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Financial Services Law Insights and Observations


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  • California DBO opinion letters cover activities exempt from MTA licensing

    State Issues

    The California Department of Business Oversight (CDBO) released several opinion letters issued throughout the summer covering virtual currency and agent of payee rules under the California Money Transmission Act (MTA). Highlights from the redacted letters include:

    • Cryptocurrency - Escrow Accounts and Exchanges. The redacted opinion letter states that the CDBO has not yet determined whether cryptocurrencies are a form of money that triggers the application of the MTA and therefore, a business model that operates brokerage accounts using cryptocurrency exchanges would not need to be licensed and supervised under the MTA. As for a business model that the letter describes as a third-party repurchase transaction related to borrowing and lending cryptocurrency, the CDBO reminds the company that the activity may still be subject to California Escrow Law.
    • Agent of Payee Exemption - Payment Processing Service. The redacted opinion letter concludes that the company’s payment processing services—which use mobile applications or card readers to capture customer information through merchants, and the payment funds flow first from the customer to the company, and then from the company to the merchant—“fall within the definition of ‘money transmission’ but are exempt from the MTA to the extent [the company], acting as the [m]erchant’s agent, receives money from [c]ustomers, via the relevant card company, as payment for goods or services.”
    • Online Foreign Currency Exchange Service. The redacted opinion letter concludes the company’s online foreign currency exchange service is not subject to licensure under the MTA, because the service does not “involve ‘payment instruments’ or ‘stored value’” and there is no indication that the company would “receive money for transmission,” as customers would use the service to purchase foreign currency “like other online retail purchases.”
    • Exemption for Operator of Payment System. The redacted opinion letter notes that California governmental entities are exempt from the MTA, and a company that provides payment processing services to facilitate the transfer from a California Department of Correction detainee’s cash at a detention facility to that detention facility’s bank account, is exempt from the MTA because it is processing payments between or among persons exempt from the MTA.
    • MTA - Agent of Payee. The redacted opinion letter states that the company’s transactions by an agent of a merchant to collect funds from the merchant’s customer for payment of goods and services are exempt from the requirements of the MTA. The company is acting as an agent of the payee when a company is receiving money as an agent of a merchant pursuant to a preexisting written contract, and delivery of the money to the company satisfies the customer’s obligation to the merchant for a good or service provided by the merchant.
    • Sending Instructions Not Money Transmission. The redacted opinion letter states that the company’s actions do not constitute money transmission under the MTA because “[the company] never ‘receives money for transmission.’” The company only “receives instructions from consumers and merchants to transmit money to each other and forwards these instructions for processing by their respective banks on the ACH network.” Because the banks are “solely responsible for payment and settlement in accordance with these instructions” the company’s payment system does not require an MTA license.

    State Issues Licensing California Money Service / Money Transmitters Virtual Currency California Money Transmission Act CDBO DFPI

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  • State AGs challenge OCC’s “valid-when-made” rule


    On July 29, the California, Illinois, and New York attorneys general filed an action in the U.S. District Court for the Northern District of California challenging the OCC’s valid-when-made rule, arguing the rule “impermissibly preempts state law.” As previously covered by a Buckley Special Alert, on June 2 the OCC issued a final rule designed to effectively reverse the Second Circuit’s 2015 Madden v. Midland Funding decision. The “true lender” rule provides that “[i]nterest on a loan that is permissible under [12 U.S.C. 85 for national bank or 12 U.S.C 1463(g)(1) for federal thrifts] shall not be affected by the sale, assignment, or other transfer of the loan.”

    The attorneys general argue in their complaint that the rule is “contrary to the plain language” of section 85 (and section 1463(g)(1)) and “contravenes the judgment of Congress,” which declined to extend preemption to non-banks. Moreover, the complaint asserts that the OCC disregarded congressional procedures for preemption by failing to perform a case-by-case review of state laws and not consulting with the CFPB before “preempting such a state consumer-protection law.” The attorneys general further contend that the OCC “failed to give meaningful consideration” to the commentary received regarding the rule essentially enabling “‘rent-a-bank’ schemes.” The result of the OCC’s actions, according to the attorneys general, is a rule that would allow “predatory lenders to evade state law by partnering with a federally chartered bank to originate loans exempt from state interest-rate caps.” These structures “have long troubled state law-enforcement efforts,” according to the complaint, and the rule will exacerbate these issues by “decreas[ing] licensing fees received by the States and increase[ing] the cost and burden of future supervisory, investigative, and law-enforcement efforts by the States.”

    The complaint requests the court declare that the OCC violated the Administrative Procedures Act in issuing the rule and hold the rule unlawful.

    Courts State Issues State Attorney General OCC Madden Fintech Interest Rate New York California Illinois

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  • California Consumer Financial Protection Law still pending

    State Issues

    On June 29, California Governor, Gavin Newsom, signed SB 74, Budget Act of 2020 (and accompanying budget summary), which allocates $10.2 million in 2020-21 growing to $19.3 million in 2022-23 to the Department of Business Oversight, contingent on the enactment of the California Consumer Financial Protection Law (Law). As previously covered by a Buckley Special Alert (which details an earlier version of the proposal), the Law was originally proposed as a trailer bill to the state’s budget, but was not finalized by lawmakers prior to the June 15th budget deadline. In this version, the proposed budget and Law would: (i) revamp and rename the state’s Department of Business Oversight (DBO) to the Department of Financial Protection and Innovation (DFPI); (ii) establish an Office of Financial Technology Innovation to study emerging technologies in the financial industry; (iii) expand the DFPI’s authority to protect consumers from predatory practices by, among other things, prohibiting unlawful, unfair, deceptive, or abusive acts (consistent with Section 17200); and (iv) foster the responsible development of new financial products. California lawmakers now have until August 31 (end of session) to finalize “the statutory framework needed to implement the [Law].”

    Notably, on August 6, the Assembly is holding a hearing to discuss the proposal and is seeking public feedback. Written comments should be submitted to prior to the hearing date.

    State Issues California Fintech State Regulation CDBO State Legislation

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  • California AG publishes CCPA FAQs

    Privacy, Cyber Risk & Data Security

    The California attorney general recently published a set of frequently asked questions providing general consumer information on the California Consumer Privacy Act (CCPA). The CCPA—enacted in June 2018 (covered by a Buckley Special Alert) and amended several times—became effective January 1. Final proposed regulations were submitted by the AG last month as required under the CCPA’s July 1 statutory deadline (covered by InfoBytes here), and are currently with the California Office of Administrative Law for review. The FAQs—which will be updated periodically and do not serve as legal advice, regulatory guidance, or as an opinion of the AG—are intended to provide consumers guidance on exercising their rights under the CCPA.

    • General CCPA information. The FAQs address consumer rights under the CCPA and reiterate that these rights apply only to California residents. This section also clarifies the definition of “personal information,” outlines businesses’ compliance thresholds, and states that the CCPA does not apply to nonprofit organizations and government agencies. The FAQs also remind consumers of their limited ability to sue businesses for CCPA violations and details the conditions that must be met before a consumer may sue a business for a data breach. The FAQs remind consumers that if they believe a business has violated the CCPA, they may file a complaint with the AG’s office.
    • Right to opt-out of sale. The FAQs answer common questions related to consumers’ requests for businesses not to sell their personal information. The FAQs provide information on the steps for submitting opt-out requests, as well as explanations for why a business may deny an opt-out request. It also address circumstances where a consumer receives a response from a service provider that says it is not required to act on an opt-out request.
    • Right to know. The FAQs discuss a consumer’s right to know what personal information is collected, used, shared, or sold, and clarifies what consumers should do to submit requests to know, how long a business may take to respond, and what steps should be taken if a business requests more information, denies a request to know, or claims to be a service provider that is not required to respond.
    • Required notices. The FAQs outline the disclosures that businesses must provide - i.e., the “notice at collection” and privacy policy. It also discusses the common places where notices at collection and privacy policies are located.
    • Request to delete. The FAQs address several questions related to consumers’ right to delete personal information, including how to submit a request to delete, businesses’ responses to and denials of requests to delete, and why a debt collector may make an attempt to collect a debt or a credit reporting agency may provide credit information even after a request to delete has been made.
    • Right to non-discrimination. Consumers are reminded that a business “cannot deny goods or services, charge. . .a different price, or provide a different level or quality of goods or services just because [a consumer] exercised [his or her] rights under the CCPA.”
    • Data brokers. The FAQs set forth the definition of a data broker under California law and outline steps for consumers interested in finding data brokers that collect and sell personal information, as well as measures consumers can take to opt-out of the sale of certain personal information.

    Privacy/Cyber Risk & Data Security State Issues CCPA California State Attorney General Opt-Out Disclosures

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  • California Department of Business Oversight will monitor licensees’ compliance with face covering guidance

    State Issues

    The California Department of Business Oversight announced that it will monitor licensees’ compliance with face covering guidance issued by the California governor and the California Department of Public Health. All customers must be required to wear appropriate face coverings under circumstances outlined in the guidance, and those who refuse to comply and do not meet the outlined exemptions should be refused entry to banks, credit unions, and other places of business.

    State Issues Covid-19 California CDBO Licensing Compliance Bank Compliance Credit Union

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  • California governor issues executive order extending previous relief orders

    State Issues

    On June 30, the California governor signed Executive Order N-71-20 (previously discussed here), which extends authorization for local governments to halt evictions for renters impacted by the Covid-19 pandemic through September 30. Among other things, the executive order also extends the deadlines in connection with certain licenses, including real estate licenses, which we previously covered here.

    State Issues Covid-19 California Mortgages Evictions Mortgage Licensing Licensing

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  • California governor extends time period to submit real estate renewal applications, fees, and continuing education requirements

    State Issues

    On June 15, the California governor issued Executive Order N-69-20, which extends the provisions of the governor’s April 16 executive order, Executive Order N-52-20, and grants an additional 60-day extension to submit real estate license renewal applications, fees, and continuing education requirements. The California Department of Real Estate also updated its FAQs for applicants and licensees regarding Executive Order N-69-20 and Executive Order N-52-20.

    State Issues Covid-19 California Real Estate Licensing

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  • California AG finalizes proposed CCPA regulations, requests expedited review

    State Issues

    On June 1, the California attorney general submitted final proposed regulations implementing the California Consumer Privacy Act (CCPA) to the California Office of Administrative Law (OAL). The CCPA—enacted in June 2018 (covered by a Buckley Special Alert) and amended several times—became effective January 1. The proposed regulations, if approved, will set forth guidance regarding complying with the CCPA, including requirements related to the various required notices under the CCPA (e.g., Notice at Collection, privacy policy, etc.), business practices for handling consumer requests (e.g., methods for submitting and responding to requests to know and requests to delete), service providers, training and recordkeeping, verification of requests, special rules for minors, and nondiscrimination requirements.

    The final version of the proposed regulations, which are substantively unchanged from the March draft modifications (covered by InfoBytes here), include an updated statement of reasons summarizing the modifications and reiterating that the “stated bases for the necessity of the proposed regulations continue to apply to the regulations as adopted.”

    The AG also submitted an expedited review request, asking that the regulations take effect upon filing with the Secretary of State. The CCPA imposes a July 1 statutory deadline for the AG to adopt initial regulations. However, due to challenges imposed by the Covid-19 pandemic, California Executive Order N-40-20 allows the OAL 30 working days, plus an additional 60 calendar days to finalize proposed regulations. Because of this, the AG respectfully requested that the OAL complete its review within 30 days, given the July 1 deadline.

    State Issues California State Attorney General CCPA Privacy/Cyber Risk & Data Security Consumer Protection

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  • California DBO takes action against company for PACE fraud

    State Issues

    On May 27, the California Department of Business Oversight (CDBO) filed an order to ban an Encino-based company from the Property Assessed Clean Energy (PACE) industry for allegedly engaging in fraudulent behavior. According to the press release, the CDBO received 30 complaints from 2018 to 2019 alleging the company solicited homeowners by advertising a “free government program,” but used the homeowners’ personal financial information to submit contracts to PACE program administrators with forged electronic signatures. Additionally, complaints alleged various other fraudulent and illegal actions including, (i) the creation of false email accounts to have the PACE financing documents routed to the agents instead of the homeowners; and (ii) the impersonation of homeowners’ voices on state law required completion calls. The CDBO also asserts that the company sold products at three to five times the usual industry rate and used “high-pressure” sales tactics directed at the elderly and non-primary English speakers. In addition to the Desist and Refrain Order, which demands the company discontinue illegal practices and stop soliciting PACE contract, the CDBO notes that a similar but separate order will also be filed against the company president, who is a PACE solicitor agent.

    State Issues PACE Programs California CDBO Consumer Finance Consumer Lending Fraud

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  • California Department of Business Oversight highlights risks of exempt securities offerings

    State Issues

    On May 26, the California Department of Business Oversight issued an investor alert on exempt securities offerings, aka “private placements,” during Covid-19. The alert outlines the reasons why such offerings carry a higher risk of fraud and offers suggestions for potential investors to protect themselves.

    State Issues Covid-19 California CDBO DBO Securities

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