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On May 8, a bipartisan group of 38 state and territorial Attorneys General wrote to congressional leaders to urge the advancement of legislation that would allow banks to do business with marijuana-related businesses in states and territories that have legalized certain uses of marijuana. Specifically, the letter expresses support for the SAFE Banking Act (HR 1595), which “would provide a safe harbor for depository institutions that provide a financial product or service to a covered business in a state that has implemented laws and regulations that ensure accountability in the marijuana industry.” The letter notes that banks providing services to state-licensed cannabis businesses, or even to their vendors, could find themselves subject to criminal and civil liability under the federal Controlled Substances Act and certain federal banking statutes because the federal government classifies marijuana as an illegal substance. Because the revenues of the legalized marijuana industry are currently handled outside of the banking system, the letter argues that it is difficult to track revenues for taxation and regulatory compliance purposes, and further contributes to potential public safety issues as “cash-intensive businesses are often targets for criminal activity.” Emphasizing that the support of the SAFE Banking Act is not an endorsement for the legalization of marijuana-related transactions, the letter notes that allowing banks the safe harbor provided in the legislation would bring billions of dollars into the banking industry and would render state and federal regulatory bodies more effective in monitoring and taxing marijuana businesses.
On March 7, Director of the CFPB, Kathy Kraninger, testified at a hearing held by the House Financial Services Committee entitled “Putting Consumers First? A Semi-Annual Review of the Consumer Financial Protection Bureau.” Pursuant to the Dodd-Frank Act, the hearing covered the semi-annual report to Congress on the Bureau’s work from April 1, 2018 through September 30, 2018. Kraninger was confirmed as Director in December 2018, and this was her first testimony before the Committee in that role. In her opening remarks, Chairwoman Maxine Waters expressed concern with the changes that took place at the Bureau under former acting Director Mick Mulvaney’s time in office and announced a draft bill titled the “Consumers First Act,” which directs the Bureau to, among other things, “promptly reverse all anti-consumer actions taken during Mr. Mulvaney’s tenure.” In her opening testimony, Kraninger emphasized that she is committed to “stability, consistency, and transparency” in the Bureau’s actions and believes the Bureau’s focus should be on the prevention of harm, specifically emphasizing the importance of the Bureau’s mission to educate consumers. Additionally, highlights of Kraninger’s testimony include:
- Supervision and Enforcement. Kraninger repeatedly emphasized that supervision is an important tool in the Bureau’s toolkit to assist companies working to comply with laws and regulations. She asserted that enforcement is a tool that should only be used for bad actors who have “no intention” to comply with the law, and should not be used against entities seeking to comply and self-report compliance concerns. When asked to discuss the Bureau’s reported 35 open enforcement investigations, which include investigations opened under former Director Richard Corday, Kraninger noted that she reviews the actions as they come to a decision point but believes that the Bureau’s enforcement staff is carrying out the agency’s mission and following her guidance on how to proceed.
- Office Reorganizations. Kraninger fielded a number of questions regarding former acting Director Mick Mulvaney’s actions, including the reorganization of the Office of Fair Lending and Equal Opportunity and the dismantling of the Office of Students and Younger Consumers. As for fair lending, Kraninger emphasized that moving the office to be part of the Office of the Director helps to facilitate its policy interests across the Bureau and enhances the mission of fair lending. Concerning the Bureau’s work regarding student loans, Kraninger noted that there is still dedicated staff working on student loan issues in the Bureau’s Consumer Education and Engagement section and that they are currently looking to fill the vacant role for the Student Loan Ombudsman.
- Military Lending Act (MLA). Kraninger reiterated her position that she does not believe Dodd-Frank gives the Bureau the authority to supervise for compliance with the Act under Section 1024(b)(1)(C)—which many state Attorneys General and Democratic congressional leaders have contended it does—and repeated her request for Congress to grant the Bureau with the clear authority to do so (previously covered by InfoBytes here).
- UDAAP. Kraninger noted that the Bureau’s regulatory agenda includes a consideration of a pre-rulemaking activity covering the definition of “abusive,” stating that while the current statute has a definition that prevents companies from taking “unreasonable advantage” of a consumer, she believes there should be clarity on what is considered a “reasonable” advantage.
- Congressional Changes to CFPB. Kraninger stated that she will continue to undertake the responsibilities allocated to the Director under Dodd-Frank but welcomes Congressional action that would provide additional “accountability and transparency” to the agency.
The second part of the hearing consisted of testimony from industry and consumer group representatives in which they discussed the CFPB’s previous actions and their suggestions for actions Bureau leadership should take going forward. Copies of each witnesses’ testimony are available here.
On March 4, proposed legislation, H.R. 1491, was introduced by its co-sponsors in the U.S. House of Representatives to provide federal financial regulatory clarity for fintech startups. According to a press release issued by Congressman David Scott (D-GA), the FINTECH Act of 2019 would: (i) mandate U.S. federal financial regulators harmonize and coordinate conflicting regulations that would cover fintech operations; and (ii) establish a Fintech Council to serve as a “single point of entry” for approving fintech charters before assigning approved fintechs to one or more designated U.S. regulators. The bill's co-sponsors are members of the House of Representatives' Financial Services Committee and co-chair the Fintech and Payments Caucus.
On March 5, Attorneys General from all 50 states, as well as from the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands, sent a letter to the Senate Committee on Commerce, Science, and Transportation supporting a recently introduced bipartisan bill to combat illegal robocalls. Among other things, S. 151, the Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (TRACED Act), would: (i) grant the FCC three years to take action against robocall violations, instead of the current one-year window; (ii) authorize the agency to issue penalties of up to $10,000 per robocall; and (iii) require service providers to implement the FCC’s new call authentication framework. The AGs state that they “are encouraged that the TRACED Act prioritizes timely, industrywide implementation of call authentication protocols,” and note their support for an interagency working group that the bill would establish consisting of members from the DOJ, FCC, FTC, CFPB, other relevant federal agencies, state AGs, and non-federal stakeholders.
On February 21, Maxine Waters released a discussion draft version of the “Comprehensive Consumer Credit Reporting Reform Act of 2019,” which would significantly amend the FCRA. The draft legislative proposal was released as supporting material for the February 26 House Financial Services Committee hearing titled, “Who's Keeping Score? Holding Credit Bureaus Accountable and Repairing a Broken System.” The CEOs of the three major credit reporting agencies and a panel of officials from major consumer groups testified at the hearing.
The draft bill— versions of which Waters has also introduced in previous Congressional sessions—includes (i) significant changes to the dispute process, such as allowing consumers to appeal determinations; (ii) banning the use of credit information for certain employment decisions; (iii) removing adverse information for certain private education loan borrowers who demonstrate positive payment history; (iv) shortening the time period that most adverse credit information stays on a credit report from seven to four years; and (v) establishing federal oversight over the development of credit scoring models.
On February 13, Senate Committee on Banking, Housing, and Urban Affairs Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) invited stakeholder feedback on “the collection, use and protection of sensitive information from financial regulators and private companies” as a means of informing potential future legislation. In a press release issued by the committee, Crapo noted, “Given the exponential growth and use of data, and corresponding data breaches, it is worth examining how the Fair Credit Reporting Act should work in a digital economy, and whether certain data brokers and other firms serve a function similar to the original consumer reporting agencies.” He further stressed the importance of understanding how consumer data is compiled and protected, and how consumers are able to access and correct sensitive information. The release sought answers to five questions designed to help examine ways in which legislation, regulation, or the implementation of best practices can (i) provide consumers better control over their financial data, as well as timely data breach notifications; (ii) ensure consumers receive disclosures concerning both the type of information being collected and its purpose for collection; (iii) provide consumers control over how their data is being used—including the sharing of information by third-parties; (iv) protect consumer data and ensure the accuracy of reported information in a consumer’s credit file; and (v) allow consumers the ability to “easily identify and exercise control of data that is being . . . collected and shared” as a determining factor when establishing whether a consumer is eligible for, among other things, credit or employment.
On November 13, the FTC submitted comments in response to the Department of Commerce’s National Telecommunications and Information Administration (NTIA) request for input on developing the Administration’s approach to consumer data privacy protections. In its comment letter, the FTC noted that it supported a balanced approach to privacy, weighing the risks of data misuse with the benefits of data to innovation and competition, and reiterated its support for data privacy legislation. Specifically, the FTC renewed its call for Congressional action that clarifies the FTC’s authority and the rules relating to data security and breach notification. According to the FTC, any such legislation should balance “consumers’ legitimate concerns about the protections afforded to the collection, use, and sharing of their data with business’ need for clear rules of the road, consumers’ demand for data-driven products and services, and the importance of flexible frameworks that foster innovation.”
The FTC emphasized it is “uniquely situated” to balance consumers’ interest in privacy, innovation, and competition and argued it should continue to be the primary enforcer of the laws related to “information flows in the marketplace,” whether it’s under the existing or new privacy framework. The FTC noted, however, that the existing framework places a number of limitations on its powers, including (i) its lack of authority over non-profits and common carriers; (ii) its inability to levy civil money penalties; and (iii) its lack of broad rulemaking authority under the APA for consumer protection issues such as privacy and data security.
Conference of State Bank Supervisors supports legislation to coordinate federal and state examinations of third-party service providers
On July 12, the Conference of State Bank Supervisors (CSBS) issued a statement to the Senate Banking Committee, offering support for legislation that would “enhance state and federal regulators’ ability to coordinate examinations of, and share information on, banks’ [third-party technology service providers (TSPs)] in an effective and efficient manner.” H.R. 3626, the Bank Service Company Examination Coordination Act, introduced by Representative Roger Williams, R-Texas, would amend the Bank Service Company Act to provide examination improvements for states by requiring federal banking agencies to (i) consult with the state banking agency in a reasonable and timely fashion, and (ii) take measures to avoid duplicating examination activities, reporting requirements, and requests for information. Currently, 38 states have the authority to examine TSPs, however, according to CSBS, amending the Bank Service Company Act would more appropriately define a state banking agency’s authority and role when it comes to examining potential risks associated with TSP partnerships. In its statement, CSBS also references a recent action taken by eight state regulators against a major credit reporting agency following its 2017 data breach that requires, among other things, a wide range of corrective actions, including improving oversight and ensuring sufficient controls are developed for critical vendors. (See previous InfoBytes coverage here.) The House Financial Services Committee advanced H.R. 3626 on June 24 on a unanimous vote.
House passes appropriations bill that includes several financial services provisions, brings CFPB into the appropriations process
On July 19, the House passed H.R. 6147, the “Interior, Environment, Financial Services, and General Government Appropriations Act, 2019” by a vote of 217 to 199. Under the appropriations bill, the CFPB would be brought into the appropriations process, and a change to Dodd-Frank would strike the “for-cause” provision on the president’s authority to remove the director, which has been the subject of significant litigation. (See here for continuing InfoBytes coverage on legal challenges to the CFPB’s constitutionality.) Several other financial services provisions would, among other things, (i) amend the Federal Financial Institutions Examination Council Act of 1978 to create an independent examination review director to evaluate bank examination procedures to ensure consistency; (ii) authorize the Federal Reserve to make Volcker Rule exemption determinations and issue and amend rules under Section 13 of the Banking Holding Company Act; (iii) allow the appropriate federal banking agencies to make process improvements for living will submissions; (iv) amend the Fair Credit Reporting Act (FCRA) to allow the furnishing of positive credit reporting related to a consumer’s performance when making payments under a lease agreement with respect to a dwelling or pursuant to a contract for utility or telecommunications services; and (v) require the Comptroller General of the United States to submit a report on the impact of furnishing consumer information, pursuant to the amendments of the FCRA, to Congress no later than two years after the date of the enactment of this Act. As previously covered in InfoBytes, a similar measure concerning the furnishing of consumer data was also introduced as part of S. 488, which passed the House on July 17 as part of a larger package of securities and banking bills. H.R. 6147 now heads to the Senate.
House passes bipartisan package of securities and banking bills focusing on capital market regulations
On July 17, the House passed S. 488, the “JOBS and Investor Confidence Act of 2018” (Act) by a vote of 406 to 4. The package of 32 securities and banking bills now comprises Senate bill S. 488, which previously contained an amendment to the Securities Act Rule 230.701(e) and was included as part of the Economic Growth, Regulatory Relief, and Consumer Protection Act S.2155/P.L. 115-174. The Act focuses on capital market regulations and contains many capital formation provisions designed to, among other things, (i) expand access for smaller companies attempting to raise capital; (ii) reduce regulation for smaller companies such as providing federal stress test relief for nonbanks; (iii) revise crowdfunding provisions to allow for crowdfunding vehicles and the registration of crowdfunding vehicle advisers; (iv) exempt low-revenue issuers from Sarbanes-Oxley Act Section 404; (v) grant banks safe harbor when they keep open certain accounts and transactions at the request of law enforcement; and (vi) clarify various rules, review current securities laws for inefficiencies, and establish additional procedures focusing on virtual currency and money laundering efforts. Additional changes would amend a section of the Exchange Act governing SEC registration of individuals acting as brokers or dealers. The Fair Credit Reporting Act would also be amended to permit entities—including HUD—the ability to furnish data to consumer reporting agencies regarding an individual’s history of on-time payments with respect to a lease, or contracts for utilities and telecommunications services, provided the information about a consumer's usage of the service relates to payment by the consumer for such service or other terms of the provision of that service. S. 488 would also allow certain non-profits conducting charitable mortgage loan transactions to use forms required under the TILA-RESPA Integrated Disclosure Rule, and require the director of the CFPB to issue such regulations as may be necessary to implement those amendments. S. 488 now returns to the Senate for further action.
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Tim Lange to discuss "Ease your pain at the state level: Recommendations for navigating the licensing issues in the states" at the Online Lenders Alliance Compliance University
- Amanda R. Lawrence, Aaron C. Mahler, and Jonice Gray Tucker to discuss "Expanded role for the FTC ahead: Implications for bank and nonbank financial institutions" at an American Bar Association Banking Law Committee Webinar
- Buckley Webcast: Flirting with alternatives — Opportunities and challenges created by alternative data, modeling, and technology
- Daniel P. Stipano to discuss "Reporting requirements for credit unions: CTRs and SARs" at the National Association of Federally-Insured Credit Unions BSA Seminar
- Daniel P. Stipano and Moorari K. Shah to discuss "Vendor management: What is the NCUA looking for?" at the National Association of Federally-Insured Credit Unions BSA Seminar
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Summer Regulatory Compliance School
- Warren W. Traiger to discuss "CRA modernization" at the National Association of Industrial Bankers and the Utah Association of Financial Services Annual Convention
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Hank Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates and Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Risk management in enforcement actions: Managing risk or micromanaging it" at the American Bar Association Business Law Section Annual Meeting
- Daniel P. Stipano to discuss "Navigating the conflicting federal and state laws for doing business with cannabis companies" at the American Bar Association Business Law Section Annual Meeting
- Tim Lange to discuss "Services and value" at the North American Collection Agency Regulatory Association Annual Conference
- Amanda R. Lawrence to discuss "Data privacy litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Brandy A. Hood to discuss "How to ace your TRID exam" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "HMDA data is out, now what?" at the Mortgage Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Melissa Klimkiewicz to discuss "Navigating FHA rules and regs" at the Mortgage Bankers Association Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "The state’s role in fintech: Providing an industry framework for innovation" at Lend360
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference