associated with the debt; (iv) merchant/affinity/facility brand association; (v) the date the last payment (including any partial payment) was made; and (vi) the statute of limitations, if applicable.
- Requires collectors to inform consumers they have “the right to dispute the validity of the debt, in part or in whole,” and provides instructions on how consumers may dispute the validity of the debt.
- States that certain disclosures may not be sent exclusively through an electronic communication, and prohibits treating a formal pleading in a civil action as an initial communication.
- Provides that, if a collector “has reason to know or has determined” that the statute of limitations on a debt it seeks to collect has expired, the collector is required to provide clear and conspicuous notice in all communications that, among other items, it believes the statute of limitations has expired. For debts not subject to a statute of limitations, collectors must notify consumers that they are “not required to provide the debt collector with an admission, affirmation, or acknowledgment of the debt, a promise to pay the debt, or a waiver of the statute of limitations.”
- Prohibits collectors from communicating by telephone or other means of oral communication when attempting to collect on debts for which the statute of limitations has expired, without certain consent or permission.
- Requires collectors to provide consumers written substantiation of a debt (no longer specified as a “charged-off” debt) in hard copy by mail within 30 days of receiving a request for substantiation of a debt (unless a consumer has consented to receiving electronic communications). The written substantiation must include, among other information, (i) a statement describing the complete chain of title from the creditor “to which the debt was originally owed or alleged to be owed” to the present creditor “or owner of the debt”; and (ii) notice that a consumer may request additional documentation and instructions on how to make such a request. Collectors are also required to provide within 30 days after the consumer makes such a request for substantiation, documents sufficient to establish the complete chain of title, including documents sufficient to establish the specific dates on which the debt was assigned, sold or transferred and names of each previous owner of the account to the current owner.
- Requires collectors to retain certain information on a debt “until the debt is discharged, sold, or transferred, or for 7 years, whichever is longer.”
- Requires collectors to provide written confirmation of the satisfaction of a debt to a consumer within 20 business days of receiving receipt of the satisfaction of a debt. The confirmation must include the name of the creditor to which the debt was originally owed and the account number unless stipulated otherwise.
- Limits collectors to 1 telephone call and 3 attempted telephone calls in a 7-day period per alleged debt, without certain consents or permission, “except that telephone calls in excess of one time per seven day period are permitted when” a consumer requests to be contacted or when the communication is required under the proposed amendment or other federal or state law.
- Permits collectors to communicate with persons through electronic channels to collect a debt only if (i) the person has voluntarily provided certain contact information to the debt collector; and (ii) the person has given certain revocable consent in writing directly to the debt collector. The proposed amendment also provides (i) certain disclosure requirements for electronic communications “initiated by” a collector; (ii) privacy requirements that incorporate 15 U.S. Code § 1692c(b); and (iii) outlines compliance requirements for collectors should a consumer revoke consent.
CFPB orders companies to submit BNPL information
On December 16, the CFPB issued a series of orders to five companies seeking information regarding the risks and benefits of the “buy now, pay later” (BNPL) credit model. BNPL is a “fast-growing” form of deferred payment that permits a consumer to divide a purchase into smaller installment payments, which are usually four or less and are often with a down payment of 25 percent due at the time of checkout. The Bureau issued the orders under Section 1022(c)(4) of the Consumer Financial Protection Act (12 U.S.C. § 5512(c)(4)), which, as part of the agency’s rulemaking authority, authorizes it to “monitor consumer financial markets and enables the agency to require market players to submit information to inform this monitoring.” The Bureau stated that it is “concerned about accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology.” The Bureau expects to “publish aggregated findings on insights learned from this inquiry” and intends for the orders “to illuminate the range of these consumer credit products and their underlying business practices.”
The Bureau made available an example order that contains 20 requests seeking various information and data on several topics, including: (i) “Business Model/Metrics”; (ii) “Loan Performance Metrics”; (iii) “Consumer Protections”; (iv) “User Contacts and Demographics”; and (v) “Data Harvesting.” With respect to data harvesting, the CFPB noted that “[a]s competitive forces pressure the merchant discount, lenders will need to find other sources of revenue to maintain growth and profitability,” and the Bureau “would like to better understand practices around data collection, behavioral targeting, data monetization and the risks they may create for consumers.” The Bureau also noted that as part of the inquiry, it is collaborating with Australia, Sweden, Germany, and the UK (specifically, the Financial Conduct Authority), and will additionally be coordinating with the rest of the Federal Reserve System, and its state partners.
The same day, the Bureau issued a blog post for consumers on common risks to be aware of before using a BNPL loan. The blog noted, among other cautions, that: (i) “BNPL products often carry fees”; (ii) “[y]our loan repayment agreement is with the BNPL lender rather than the retailer”; (ii) “BNPL loans have fewer protections than credit cards”; and (iii) “[m]ost BNPL lenders don’t report payments to the major credit reporting companies,” nor “generally perform hard credit inquiries when deciding whether or not to give you the loan.”
SEC proposes rules connected to security-based swaps transactions
On December 15, the SEC announced that the Commission voted to propose three rules under the Exchange Act “to prevent fraud, manipulation and deception in connection with security-based swaps, to prevent undue influence over the chief compliance officer of security-based swap dealers and major security-based swap participants, and to require any person with a large security-based swap position to publicly report certain information related to the position.” According to the proposed rules, Rule 9j-1 would be “designed to prevent fraud, manipulation, and deception in connection with effecting transactions in, or inducing or attempting to induce the purchase or sale of, any security-based swap.” Rule 15Fh-4(c) “would make it unlawful for any officer, director, supervised person, or employee of a security-based swap dealer or major security-based swap participant, or any person acting under such person’s direction, to directly or indirectly take any action to coerce, manipulate, mislead, or fraudulently influence the security-based swap dealer’s or major security-based swap participant’s CCO in the performance of their duties under the Federal securities laws or the rules and regulations thereunder.” Rule 10B-1 would require any individual “with a security-based swap position that exceeds a certain threshold to promptly file with the Commission a schedule disclosing among other things: (1) the applicable security-based swap position; (2) positions in any security or loan underlying the security-based swap position; and (3) any other instrument relating to the underlying security or loan, or group or index of securities or loans.” Additionally, Rule 10B-1 “includes different reporting thresholds for security-based swaps tied to debt securities and security-based swaps tied to equity securities.” Comments are due 45 days after publication in the Federal Register.
Agencies will not amend qualified residential mortgage definition
Recently, the OCC, Federal Reserve Board, FDIC, FHFA, SEC, and HUD issued an interagency notice stating that no changes will be made to the definition of “qualified residential mortgage” (QRM) under the Credit Risk Retention Regulations. The agencies also left unchanged a community-focused residential mortgage exemption from TILA’s ability-to-pay requirement, after determining that the exemption serves the public interest by making “safe, sustainable loans” available to low-to-moderate-income communities. An exemption for qualifying three-to-four-unit residential mortgage loans was also left unchanged after the agencies determined that the underlying properties “are a source of affordable housing” and, given the number of mortgages collateralized by three-to-four-unit properties, the exemption “does not appear to be spurring any significant speculative activity in the securitization market.”
As part of the Credit Risk Retention Regulations, which were established under Dodd-Frank, federal banking agencies are required to periodically review the QRM definition “to assess developments in the residential mortgage market, including the results of the statutorily required five-year review by the [CFPB] of the ability-to-repay rules and the QM definition.” During their review of the QRM definition, the agencies confirmed that the current QRM definition was “predictive of a lower risk of default” and “did not appear to be a material factor in credit conditions during the review period.”
FTC publishes 2022 regulatory priorities
On December 10, the FTC published a statement disclosing its regulatory priorities for 2022. Among other things, the statement highlights; (i) newly initiated and upcoming periodic reviews of rules and guides; (ii) ongoing periodic reviews of rules and guides; (iii) proposed rules; and (iv) final actions. According to the Plan, the FTC “will consider developing both unfair methods-of-competition rulemakings as well as rulemakings to define with specificity unfair or deceptive acts or practices.” The FTC noted that there are many pressing issues consumers face in the modern economy, such as the “abuses stemming from surveillance-based business models,” which also threaten competition. “The Commission is considering whether rulemaking in this area would be effective in curbing lax security practices, limiting intrusive surveillance, and ensuring that algorithmic decision-making does not result in unlawful discrimination.” The Plan further explains that the FTC will “explore whether rules defining certain ‘unfair methods of competition’ prohibited by section 5 of the FTC Act would promote competition and provide greater clarity to the market.” According to the Dissenting Statement by FTC Commissioner Christine S. Wilson, though, the plan takes “a big step into uncharted waters” with this latter statement, given the breadth of potential rulemakings and lack of clarity on which areas the FTC would pursue. Wilson’s view is that many existing rules “should be abolished,” rather than issuing new rules.
FinCEN seeks comments on updating AML/CFT regime
On December 14, the Financial Crimes Enforcement Network (FinCEN) issued a request for information (RFI) in the Federal Register seeking comments from regulated entities; state, local, and Tribal governments; law enforcement; regulators; and other consumers of Bank Secrecy Act (BSA) data, on ways to redevelop the anti-money laundering and countering the financing of terrorism (AML/CFT) regime in the U.S. According to the announcement, FinCEN intends to collect comments regarding ways to modernize risk-based AML/CFT regulations and guidance so that they protect U.S. national security in a cost-effective and efficient manner. Additionally, the RFI “supports FinCEN’s efforts to conduct a formal review of BSA regulations and related guidance, which is required by Section 6216 of the Anti-Money Laundering Act of 2020.”
As previously covered by InfoBytes, the Anti-Money Laundering Act of 2020 made numerous changes to the BSA, including amendments to the definition of “financial institution” to include a “person engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities.” According to FinCEN, this “review will help FinCEN ensure that BSA regulations and guidance continue to safeguard the U.S. financial system from threats to national security posed by various forms of financial crime, and that BSA reporting and recordkeeping requirements continue to be highly useful in countering financial crime.” This review will also permit the agency “to identify regulations and guidance that are outdated, redundant, or otherwise do not promote a risk-based AML/CFT compliance regime for financial institutions, or that do not conform with U.S. commitments to meet international AML/CFT standards.” The findings of the review will be reported to Congress, and will include administrative and legislative recommendations. Comments are due by February 14, 2022.
OCC formally rescinds CRA rule
On December 14, the OCC issued a final rule rescinding its 2020 Community Reinvestment Act Rule (2020 Rule) and replacing it with a rule based largely on the prior rules adopted jointly by the federal banking agencies in 1995, as amended (1995 Rules). (See also OCC Bulletin 2021-16.) According to the OCC, the “action is intended to facilitate the ongoing interagency work to modernize the CRA regulatory framework and promote consistency for all insured depository institutions.” As previously covered by a Buckley Special Alert, the 2020 Rule was intended to modernize the regulatory framework implementing the CRA and provided for at least a 27-month transition period for compliance based on a bank’s size and business model, among other things.
In September, the OCC solicited comments on a proposal to rescind the 2020 Rule (NPRM) and issued a series of frequently asked questions discussing the rulemaking process and providing a general timeline on the transition from the 2020 Rule (covered by InfoBytes here and here). The FAQs addressed questions including concerns related to the transition period for tracking activities that qualify under the 2020 Rule but would not qualify should the 1995 Rules be reinstated. The OCC announced that after reviewing transition issue comments received on the NPRM, the final rule had been adopted largely without modification. The final rule carries a compliance date of January 1, 2022, for all national banks and federal and state savings associations, with the exception of the final rule’s public file and public notice provisions, which have a delayed compliance date of April 1, 2022. According to the OCC, transitioning back to the 1995 Rules should carry a limited burden as the June 2020 Rule had only been partially implemented.
The OCC further noted that “strategic plans approved under the June 2020 Rule may remain in effect” but that “these plans must comply with the provisions of the final rule, as applicable.” Also, since the final rule stipulates that a bank’s record of helping to meet the credit needs of its assessment area(s) will be taken into consideration, “provisions in strategic plans that include goals for activities outside a bank’s assessment area(s) will no longer be applicable, and the OCC will no longer evaluate these activities when assessing the bank’s performance.” Additionally, the OCC stated that the new rule is intended to limit the CRA burden on banks, bank communities, and examiners while ensuring that insured depository institutions can “meet the credit needs of their entire communities, including low- and moderate-income [] neighborhoods,” consistent with safe and sound operations.
Chopra releases statement on bank merger policy conflict
On December 14, after his first public meeting as a Member of the Board of Directors of the FDIC, CFPB Director Rohit Chopra issued a statement detailing the circumstances leading up to the request for information (RFI) that seeks public comment on revising the FDIC’s framework for vetting proposed bank mergers. Chopra’s statement follows an FDIC statement (covered by InfoBytes here) refuting a request for review of bank merger policies announced in a CFPB blog post. In his December 14 statement, Chopra challenged the view that only the FDIC Chairperson has the right to raise matters for discussion in board meetings and explained how the Directors had “circulated a draft Request for Information on the Bank Merger Act with the intention of releasing it jointly with the Office of the Comptroller of the Currency.” Chopra noted the draft RFI “was not a draft rule or guidance document – it was largely a series of questions to solicit input, given the President’s reasonable request, the need to incorporate the Dodd-Frank Act’s amendments, and the long-term trend in consolidation.” Chopra further stated that it “should have been a no-brainer where consensus could easily be achieved,” but due to “the General Counsel’s improper assertion that the Chairperson had implicit veto power, the draft was not given appropriate attention.”
Chopra called for “immediate[]” resolution of the conflict, adding that “[a]bsent a return to legal reality and constructive engagement, board members will need to take further steps to exercise independence from management and to ensure sound governance of the [FDIC].”
The same day, acting Comptroller of the Currency Michael J. Hsu released a statement supporting “the view of the majority of the FDIC Board members that the Bank Merger Act (BMA) guidelines are ripe for review,” noting that his particular focus is on “the financial stability prong, given large bank merger trends and my experience in the 2008 financial crisis with too-big-to-fail firms.” Hsu also stated that he “voted for the Request for Information (RFI) on the BMA due to the inability to reach compromise and urgency on the financial stability issue,” and he expressed concerns that “legal or procedural quicksand may ultimately limit our ability to act on this issue in a timely manner.”
Biden outlines anti-corruption strategy
On December 6, the Biden administration released the United States Strategy on Countering Corruption (Strategy) in response to President Biden’s June Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest, which designated the “fight against corruption” as a top priority in preserving national security in the United States. (Covered by InfoBytes here.) According to a fact sheet issued the same day, the comprehensive Strategy is intended to “improve the U.S. Government’s ability to prevent corruption, more effectively combat illicit finance, better hold corrupt actors accountable, and strengthen the capacity of activists, investigative journalists, and others on the front lines of exposing corrupt acts.” To achieve this, the Strategy presents a “whole-of-government approach to elevating the fight against corruption,” including by taking expanded steps to reduce corrupt actors from accessing the U.S. and international financial system to hide assets and lauder proceeds derived from corrupt acts. The Strategy, which discusses enforcement and rulemaking under the FCPA, Bank Secrecy Act, and Corporate Transparency Act, among other statutes, is divided into the following five pillars:
- “Modernizing, coordinating, and resourcing U.S. Government efforts to fight corruption,” including “prioritizing intelligence collection and analysis on corrupt actors and their networks.”
- “Curbing illicit finance” by, among other things, “[i]ssuing beneficial ownership transparency regulations” to identify bad actors and reveal when ill-gotten cash or criminal proceeds is hidden in real estate transactions, as well as cooperating with other counties to strengthen anti-money laundering regimes to increase transparency in the international financial system.
- “Holding corrupt actors accountable” by engaging with partner countries to detect and disrupt foreign bribery, developing “a kleptocracy asset recovery rewards program that will enhance the U.S. Government’s ability to identify and recover stolen assets linked to foreign government corruption that are held at U.S. financial institutions,” and working with the private sector to “encourage[e] the adoption and enforcement of anti-corruption compliance programs by U.S. and international companies.”
- “Preserving and strengthening the multilateral anti-corruption architecture,” including working to implement robust transparency and anti-corruption measures with the G7 and G20 and “target[ing] corruption in finance, acquisition, and human resource functions.”
- “Improving diplomatic engagement and leveraging foreign assistance resources to achieve anti-corruption policy goals” by, among other things, safeguarding government assistance funds from corrupt actors, “[e]xpanding anti-corruption focused U.S. assistance, and monitoring the efficacy of this assistance,” allowing for flexibility within “anti-corruption initiatives and broader assistance efforts to respond to unexpected situations worldwide,” and improving support for independent audit and oversight institutions.
The Strategy will require federal departments and agencies to submit annual reports to President Biden on progress made to achieve its objectives.
FinCEN extends FBAR filing deadline for certain individuals
On December 9, the Financial Crimes Enforcement Network (FinCEN) issued Notice 2021-1 to further extend the time for certain Report of Foreign Bank and Financial Accounts (FBAR) filings in light of the agency’s March 2016 notice of proposed rulemaking, which proposed to revise the Bank Secrecy Act’s implementing regulations regarding FBARs. (See previous InfoBytes coverage on the 2016 NPR here.) Specifically, one of the proposed amendments seeks to “expand and clarify the exemptions for certain U.S. persons with signature or other authority over foreign financial accounts,” but with no financial interest, as outlined in FinCEN Notice 2020-1 issued December 9, 2020. FinCEN noted that because the proposal has not been finalized, it is extending the filing due date to April 15, 2023, for individuals who previously qualified for a filing due date extension under Notice 2020-1. All other individuals must submit FBAR filings by April 15, 2022.