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CFPB issues guidance on “junk fees”
On October 26, President Biden discussed guidance issued by the CFPB to help banks avoid charging illegal “junk fees” on deposit accounts. The Bureau’s Circular 2022-06 noted that overdraft fees can be considered an “unfair” practice and violate the Consumer Financial Protection Act (CFPA) even if such fees are in compliance with other laws and regulations. Specifically, the Circular noted that “overdraft fees assessed by financial institutions on transactions that a consumer would not reasonably anticipate are likely unfair.” The guidance further stated that unanticipated overdraft fees are likely to impose substantial injury on consumers that they cannot reasonably avoid and that are not outweighed by countervailing benefits to consumers or competition. The Bureau’s compliance bulletin on surprise depositor fees explained that a returned deposited item is a check that a consumer deposits into their checking account that is returned to the consumer because the check could not be processed against the check originator’s account. The bulletin stated that “blanket policies of charging returned deposited item fees to consumers for all returned transactions irrespective of the circumstances or patterns of behavior on the account are likely unfair under the [CFPA].” The Bureau further explained that indiscriminately charging depositor fees, regardless of circumstances, are likely illegal and noted that the bulletin is intended to put regulated entities on notice regarding how the agency plans to exercise its enforcement and supervisory authorities in the context of deposit fees. The bulletin urged financial institutions to charge depositor fees only in situations where a depositor could have avoided the fee, such as when a depositor repeatedly deposits bad checks from the same originator. The Bureau emphasized the guidance as part of its Junk Fee Initiative, noting that since it launched the initiative in January 2022, the CFPB has taken action to constrain “pay-to-pay” fees (covered by InfoBytes here), and has announced an advance notice of proposed rulemaking soliciting information from credit card issuers, consumer groups, and the public regarding late payments, credit card late fees, and card issuers’ revenue and expenses (covered by InfoBytes here).
8th Circuit temporarily pauses Biden’s student debt relief plan
On October 21, the U.S. Court of Appeals for the Eighth Circuit issued an order granting an emergency motion filed by state attorneys general from Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina to temporarily prohibit the Biden administration from discharging any federal loans under its student debt relief plan (announced in August and covered by InfoBytes here). The states’ motion requested an administrative stay prohibiting President Biden from discharging any student loan debt under the cancellation plan until the appellate court issues a decision on the states’ motion for an injunction pending an appeal. The order follows an October 20 ruling issued by the U.S. District Court for the Eastern District of Missouri, which dismissed the states’ action for lack of Article III standing after concluding that the states—which attempted “to assert a threat of imminent harm in the form of lost tax revenue in the future”— failed to establish imminent and non-speculative harm sufficient to confer standing. “It should be emphasized that ‘standing in no way depends upon the merits of the Plaintiff[s’] contention that the particular conduct is illegal,’” the district court said. “While Plaintiffs present important and significant challenges to the debt relief plan, the current Plaintiffs are unable to proceed to the resolution of these challenges.” The 8th Circuit ordered an expedited briefing schedule on the states’ motion for an injunction pending appeal, which required both parties to file responses the same week the order was issued.
OFAC sanctions Nicaraguan mining authority; Biden issues new E.O. expanding Treasury’s authority to hold Nicaraguan regime accountable
On October 24, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 13851 against the Nicaraguan mining authority General Directorate of Mines and a Government of Nicaragua official. OFAC stated that the mining authority is “being designated for being owned or controlled by, or having acted or purported to act for or on behalf of, directly or indirectly,” the Nicaraguan Minister of Energy and Mines whose property and interests in property were blocked in 2021. As a result of the sanctions, all property and interests in property belonging to the sanctioned persons in the U.S. are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more in the aggregate by one or more of such persons are also blocked.” U.S. persons are prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific OFAC license.
The same day, President Biden signed a new E.O., Taking Additional Steps to Address the National Emergency With Respect to the Situation in Nicaragua, to amend E.O. 13851 and, according to the announcement, expand Treasury’s “authority to hold the Ortega-Murillo regime accountable for its continued attacks on Nicaraguans’ freedom of expression and assembly.” The new E.O. grants Treasury authority to target certain persons operating or that have operated in Nicaragua’s gold sector, as well as other sectors identified by Treasury in consultation with the State Department. According to OFAC’s announcement, the E.O. “provides expanded sanctions authorities that could be used to prohibit new U.S. investment in certain identified sectors in Nicaragua, the importation of certain products of Nicaraguan origin into the United States, or the exportation, from the United States, or by a United States person, wherever located, of certain items to Nicaragua.” In conjunction with the E.O., OFAC issued Nicaragua-related General License 4, which authorizes the wind down of transactions involving the Directorate General of Mines of the Nicaraguan Ministry of Energy and Mines that are otherwise normally prohibited by the Nicaragua Sanctions Regulations, and issued one related frequently asked question regarding that General License.
Biden authorizes borrowers to separate joint consolidation loans
On October 11, President Biden signed S. 1098, which amends the Higher Education Act of 1965 to authorize borrowers to separate joint consolidation loans. According to the bill, borrowers are permitted to split up federally guaranteed student loans held by private lenders into two new federal direct loans. The bill is effective immediately.
Biden outlines aggressive approach for strengthening U.S. cybersecurity
On October 11, President Biden outlined actions for strengthening and safeguarding the nation’s cybersecurity. In addition to stressing the importance of improving cybersecurity and resilience measures for critical infrastructure owners and operators, the Biden administration outlined additional priorities that focus on (i) strengthening the federal government’s cybersecurity requirements; (ii) countering ransomware attacks, including by making it more difficult for criminals to move illicit money; (iii) collaborating with allies and partners to build collective cybersecurity, develop coordinated responses, and develop cyber deterrence; (iv) imposing costs on and sanctioning malicious cyber actors; (v) implementing internationally-accepted cyber “rules of the road”; (vi) strengthening cyber-education efforts; (vii) developing quantum-resistant encryption algorithms to protect privacy in digital systems such as online banking; and (viii) establishing research centers and workforce development programs under the National Quantum Initiative to protect investments, companies, and intellectual property and prevent harm as technology in this space continues to develop.
Biden issues executive order on EU-U.S. privacy shield replacement
On October 7, President Biden signed an Executive Order on Enhancing Safeguards for United States Signals Intelligence Activities (E.O.) to address the facilitation of transatlantic data flows between the EU and the U.S. The E.O. outlines commitments the U.S. will take under the EU-U.S. Data Privacy Framework, which was announced in March as a replacement for the invalidated EU-U.S. Privacy Shield. As previously covered by InfoBytes, the Court of Justice of the EU (CJEU) issued an opinion in the Schrems II case (Case C-311/18) in July 2020, holding that the EU-U.S. Privacy Shield did not satisfy EU legal requirements. In annulling the EU-U.S. Privacy Shield, the CJEU determined that because the requirements of U.S. national security, public interest, and law enforcement have “primacy” over the data protection principles of the EU-U.S. Privacy Shield, the data transferred under the EU-U.S. Privacy Shield would not be subject to the same level of protections prescribed by the GDPR.
Among other things, the E.O. bolsters privacy and civil liberty safeguards for U.S. signals intelligence-gathering activities, and establishes an “independent and binding mechanism” to enable “qualifying states and regional economic integration organizations, as designated under the E.O., to seek redress if they believe their personal data was collected through U.S. signals intelligence in a manner that violated applicable U.S. law.” Specifically, the E.O. (i) creates further safeguards for how the U.S. signals intelligence community conducts data transfers; (ii) establishes requirements for handling personal information collected through signals intelligence activities and “extends the responsibilities of legal, oversight, and compliance officials to ensure that appropriate actions are taken to remediate incidents of non-compliance”; (iii) requires the U.S. signals intelligence community to make sure policies and procedures reflect the E.O.’s new privacy and civil liberty safeguards; (iv) establishes a multi-layer review and redress mechanism, under which the Civil Liberties Protection Officer in the Office of the Director of National Intelligence (CLPO) is granted the authority to investigate complaints of improper collection and handling of personal data and may issue binding decisions on whether improper conduct occurred and what the appropriate remediation should be; (v) directs the U.S. attorney general to establish a Data Protection Review Court (DPRC) to independently review CLPO decisions, thereby serving as the second level of the E.O.’s redress mechanism (see DOJ announcement here); and (vi) calls on the Privacy and Civil Liberties Oversight Board to review U.S. signals intelligence community policies and procedures to ensure they are consistent with the E.O.
White House proposes AI “Bill of Rights”
Recently, the Biden administration’s Office of Science and Technology Policy released a Blueprint for an AI Bill of Rights. The blueprint’s proposed framework identifies five principles for guiding the design, use, and deployment of automated systems to protect the public as the use of artificial intelligence grows. The principles center around topics related to stronger safety measures, such as (i) ensuring systems are safe and effective; (ii) implementing proactive protections against algorithmic discrimination; (iii) incorporating built-in privacy protections, including providing the public control over how data is used and ensuring that the data collection meets reasonable expectations and is necessary for the specific context in which it is being collected; (iv) providing notice and explanation as to how an automated system is being used, as well as the resulting outcomes; and (v) ensuring the public is able to opt out from automated systems in favor of a human alternative and has access to a person who can quickly help remedy problems. According to the announcement, the proposed framework’s principles should be incorporated into policies governing systems with “the potential to meaningfully impact” an individual or community’s rights or access to resources and services related to education, housing, credit, employment, health care, government benefits, and financial services, among others.
Biden announces nominees for FDIC board
On September 20, President Biden announced his intention to nominate two members of the FDIC Board of Directors. The nominees, if confirmed, would fill the two vacant seats on the five-member Board. Travis Hill was nominated as a Board member and as vice chair. During his tenure at the FDIC, Hill previously served as senior advisor to the chairman and deputy to the chairman for policy. Prior to that, Hill served as senior counsel at the Senate Committee on Banking, Housing, and Urban Affairs. Biden also nominated Jonathan McKernan as a Board member. McKernan is a senior counsel at the FHFA and currently is on detail from the agency to the Senate Committee on Banking, Housing, and Urban Affairs where he is counsel on the minority staff. Previously, McKernan served as a senior policy advisor at the U.S. Treasury Department.
White House presses regulators on framework for digital assets
On September 16, the White House published a comprehensive framework for the responsible development of digital assets, calling on federal regulators to “provide innovative U.S. firms developing new financial technologies with regulatory guidance, best-practices sharing, and technical assistance.” The framework follows an executive order (E.O.) issued by the Biden administration in March (covered by InfoBytes here), which outlined the first “whole-of-government” strategy for coordinating a comprehensive approach to ensuring responsible innovation in digital assets policy. Consistent with the E.O.’s deadline, nine reports have been submitted to President Biden to date that “call on agencies to promote innovation by kickstarting private-sector research and development and helping cutting-edge U.S. firms find footholds in global markets.” The reports also “call for measures to mitigate the downside risks, like increased enforcement of existing laws and the creation of commonsense efficiency standards for cryptocurrency mining.”
Among other things, the reports (i) direct the Federal Reserve Board to continue its research and experimentation on issuing a central bank digital currency, and request the creation of a U.S. Treasury Department-led interagency working group to support Fed efforts; (ii) encourage the SEC and CFTC to “aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space”; (iii) urge the CFPB and FTC to address consumer complaints related to unfair, deceptive, or abusive practices in the crypto space; (iv) encourage agencies to issue guidance and rules for addressing current and emergent risks in the digital asset ecosystem; (v) urge agencies and law enforcement to take joint measures to address digital asset risks impacting consumers, investors, and businesses; and (vi) encourage agencies to share data on consumers’ digital asset complaints. To promote access to safe and affordable financial services, the administration said it plans to explore how crypto-related technologies can bolster financial inclusion, and will encourage the adoption of instant payment systems, weigh recommendations for creating a federal framework for non-bank payment service oversight, and prioritize efforts to improve cross-border payment efficiency. Additionally, the administration said it is exploring the possibility of amending the Bank Secrecy Act and other related statutes to “explicitly” apply to digital asset exchanges and non-fungible token platforms, and is considering a legislative request to toughen penalties for unlicensed money transmitters and give the DOJ more jurisdictional digital asset prosecution authority.
The Treasury released three reports addressing the future of money and payment systems, consumer and investor protection, and illicit finance risks in response to the E.O. The reports, The Future of Money and Payments, Crypto-Assets: Implications for Consumers, Investors, and Businesses, and Action Plan to Address Illicit Financing Risks of Digital Assets call on regulators to mitigate crypto-related risks to consumers, investors, and businesses. “Innovation is one of the hallmarks of a vibrant financial system and economy,” Treasury Secretary Janet Yellen said. “But as we have learned painfully from the past, innovation without appropriately addressing the impact of these developments can result in significant disruptions and harm to the financial system and individuals, especially our more vulnerable populations.” The reports examine the future of digital assets and offer recommendations to address consumer and investor protection concerns, combat illicit finance risks, and improve the payments system to support a more competitive, efficient, and inclusive landscape.
The same day, the DOJ also released a report in response to the E.O. The Role Of Law Enforcement In Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets examines ways illicit actors exploit digital asset technologies and addresses challenges posed by digital assets to criminal investigations. The report provides recommendations to further enhance law enforcement’s ability to address digital asset crimes, such as strengthening criminal penalties and extending the statutes of limitations for crimes involving digital assets from five to ten years, and identifies three priorities: (i) “expanding to virtual asset service providers the laws preventing employees of financial institutions from tipping off suspects to ongoing investigations”; (ii) “strengthening the law criminalizing the operation of unlicensed money transmitting businesses”; and (iii) “extending the statute of limitations of certain statutes to account for the complexities of digital assets investigations.” The DOJ also launched the Digital Asset Coordinator Network, which will serve as the agency’s primary source for obtaining and disseminating information related to digital assets crimes.
Democrats want PLUS loans in relief plan
On September 12, eight Senate Democrats sent a letter to President Biden, urging him to extend student-loan debt relief to roughly 3.6 million borrowers under the Parent Loan for Undergraduate Student (PLUS) loan program. Biden’s debt relief plan instructed the Department of Education (DOE) to, among other things: (i) provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE; (ii) provide up to $10,000 in debt cancellation to non-Pell Grant recipients for borrowers making less than $125,000 a year or less than $250,000 for married couples; and (iii) propose a new income-driven repayment (IDR) plan and cap monthly payments for undergraduate loans at 5 percent of a borrower’s discretionary income. Additionally, for IDR plans, Biden’s August announcement instructed the DOE to propose a rule to, among other things, reduce the amount that borrowers have to pay each month for undergraduate loans from 10 percent to 5 percent. The Senators expressed their concern that Biden’s recent actions do not appropriately cover Parent PLUS borrowers and urged his administration and the DOE to “to incorporate Parent PLUS borrowers in any administrative improvements to federal student loan programs, including the Public Service Loan Forgiveness and Income-Driven Repayment programs, extensions or creation of waivers, and in the implementation of executive actions to provide student debt relief.”