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Financial Services Law Insights and Observations


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  • Senate Banking Committee hearing on P2P payment scams calls for updates to EFTA definitions

    On February 1, the U.S. Senate Committee on Banking, Housing, and Urban Affairs held a hearing on “Examining Scams and Fraud in the Banking System and Their Impact on Consumers,” and invited three panelists to testify, including an attorney from a consumer law center and two vice presidents from banking associations. Chairman Sherrod Brown (D-OH) led the hearing by noting that peer-to-peer (P2) apps are a rising target among scammers, alongside a rise in check fraud. The Chairman noted a 2023 alert from FinCEN warning (as covered by InfoBytes here) of a surge in check fraud after a “drastic” rise in scams, and concluded with a statement that the P2P companies need “rules to make them” do better. Next, Ranking Member Senator Tim Scott (R-SC) called for the companies to spend more money developing security technologies to protect consumers from fraud. Sen. Scott then called for better education in financial literacy to learn about scams and methods. 

    At the hearing, Mr. John Breyault noted that reported losses from P2P payment platforms nearly doubled from $87 million in 2020 to $163 million in 2022. Mr. Breyault asked Congress to play a larger role in preventing fraud on P2P platforms and urged the passage of the Protecting Consumers from Payment Scams Act (which would expand EFTA’s definition of unauthorized electronic fund transfer to cover fraudulently induced payments). Ms. Carla Sanchez-Adams, in her testimony, asserted the entire burden of payment fraud should not fall on the customers and advocated for an updated Electronic Funds Transfer Act that protects consumers from fraudulently-induced transactions. She testified that receiving institutions should have more responsibility, and called for anti-fraud policies that protect consumers from having their accounts frozen, among others. Mr. Paul Benda testified to similar points: he called for an increase in consumer education and the closure of regulatory loopholes to stop impersonation scams. He testified in favor of improved information sharing and enhanced collaboration with law enforcement and regulators.  

    Bank Regulatory Peer-to-Peer Fraud Senate Banking Committee EFTA U.S. Senate Federal Issues

  • CFPB’s Chopra testifies at Senate Banking Committee hearing

    Federal Issues

    On November 30, the Director of the CFPB, Rohit Chopra, testified during the Senate Banking Committee’s hearing on the Bureau’s Semi-Annual Report to Congress. The Senate Banking Committee questioned Chopra on the Bureau’s oversight of financial institutions providing benefits under the Servicemembers Civil Relief Act (SCRA), medical debt collection, so-called “junk fees,” and the increasing popularity of buy now, pay later (BNPL) products.

    In response to questions regarding SCRA, Director Chopra stated that the CFPB estimates that fewer than 10% of servicemembers receive the 6% pre-service rate cap on loans as required by the SCRA. In response to a question on BNPL popularity, Chopra noted there was a high amount of BNPL usage on Black Friday, and the CFPB plans on creating basic consumer protection standards.

    Director Chopra stated that the CFPB is developing rules or researching potential activity in several areas, including: (i) reporting certain medical debts to the credit bureaus; (ii) BNPL standards; and (iii) protecting consumer data, particularly in the context of credit reporting.

    Federal Issues Senate Banking Committee CFPB Consumer Finance

  • Senate Banking Committee debates AI in finance: balancing opportunities and risks

    Federal Issues

    On September 20, the Senate Banking Committee held its first hearing on the use of artificial intelligence (AI) in the financial services space, further revealing a partisan divide regarding the utilities and risks associated with the technology. In his opening remarks, Committee Chairman Sherrod Brown cautioned that although AI technology promises new efficiencies and opportunities, it also carries unique risk of harm to consumers and workers in the financial services space, including the potential for discriminatory practices in lending and the reduction of job security and wages. He called for “rigorous testing and evaluation of AI models” before they are put to use by companies and other organizations in the financial services space. By contrast, Chairman Brown’s counterpart, Acting Ranking Member Mike Rounds touted the successes that similar technologies have brought to the financial services industry and stated that AI presents more upside than risk, particularly in the space of fraud detection and prevention. He urged Congress to take a “pro-innovative” role in regulating AI and warned that halting or slowing progress in this space will only allow competitors in other countries to develop more advanced technologies. 

    The Committee then heard from several witnesses working in the AI and machine learning (ML) space, including both industry professionals and professors. Overall, these witnesses championed the potentials of AI, explaining its potential for “greater efficiency, enhanced insight, expanded access, and lower costs” but cautioned that the utilization of AI and ML is not a “one size fits all” model and will require careful consideration and oversight to minimize the risks it could pose to consumers and the markets.

    Federal Issues Senate Banking Committee Artificial Intelligence Fraud

  • Senators call for stronger Fed oversight over bank mergers

    Federal Issues

    On August 9, Senators Sherrod Brown (D-OH), Elizabeth Warren (D-MA), Jack Reed (D-RI), and John Fetterman (D-PA) wrote a letter to the Chair and Vice Chair of Supervision for the Board of Governors of the Federal Reserve System urging the Fed to “review and reconsider” its procedures for approving bank mergers.  The letter cites the Dodd-Frank Act’s amendment to the Bank Merger Act, which mandates that federal banking regulators consider whether a proposed merger “would result in greater or more concentrated risks” to the stability of the banking or financial system.  The senators also voiced concern that the Fed has “not issued any rules or guidance indicating the types of bank mergers that would implicate financial stability concerns” and criticized the process around the Fed’s approval of recent acquisitions. 

    Federal Issues Bank Regulatory Senate Banking Committee Bank Supervision Federal Reserve Dodd-Frank Bank Merger Act

  • Senate Banking Committee holds hearing on account fees

    Federal Issues

    On July 26, the Senate Banking Committee held a hearing regarding “fees and tactics impacting Americans’ wallets” in relation to financial services and the role of the CFPB in addressing harmful fees. Leading the hearing, Senator Raphael Warnock (D-GA), chairman of the committee, explained that some “excessively high” and unclear fees do not serve an economic value, referring to these as “junk fees.” Senator Warnock shared that 1/3 of households that do not use banks cite high fees as their reason for continuing without a bank account. Senator Thom Tillis (R-N.C.) criticized the CFPB’s attempts at avoiding the oversight of the Administrative Procedures Act in the rule-making process by mislabeling its actions. Tillis added that after the 2008 financial crisis, regulators emphasized the importance of overdraft revenue as, “an appropriate tool for ensuring the stability of the bank’s balance sheets.” He then criticized the shift in guidance, as the CFPB looks to reprimand banks who follow “the established prudential standards for the crime of listening to their previous federal regulators.” He also claimed that the Bureau does not have proper jurisdiction, resources, or staff to make such decisions.

    Pennsylvania Attorney General Michelle Henry testified about recent enforcement actions she has taken, including a recently filed suit against a Wall Street private equity-owned installment lender, who allegedly charged consumers “junk fees” for low-value or valueless add-on products. Henry also mentioned entering into a settlement relating to a bank charging “junk fees” in connection with auto finance products. Brian Johnson, a financial regulatory compliance specialist and former deputy director of the CFPB, claimed that the agencies and the White House have failed to provide a consistent definition for the “junk fees” that could subject institutions to scrutiny, and criticized the CFPB, saying that it does not follow its own regulations and laws governing how agencies make rules by publishing interpretive rules as policy statements in bulletins. A final topic raised by Senator Tina Smith (D-MN) regarded land contracts and lease-to-purchase or rent-to-own agreements that she claimed can be exploitative towards underserved communities. Smith noted that such contacts are “designed to fail,” noting that more than 80 percent of the time, people lose all their equity because they do not make it to the last payment of the contract.

    Federal Issues Senate Banking Committee CFPB HUD State Attorney General Biden Overdraft Rent-to-Own Consumer Finance Consumer Protection

  • Senators demand that CFPB address voice-cloning risks

    Privacy, Cyber Risk & Data Security

    On July 6, four Democrats on the Senate Banking Committee sent a letter to CFPB Director Rohit Chopra, in which they expressed their concerns about the emergence of voice cloning technology. The senators observed that “voice cloning, the process of reproducing an individual’s voice with high accuracy using AI and machine learning techniques, has seen remarkable advancements in recent years, and is increasingly being used in malicious ways.” The letter noted the “particularly alarming” use of voice cloning in financial scams, in which scammers use the technology to convincingly impersonate family, friends, and even financial advisors or bank employees. Many times, the letter mentioned, scammers target consumers “who often have no reimbursement recourse from banks and peer-to-peer payment apps.” The senators also highlighted the threat that this technology poses to financial institutions that utilize voice authentication services. The senators urged Chopra and the Bureau to review the risks posed by voice cloning technology and implement measures to effectively address the emerging threat to unsuspecting consumers.

    Privacy, Cyber Risk & Data Security Federal Issues CFPB Senate Banking Committee Artificial Intelligence Consumer Protection

  • NCUA annual report to Congress covers cybersecurity

    Privacy, Cyber Risk & Data Security

    On June 28, the NCUA released its annual report on cybersecurity and credit union system resilience to the House and Senate banking committees. The report outlines measures the agency has taken to strengthen cybersecurity within the credit union system, outlines significant risks and challenges facing the financial system due to the NCUA’s lack of authority over third-party vendors, and addresses current and emerging threats. Explaining that cybersecurity is one of the NCUA’s top supervisory priorities with cyberattacks being a top-tier risk under the agency’s enterprise risk management program, the report discusses ways the NCUA continues to enhance the cybersecurity resilience of federally insured credit unions (FICUs). Measures include continually improving the agency’s examination program, providing training and support, and implementing a final rule in February, which requires FICUs to report any cyberattacks that disrupt its business operations, vital member services, or a member information system as soon as possible (and no later than 72 hours) after the FICU’s “reasonable belief that it has experienced a cyberattack.” The final rule takes effect September 1. (Covered by InfoBytes here.) The report also raises concerns regarding the NCUA’s lack of authority over third-party vendors that provide services to FICUs. Calling this a “regulatory blind spot” with the potential to create significant risks and challenges, the agency stresses that one of its top requests to Congress is to restore the authority that permits the agency to examine third-party vendors.

    Privacy, Cyber Risk & Data Security Federal Issues NCUA Credit Union House Financial Services Committee Senate Banking Committee Third-Party

  • Chopra testifies at congressional hearings

    Federal Issues

    On June 13, CFPB Director Rohit Chopra testified before the Senate Banking Committee to discuss the Bureau’s most recent semi-annual report to Congress. Covering the period beginning April 1, 2022 and ending September 30, 2022, the semi-annual report addressed a wide range of issues, including the adoption of significant rules and orders, supervisory and enforcement actions, and actions taken by states relating to federal consumer financial law. The report also stated the Bureau received approximately 1.237 million consumer complaints, for which roughly 75 percent pertained to credit or consumer reporting. With respect to the Bureau’s mandated objectives, Chopra’s prepared statement highlighted rulemaking progress on several topics, including small business lending data collection and PACE lending. He also emphasized the agency’s heightened focus on supervising nonbank financial firms and reiterated that the Bureau will continue to shift its enforcement focus from small businesses to repeat offenders.

    Committee Chair Sherrod Brown (D-OH) praised Chopra’s leadership in his opening statement, highlighting actions taken by the Bureau since Chopra’s last hearing appearance and disagreeing with the U.S. Court of Appeals for the Fifth Circuit’s decision that the agency’s funding authority violates the Constitution’s Appropriations Clause and the separation of powers. However, Ranking Member Tim Scott (R-SC) argued that Chopra “has created uncertainty in the marketplace by attempting to regulate through speeches and blog posts under the guise of ‘clarifying guidance,’” and continues to mislabel payment incentives as “junk fees” or “illegal fees.” Scott also took issue with the Bureau’s small business lending rule and asked why the agency should be trusted to collect a large amount of lending data when the agency itself experienced a data breach when an employee transferred sensitive consumer data to a personal email account without authorization.

    During the hearing, Chopra addressed concerns accusing him of bypassing regulatory review by issuing policy changes through agency guidance and press announcements. “The things we hear from small firms is they really want to know how existing law applies,” Chopra said. “We have so many changes in technology, and these small firms don’t have the ability to hire so many lawyers[,] [s]o I’ve actually continued a practice of my predecessor, Director Kraninger to issue these advisory opinions and other guidance documents. They do not create any new obligations. They simply restate what the existing laws are.”

    Chopra also answered questions relating to the Bureau’s proposal to limit credit card late fees and, among other things, adjust the safe harbor dollar amount for late fees to $8 for any missed payment (issuers are currently able to charge late fees of up to $41). (Covered by InfoBytes here.) Chopra explained that the proposed rule still allows recovery of costs but said the agency is trying to make the process “more rigorous and make sure it reflects market realities.” “[I]ssuers tell us is that they don’t want to profit off of late fees,” Chopra added. “That's exactly the goal here, because the law says those penalty fees are supposed to be reasonable and proportional. We’re trying to make it more clear about the way we can do that, while also making the market more competitive.”

    Republican senators expressed concerns with the proposal during the hearing, with Scott commenting that no one wants to pay the late fee, but that “the truth of the matter is that fee is going to be paid just in a different form. . . .whether it’s through increased interest rates or increased cost of products, it doesn’t go away.” Senator Elizabeth Warren (D-MA) countered that “if there’s an $8 cap on credit card late fees, unless the banks can show that their costs are higher, in which case they can charge more, all that will happen, as best I can tell is that the banks will have slightly lower profit margins.”

    Chopra faced similar question during a hearing held the next day before the House Financial Services Committee. Among the topics, committee members raised questions relating to technology risks presented by artificial intelligence and how existing law applies to machine learning. Chopra was also accused of overseeing an unconstitutional agency and flouting the notice-and-comment rulemaking process. Also discussed during the hearing was a recently introduced joint resolution to nullify the Bureau’s small business lending rule. (Covered by InfoBytes here.) Representative Roger Williams (R-TX) stressed that community banks are “concerned that the complicated reporting requirements will tie up loan officers and increase compliance costs plus compliance officers, which will be passed down to the consumer.”

    Federal Issues CFPB Senate Banking Committee House Financial Services Committee Section 1071 Consumer Finance Artificial Intelligence Junk Fees Funding Structure Credit Cards Student Lending

  • Senators ask FTC, CFPB to investigate deceptive listing agreements

    State Issues

    In December, Senate Banking Committee Chairman Sherrod Brown (D-OH), along with Senators Tina Smith (D-MN) and Ron Wyden (D-OR) sent a letter to the FTC and the CFPB requesting a review of a Florida-based real estate brokerage firm’s use of exclusive 40-year listing agreements marketed as a “loan alternative.” The request follows a November press release by the Florida attorney general announcing legal action against the firm for engaging in allegedly deceptive, unfair, and unconscionable business practices. According to the AG’s complaint, the firm offered homeowners $300 to $5,000 as a cash loan alternative in exchange for an agreement to use the firm as an exclusive real estate listing broker for a 40-year period. The complaint claimed the firm informs homeowners that there is no obligation to return the cash, stressing the homeowner will owe the firm nothing unless and until the home is sold. The AG asserted, however, that what is not clearly disclosed is that after accepting the payment, the firm files a 40-year lien on the property so that if at any time within 40 years the home is foreclosed upon or transferred to heirs upon the homeowner’s death, or if homeowners simply wish to cancel the deal, the firm will attempt to take three percent of the home’s value. Further, the AG claimed that the firm also failed to inform customers that the liens are filed in the public record, which can make it difficult for homeowners to refinance or access their home’s equity. The complaint seeks injunctive relief, restitution, and civil penalties.

    State Issues State Attorney General Florida FTC CFPB Consumer Finance Senate Banking Committee Listing Agreement UDAP UDAAP

  • Senate Banking holds hearing on crypto

    Federal Issues

    On December 14, the Senate Banking Committee held a hearing to hear from witnesses about how customer and investor protections should apply to cryptocurrencies, among other topics. Committee Chairman Sherrod Brown (D-OH) opened the hearing by emphasizing that it is the committee’s job “to keep learning more about the collapses” of crypto firms, and that there should be collaboration with regulators to put consumers—not the crypto industry—first. Brown warned that crypto has “ushered in a whole new dimension of fraud and threats to national security.” Senator Elizabeth Warren (D-MA) expressed similar concerns, stating that the “dark underbelly of crypto is its critical link to financing terrorism and human trafficking and drug dealing and helping rogue nations like North Korea and Iran.” Warren went on to describe her bipartisan bill, the Digital Asset Anti-Money Laundering Act, noting that it “requires crypto to follow the same money laundering rules” that every bank and every broker are subjected to. Senator Cynthia Lummis (R-WY) also advocated for the regulation of digital asset trading, and providing consumers with adequate bankruptcy protection, disclosures, and stable coin regulation. Ranking Member Pat Toomey (R-PA) expressed openness to the possibility of regulations tailored to crypto, including more disclosure from issuers and oversight of secondary market trading. Toomey argued against pausing cryptocurrency before legislation. Additionally, some witnesses discussed drafting potential cryptocurrency legislation. One witness told the committee that when crypto assets are made from thin air, they can be “used to obscure financial realities.” Another witness said cryptocurrencies are “at best a vehicle for speculation, an exercise in a zero-sum game of chance, much like online poker,” but, “at worst, they are an instrument of crime.”

    Federal Issues Senate Banking Committee Digital Assets U.S. Senate Cryptocurrency Fintech


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