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CFPB taskforce releases recommendations for modernizing consumer financial marketplace
On January 5, the CFPB Taskforce on Federal Consumer Financial Law released a two volume report with approximately 100 recommendations on ways the CFPB, Congress, and state and federal regulators can improve and modernize the legal and regulatory environment for the consumer financial services market. The report is the end-product of a request for information issued by the taskforce last March (covered by InfoBytes here). The report’s first volume provides a historical and economic overview of the legal and regulatory landscape for consumer finance, and explores issues related to consumer financial protection, competition, innovation, and financial inclusion. The second volume outlines more than 100 proposed recommendations for strengthening consumer protections and maintaining competition in the financial marketplace. Among these are recommendations related to the regulation of non-banks and fintech companies, including:
- Recommending that Congress either (i) “authorize the Bureau to issue licenses to non-depository institutions that provide lending, money transmission, and payments services,” with licenses “provid[ing] that these institutions are governed by the regulations of their home states, even when providing services to consumers located in other states,” or (ii) “clarify that the OCC has the authority to issue charters to non-depositories engaged in lending, money transmissions, or payment services.” Acting Comptroller of the Currency, Brian P. Brooks released a statement the next day endorsing the need for federal charters for fintech companies, but stressed that the OCC, not the Bureau, should be responsible for granting national charters;
- Identifying and addressing competitive barriers and making appropriate recommendations to policymakers and regulators for expanding access to the payments systems by non-bank providers;
- Recommending that the Bureau weigh the costs and benefits of preempting state law where potential conflicts “can impede provision of valuable products and services, such as the regulation of [fintech] companies engaged in money transmission”; and
- Ensuring that fintech companies with multistate operations are subject to a single set of laws to promote consistency, reducing unnecessary regulatory costs, and promoting competition.
The taskforce further recommends that the Bureau establish an independent review of its regulatory cost-benefit analyses, and calls for increased regulatory coordination between the Bureau and other federal and state regulators. Other recommendations address, among other things, the use of alternative data; suggested changes to the Bureau’s internal organization; competition in the consumer financial marketplace, including with respect to the cost of credit, the effect and burden of state licensure requirements, and settlement servicing prices; consumer credit reporting, including clarifying the obligations of credit reporting agencies and furnishers with respect to dispute investigations; consumer empowerment and education; equal access to credit and financial inclusion; disclosure requirements; electronic signatures and document requirements; disparate impact; privacy; small dollar credit; and enforcement and supervision.
OCC: Banks may use independent node verification networks and stablecoins for payment activities
On January 4, the OCC published an interpretive letter addressing the legal permissibility of certain payment-related activities involving the use of new technologies, including using independent node verification networks (INVN) and related stablecoins to conduct payment activities and other bank-permissible functions. Specifically, the letter clarifies that a national bank or federal savings association “may validate, store, and record payments transactions by serving as a node on an INVN,” and may also “use INVNs and related stablecoins to carry out other permissible payment activities” provided the bank or federal savings association complies with applicable laws and safe, sound, and fair banking practices. Due to the decentralized nature of INVNs—which not only “allows a comparatively large number of nodes to verify transactions in a trusted manner” but also “limits tampering or adding inaccurate information to the database because information is only added to the network after consensus is reached among the nodes validating the information”—the OCC believes that INVNs may enhance payment activities’ efficiency, effectiveness, and stability within the federal banking system. The letter also outlines potential risks associated with INVN-related activities, such as operational and compliance risks and fraud related to the possibility of money laundering and terrorist financing, and warns banks and federal savings associations to expand their programs to ensure compliance with Bank Secrecy Act reporting and recordkeeping requirements and to address cryptocurrency transaction risks.
FinCEN warns financial institutions about Covid-19 vaccine-related scams and cyberattacks
On December 28, the Financial Crimes Enforcement Network (FinCEN) issued a notice to financial institutions concerning the potential for Covid-19 vaccine-related fraud, ransomware attacks, and other types of criminal activity. Specifically, FinCEN warns financial institutions to be aware of the potential sale of unapproved and illegally marketed vaccines, as well as fraudsters offering vaccines sooner than allowed for a fee. Financial institutions should also look out for ransomware targeting vaccine delivery operations and supply chains. The notice provides instructions for filing suspicious activity reports regarding the aforementioned activity.
FinCEN proposes new reporting requirements for certain CVC and digital asset transactions
On December 18, the Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking (NPRM) that would require financial institutions and money service businesses (MSBs) to maintain records and submit reports to verify customer identities for certain transactions involving convertible virtual currency (CVC) or digital assets with legal tender status (LTDA). Under the NPRM, the requirements would apply to transactions involving CVC and LTDA that are held in certain “hosted” wallets at financial institutions, as well as in “unhosted” wallets, which are not held in an exchange or bank. Banks and MSBs would be required to file transaction reports within 15 days with FinCEN verifying the identity of customers if a counterparty to the transaction is using an unhosted or otherwise covered wallet and the transaction is greater than $10,000. Banks and MSBs would also be required to maintain records of customers’ CVC or LTDA transactions and counterparties—“including verifying the identity of their customers, if a counterparty uses an unhosted or otherwise covered wallet and the transaction is greater than $3,000.” According to Treasury Secretary Steven T. Mnuchin, the proposed rule “is intended to protect national security, assist law enforcement, and increase transparency while minimizing impact on responsible innovation” by “closing loopholes that malign actors may exploit.” FinCEN notes that, while the NPRM “proposes to prescribe by regulation that CVC and LTDA are ‘monetary instruments’ for purposes of the” Bank Secrecy Act (BSA), it does not “modify the regulatory definition of ‘monetary instruments’ or otherwise alter existing BSA regulatory requirements applicable to ‘monetary instruments’ in FinCEN’s regulations.” Comments on the NPRM were due January 4.
OCC finalizes activities and operations amendments
On December 23, the OCC issued a final rule to amend 12 CFR part 7 to update or eliminate outdated regulatory requirements and clarify and codify recent OCC interpretations related to the modern financial system. Among other things, the final rule (i) codifies interpretations which permit covered institutions to engage in certain tax equity finance transactions; (ii) clarifies permissible anti-takeover provisions; and (iii) expands the ability of national banks to choose corporate governance provisions under state law. InfoBytes coverage of the proposed rule and a related advance notice of proposed rulemaking are available here. The amendments are effective April 1, 2021.
CFPB issues advisory opinion on special purpose credit programs
On December 21, the CFPB issued an advisory opinion addressing ECOA’s implementing regulation, Regulation B, as it applies to certain aspects of special purpose credit programs (SPCPs). The CFPB issued the advisory opinion in response to feedback from the Bureau’s request for information (RFI) covering ECOA and Regulation B issued in July (covered by InfoBytes here). The Bureau notes that, while Regulation B provides creditors guidance for developing SPCPs that comply with ECOA, stakeholders were interested in additional guidance to ensure the development of compliant SPCPs. To address this, the advisory opinion clarifies (i) the content that a for-profit organization must include in an SPCP written plan, including details regarding the class of persons designed to benefit from the program and the procedures for extending credit pursuant to the program; and (ii) the type of research and data that may be appropriate to inform a for-profit organization’s determination that a SPCP would benefit a certain class of people, which can include external sources such as HMDA data.
For more details on the CFPB’s advisory opinion program, please see InfoBytes coverage here.
Agencies release annual CRA asset-size threshold adjustments
On December 17, the Federal Reserve Board and the FDIC announced the joint annual adjustments to CRA asset-size thresholds used to define small and intermediate small banks, which are subject to streamlined CRA evaluations and not subject to the reporting requirements applicable to large banks unless they choose to be evaluated as one. A “small” bank is defined as an institution that, as of December 31 of either of the prior two calendar years, had less than $1.322 billion in assets. An “intermediate small” bank is defined as an institution that, as of December 31 of both of the prior two calendar years, had at least $330 million in assets, and as of December 31 of either of the past two calendar years, had less than $1.322 billion in assets. This joint final rule became effective on January 1.
The OCC did not join in this announcement. As previously covered by a Buckley Special Alert, on May 20, the OCC announced the final rule to modernize the regulatory framework implementing the CRA. Its new CRA rule defines a small bank as an institution with $600 million or less in assets in four of the last five calendar quarters and an intermediate small bank as having $2.5 billion or less in assets in four of the last five calendar quarters.
OCC clarifies Dodd-Frank preemption standards
On December 18, the OCC released a letter clarifying the agency’s interpretation of preemption standards and requirements codified by Dodd-Frank in 12 U.S.C. § 25b. The letter notes that section 25b codifies three standards pursuant to which federal law may preempt state consumer financial law, focusing on the procedural requirements for OCC “preemption determinations,” which are “affirmative conclusion[s] by the OCC that federal law preempts a state consumer financial law” made under the Barnett standard in section 25b. The letter explains that a “preemption determination” is “limited to a regulation or order issued by the OCC that concludes that a state consumer financial law is preempted pursuant to the Barnett standard,” and does not include “[a]n OCC action that has only indirect or incidental effects on a state consumer financial law,” or when the OCC “concludes that (1) a state consumer financial law is preempted pursuant to the discriminatory effect or other federal law standards or (2) a state law other than a state consumer financial law is preempted.” The letter addresses the OCC’s authority to make preemption determinations by regulation or on a “case-by-case basis,” including the circumstances under which CFPB consultation is required, the substantial evidence standard, and the requirement to publish preemption determinations. It clarifies that the section 25b periodic review requirement applies to any OCC conclusion that a state consumer law is preempted, which is not limited to determinations made under the Barnett standard. The interpretive letter also confirms that section 25b does not affect OCC interpretations of the authority to charge interest under 12 U.S.C. § 85, addresses the level of deference the OCC is afforded with respect to its interpretations, and describes the agency’s framework for complying with the standards and requirements for preemption determinations.
CFPB finalizes debt collection disclosure rules
On December 18, the CFPB issued a final rule amending Regulation F, which implements the Fair Debt Collection Practices Act, clarifying the information debt collectors must provide to consumers at the outset of collection communications and providing a model validation notice containing such information. (See also the Bureau’s Executive Summary.) The final rule also prohibits debt collectors from bringing or threatening to bring legal action against a consumer to collect time-barred debt, and requires debt collectors to take certain actions before furnishing information about a consumer’s debt to a consumer reporting agencies (CRA). Among other things, the final rule addresses the following:
- Validation notice. The final rule clarifies that debt collectors may provide “clear and conspicuous” debt validation notices in writing or electronically when commencing debt collection communications. Validation notices must include a statement indicating that the communication is from a debt collector, along with additional information such as itemization-related information, the current amount of debt, consumer protection information, and information for consumers who may choose to dispute the debt or take other actions. The final rule also outlines optional content that debt collectors may choose to include while retaining the safe harbor for using the model notice, provided that “the optional content is no more prominent than the required content.” The final rule also revises the definition of “consumer” used in a separate final rule issued by the Bureau at the end of October (covered by InfoBytes here). The December final rule’s definition now includes both living and deceased consumers.
- Safe harbor for model validation notices. Debt collectors who choose to use the model validation notice are in compliance with the final rule’s content requirements. Additionally, the use of a model validation notice would not be considered a violation of the prohibition on conduct that “overshadows” a consumer’s rights during the validation period. The final rule outlines additional safe harbors, and provides examples where a safe harbor generally will not apply. Notably, the safe harbor does not cover validation notice delivery methods and timing requirements.
- Translations. Debt collectors who choose to provide validation notices in other languages must also include an English-language notice in the same communication.
- Credit reporting. The final rule requires debt collectors to either speak to a consumer in person, send an email or letter, or try to speak with a consumer by telephone before furnishing any information to a CRA. Communications sent via email or letter will require a 14 day waiting period to allow for a “reasonable period of time” to receive a notice of undeliverability.
- Time-barred debt. The final rule prohibits debt collectors from suing or threatening to sue consumers when attempting to collect time-barred debt. Proofs of claim filed in connection with a bankruptcy proceeding are not included in this prohibition.
The final rule takes effect November 30, 2021.
More information from Buckley on the details of the newest debt collection final rule will be available soon.
Agencies proposes SAR filing exemptions
On December 15, the FDIC issued a proposed rule (with accompanying Financial Institution Letter FIL-114-2020), which would amend the agency’s Suspicious Activity Report (SAR) regulation to permit additional, case-by-case, exemptions from SAR filing requirements. The proposed rule would allow the FDIC, in conjunction with the Financial Crimes Enforcement Network (FinCEN), to grant supervised institutions exemptions to SAR filing requirements when developing “innovative solutions to meet Bank Secrecy Act (BSA) requirements more efficiently and effectively.” The FDIC would seek FinCEN’s concurrence with an exemption when the exemption request involves the filing of a SAR for potential money laundering, violations of the BSA, or other unusual activity covered by FinCEN’s SAR regulation. The proposal allows the FDIC to grant the exemption for a specified time period and allows the FDIC to extend or revoke the exemption if circumstances change. The proposal is intended to reduce the regulatory burden on supervised financial institutions that are likely to leverage existing or future technologies to report suspicious activity in a different and innovative manner. Comments on the proposed rule must be submitted within 30 days of publication in the Federal Register.
The OCC also issued a proposal that would similarly allow the OCC to issue exemptions from SAR filing requirements to support national banks or federal savings associations developing innovative solutions intended to meet BSA requirements more efficiently and effectively.