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Texas Office of Consumer Credit updates guidance urging motor vehicle sales finance licensees to work with borrowers
On July 17, the Texas Office of the Consumer Credit Commissioner updated its advisory bulletin urging motor vehicle sales finance licensees to work with consumers during the Covid-19 crisis (previously covered here, here, and here). Among other measures, the regulator urges licensees to increase consumer communication regarding the effects of Covid-19 for licensees, work out modifications for payment difficulties, waive certain charges, and suspend repossessions. The guidance also reminds licensees of legal requirements for using electronic signatures, and continues to permit licensees to conduct activity from unlicensed locations, subject to certain conditions. The guidance is in effect through August 31, 2020, unless withdrawn or revised.
Louisiana requires licensing for virtual currency businesses
On June 13, the Louisiana governor signed HB 701, which provides for the licensing and regulation of virtual currency businesses in the state. Subject to certain exceptions, the bill establishes licensing and registration requirements, and, among other things, (i) authorizes reciprocity of licensure with other states; (ii) specifies that licensee applications must be submitted through the Nationwide Multi-State Licensing System; (iii) adds provisions related to licensee examinations; (iv) outlines licensee surety bond requirements “based on the nature and extent of risks in the applicant’s virtual currency business model”; (v) provides the state’s office of financial institutions with enforcement authority; and (vi) prohibits licensees from engaging in unfair, deceptive, or fraudulent practices. The act is effective August 1.
Michigan regulator announces that annual regulatory assessment invoices have been emailed to insurers
The Michigan Department of Insurance and Financial Services (DIFS) announced that, in light of many offices working remotely during the Covid-19 outbreak, it has emailed invoices for annual regulatory assessments to licensed insurance companies. Previously, these invoices were typically mailed. As such, all licensed insurers should have received their electronic invoices on or before June 30. DIFS encouraged insurers to use the its e-payment option to pay the invoice.
CFPB seeking innovation in adverse action notices when using artificial intelligence
On July 7, the CFPB released a blog post discussing the use of artificial intelligence (AI) and machine learning (ML), addressing the regulatory uncertainty that accompanies their use, and encouraging stakeholders to use the Bureau’s innovation programs to address these issues. The blog post notes that “AI has the potential to expand credit access by enabling lenders to evaluate the creditworthiness of some of the millions of consumers who are unscorable using traditional underwriting techniques,” but using AI may create or amplify risks, including unlawful discrimination, lack of transparency, privacy concerns, and inaccurate predictions.
The blog post discusses how using AI/ML models in credit underwriting may raise compliance concerns with ECOA and FCRA provisions that require creditors to issue adverse action notices detailing the main reasons for the denial, particularly because AI/ML decisions can be “based on complex interrelationships.” Recognizing this, the Bureau explains that there is flexibility in the current regulatory framework “that can be compatible with AI algorithms.” As an example, citing to the Official Interpretation to Regulation B, the blog post notes that “a creditor may disclose a reason for a denial even if the relationship of that disclosed factor to predicting creditworthiness may be unclear to the applicant,” which would allow for a creditor to use AI/ML models where the variables and key reasons are known, but the relationship between them is not intuitive. Additionally, neither ECOA nor Regulation B require the use of a specific list of reasons, allowing creditors flexibility when providing reasons that reflect alternative data sources.
In order to address the continued regulatory uncertainty, the blog post encourages stakeholders to use the Trial Disclosure, No-Action Letter, and Compliance Assistance Sandbox programs offered by the Bureau (covered by InfoBytes here) to take advantage of AI/ML’s potential benefits. The blog post mentions three specific areas in which the Bureau is particularly interested in exploring: (i) “the methodologies for determining the principal reasons for an adverse action”; (iii) “the accuracy of explainability methods, particularly as applied to deep learning and other complex ensemble models”; and (iii) the conveyance of principal reasons “in a manner that accurately reflects the factors used in the model and is understandable to consumers.”
CFPB and OCC to host innovation office hours
On July 2, the CFPB and the OCC announced that they will host joint, virtual “Innovation Office Hours” on July 29-30, as part of the American Consumer Financial Innovation Network (covered by InfoBytes here). The office hours will be one-on-one meetings, of up to one hour, with representatives from the OCC and the CFPB’s Innovation Offices to discuss things such as fintech, new products or services, and bank partnerships. Those interested need to request a virtual session by July 17, and should include details on what they would like to discuss at the meeting.
CFPB announces e-disclosures and HMDA platform Tech Sprints
On June 29, the CFPB announced two Tech Sprints that will “bring together regulators, technologists, software providers, consumer groups, and financial institutions to develop technological solutions to shared compliance challenges.” As previously covered by InfoBytes, the CFPB announced, in September 2019, its intention to use Tech Sprints—which had been used by the U.K.’s Financial Conduct Authority seven times since 2016 and resulted in a pilot project on digital regulatory reporting—to encourage regulatory innovation and requested comments from stakeholders on the plan.
- E-Disclosures, October 5-9, 2020. This Tech Sprint will have participants “improve upon existing consumer disclosures” by “design[ing] innovative electronic methods for informing consumers about adverse credit actions, including from the use of algorithms.” The Bureau notes that many disclosure laws “were written in a paper-based age” and using digital technology for disclosures may “enable greater consumer engagement and understanding.”
- HMDA platform and submission, March 22-26, 2021. This Tech Sprint will encourage participants to “develop new tools to address compliance challenges and improve the filing process” on the HMDA platform (operated by the Bureau on behalf of the Federal Financial Institutions Examination Council). Additionally, participants “may work to further develop the HMDA Platform’s Application Programming Interfaces to increase efficiency and lower cost.”
Separately, the FDIC also announced the start of a prototyping competition intended “to help develop a new and innovative approach to financial reporting, particularly for community banks.” The competition will involve 20 technology firms from across the country that will propose solutions for the FDIC’s consideration to make financial reporting “seamless and less burdensome for banks.”
Oregon enacts bill providing notarization relief
On June 30, the Oregon governor signed HB 4212, which provides relief relating to wage garnishment and notarization, among other things. The bill exempts certain recovery rebate payments under the CARES Act from garnishment requirements applicable to financial institutions. The bill also permits electronic notarization, provided certain requirements are met. The bill took effect on June 30.
Oregon authorizes remote notarizations through July 2021
On June 30, the Oregon governor signed HB 4212A into law, which authorizes remote online notarization through July 2021. Under the new law, a commissioned notary public may use audio-visual technology to perform notarizations, subject to certain requirements, limitations and conditions. The Oregon secretary of state also issued guidance which assists notaries to find technology vendors that meet the requirements of the new law, register for online notarization training, and submit the required notice form.
FINRA updates guidance on fingerprinting requirements
FINRA has updated its frequently asked questions guidance regarding relief from certain fingerprinting requirements (previously covered here). The guidance notes that, on June 27, the SEC extended its order providing temporary relief from fingerprinting requirements of the Securities Exchange Act Rule 17f-2 for FINRA members until a date to be specified in a public notice from SEC staff. Because FINRA already provided notification to the SEC in March on behalf of its members, their employees, and associated persons, such individuals may continue to rely on the commissioner’s order and FINRA’s notification. However, for an individual seeking registration pursuant to the submission of a Form U4, a FINRA member firm seeking to rely on temporary exemptive relief for registered persons must comply with FINRA’s guidance with respect to FINRA Rule 1010.
Massachusetts Securities Division issues emergency notice easing filing requirements for securities filings
On June 29, the Massachusetts Securities Division issued an emergency notice providing temporary relief from signature and notarization requirements in corporate finance filings, and from certain additional requirements relating to the registration of financial professionals. Specifically, the division will not require manual signatures or notarizations for securities applications and securities notice filings, among others, and will instead accept (i) evidence of electronic signatures or (ii) copies of signed documents. With respect to certain financial professionals, the division has also provided relief relating to (i) physical signatures required on Forms U4, (ii) the submission of Criminal Offender Record Information forms in connection with an application for registration, and (iii) annual update filings and document delivery requirements.