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Financial Services Law Insights and Observations


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  • DFPI finalizes small business UDAAP and data reporting rule

    State Issues

    DFPI recently approved the final regulation for implementing and interpreting certain sections of the California Consumer Financial Protection Law (CCFPL) related to commercial financial products and services. After considering comments and releasing three rounds of modifications to Sections 1060, 1061, and 1062, the final regulation will, among other things, bring protections to small businesses seeking loans, by (i) defining and prohibiting unfair, deceptive, and abusive acts and practices in the offering or provision of commercial financing to small businesses, nonprofits, and family farms; and (ii) establishing data collection and reporting requirements.

    Previous InfoBytes coverage on the (i) initial modifications to the CCFPL proposed regulation can be found here; (ii) the second round of CCFPL modifications proposal is found here; and (iii) the third iteration of the modified CCFPL proposal is located here.

    This DFPI regulation was notably finalized on the heels of the CFPB’s finalized Section 1071 rule on small business lending data, which similarly will require financial institutions to collect and provide the Bureau data on lending to small businesses (covered by InfoBytes here)

    Sections 1060, 1061, and 1062 will be effective on October 1.

    State Issues Agency Rule-Making & Guidance State Regulators DFPI CCFPL Commercial Finance UDAAP Small Business Lending Consumer Finance California

  • FTC temporarily halts unlawful business opportunity scheme

    Federal Issues

    On August 22, the FTC announced that the U.S. District Court for the Southern District of California recently issued a temporary restraining order against a business opportunity operation for allegedly engaging in deceptive practices. According to the FTC’s complaint, the operation made claims in violation of the FTC Act, the FTC’s Business Opportunity Rule, and the Consumer Review Fairness Act of 2016 by, among other things; (i) making false claims that they offered a “venture capital-backed” and “artificial intelligence-integrated” e-commerce business opportunity for consumers to buy into; (ii) falsely promoting themselves as e-commerce experts and self-made millionaires who have assisted others in generating tens of millions of dollars; (iii) relying on false business projections, including that customers would make a “$4k-$6k consistently monthly net profit”; (iv) false claims about the use of AI tools to maximize revenues; and (v) false endorsements, including false claims of success on social media by an affiliate marketer.  The court’s temporary restraining order prohibited the operation from conducting business, froze its assets, appointed a temporary receiver, and required the operation to turn over business records to the FTC.  Beyond the temporary restraining order, the FTC is seeking preliminary and permanent injunctive relief, monetary relief, and additional relief as determined by the court. The FTC also highlighted that its ability to provide these refunds would not be possible if the action hadn't predated the 2021 Supreme Court ruling (covered by InfoBytes here) that the FTC lacks authority under Section 13(b) of the FTC Act to seek monetary relief in federal court. The FTC used the opportunity to encourage Congress to restore its ability to seek monetary relief in federal court.

    Federal Issues FTC FTC Act Enforcement Marketing Deceptive State Issues

  • DFPI launches actions against crypto scams, initiates education campaign

    State Issues

    On August 9, the California Department of Financial Protection and Innovation (DFPI) announced that it issued cease and desist orders against three entities (orders here, here, and here) for allegedly offering and selling unqualified securities, and making material misrepresentations and omissions to investor related to cryptocurrency investments. The entities allegedly created high-yield investment programs (HYIPs), which DFPI characterizes as “investment frauds that typically promise high returns with low risk, promise overly consistent returns, provide little details about the people running the HYIP, use vague language to describe how the HYIP makes money, offer referral bonuses, facilitate deposits and withdrawals with crypto assets, and use social media to gain attention and attract investors.” 

    The cease and desist orders are just one of the tools DFPI employs to address investment scams involving crypto assets, also using enforcement actions, social media, and a Crypto Scam Tracker. DFPI has posted videos to its social media accounts that are directed towards the same group of individuals targeted by the crypto community in order to educate investors about its enforcement actions and violations of law. The Crypto Scam Tracker was launched earlier this year to help Californian’s identify and avoid scams involving cryptocurrency. (Covered by InfoBytes here).

    State Issues Privacy, Cyber Risk & Data Security Cryptocurrency California Enforcement Cease and Desist DFPI FDCPA

  • Dubai to facilitate personal data transfers with California-based entities

    Privacy, Cyber Risk & Data Security

    On August 9, the Dubai International Financial Centre Authority (DIFC) Commissioner of Data Protection issued a “first-of-its-kind” adequacy decision, declaring California’s data protection regime as “substantially equivalent and low risk.” The DIFC deemed the California Consumer Privacy Act (CCPA) of 2018, as amended by the California Privacy Rights Act of 2020, equivalent to DIFC’s DP Law 2020—opening the door to facilitate personal data transfers between DIFC and California-based entities without the need to apply additional contractual measures. The DIFC further noted that CCPA Regulations provide procedures, guidance, and clarity on the requirements of the CCPA and highlighted the key aspects of CCPA, including (i) concepts and definitions; (ii) breach notification requirements; (iii) enforcement authority; (iv) notifications to the commissioner; and (v) commissioner authority and objectives. The DIFC’s decision outlines nine observations regarding California’s data protection regime that informed its adequacy decision. In its press release, the DIFC noted that the CCPA “gives consumers control and protection over personal data collected by businesses” and limits data collection and processing to what is fair, lawful, and necessary. The DIFC added that this adequacy decision sets a precedent for Dubai to build “similar relationships with various US states and the US privacy framework in the future.” 

    Privacy, Cyber Risk & Data Security State Issues CCPA UAE DIFC California

  • Governor Hochul unveils statewide cybersecurity strategy for New York

    State Issues

    On August 9, Governor Hochul announced New York’s first-ever statewide cybersecurity strategy to protect the state’s digital infrastructure from cyber threats. The cybersecurity strategy articulates a set of high-level objectives and agency roles and responsibilities, as well as outlines how existing and planned initiatives will be weaved together in a unified approach. The central principles of the strategy are unification, resilience, and preparedness, with a focus on state agencies working together with local governments to strengthen the entire state’s defenses. Included in the plan was a $600 million commitment to improve cybersecurity, including (i) a $90 million investment for cybersecurity in Fiscal Year 2024; (ii) $500 million to enhance healthcare information technology; and (iii) $7.4 million for law enforcement entities to expand their cybercrime capabilities.

    State Issues Privacy, Cyber Risk & Data Security New York Dodd-Frank Federal Reserve Bank Merger Act

  • California Privacy Protection Agency announces its first inquiry

    Privacy, Cyber Risk & Data Security

    On July 31, the California Privacy Protection Agency (CPPA) announced a review of the data privacy practices of “connected vehicle” manufacturers and related technologies. Executive Director of the CCPA Ashkan Soltani stated in the press release that the agency is “making inquiries into the connected vehicle space to understand how these companies are complying with California law when they collect and use consumers’ data.” The vehicles in question contain tracking technology that raised data concerns under the California Consumer Privacy Act. Notably, this is the first action from the agency’s enforcement division.

    Privacy, Cyber Risk & Data Security State Issues State Regulators California CCPA CPPA Enforcement

  • Oregon enacts registration requirements for data brokers

    State Issues

    On July 27, the governor of Oregon signed HB 2052 (the “Act”) into law, effective upon passage. The Act provides that a “data broker” cannot collect, sell or license brokered personal data within Oregon unless they first register with the Department of Consumer and Business Services. Brokered personal data includes, among other things, name (or the name of a member of the individual’s immediate family or household), data or place of birth, maiden name of the individual’s mother, biometric information, social security or other government-issued identification number, or other information that can “reasonably be associated” with the individual. A data broker does not include consumer reporting agencies, financial institutions, and affiliates or nonaffiliated third parties of financial institutions that are subject to Title V of the Gramm-Leach-Bliley Act, among others.  There are certain exceptions to the requirement, including, among others, selling the assets of a business entity a single time, The Act stipulates a civil penalty in an amount less than or equal to $500 for each violation of Act or for each day in which violation continues. Civil money penalties are capped at $10,000 per calendar year.

    Licensing State Issues Data Brokers Consumer Data Consumer Protection State Legislation Oregon

  • DFPI concludes MTA licensure not required for data processor

    State Issues

    On July 25, the California Department of Financial Protection and Innovation (DFPI) released a new opinion letter concluding that a company that merely receives payment instructions, orders, or directions to transmit money or monetary value does not constitute “receiving money for transmission” requiring licensure under the California Money Transmission Act (MTA).

    Citing the California regulations, DFPI states that to “receive money for transmission,” a person must actually or constructively receive, take possession, or hold money or monetary value for transmission; merely receiving instructions, orders, or directions to transmit money or monetary value does not constitute “receiving money for transmission.”

    As described in the letter, the data processor facilitated payments made by customers to contracting merchants in exchange for goods and services sold by merchants.  The data processor forwards customer account and transaction details to partner financial institutions for debiting the customer’s account, and also facilitates refunds initiated by the merchants, including sending ACH instructions to the partner financial institution.  However, the data processor at no point handles transferred funds or has custody or legal ownership of the rights to the transferred funds.  DFPI, based on several factors and not solely limited to the services described, determined that the inquiring data processor’s payment system does not constitute money transmission or require an MTA license.

    State Issues Licensing State Regulators California Money Transmission Act Consumer Finance California Fair Access to Credit Act California Financing Law DFPI

  • CSBS announces Nonbank Model Data Security Law

    Privacy, Cyber Risk & Data Security

    The Conference of State Bank Supervisors (CSBS) recently released a comprehensive framework for safeguarding sensitive information held at nonbank financial institutions. CSBS’s Nonbank Model Data Security Law is largely based on the FTC’s updated Safeguards Rule, which added specific criteria for financial institutions and other entities, such as mortgage brokers, motor vehicle dealers, and payday lenders, to undertake when conducting risk assessments and implementing information security programs. (Covered by InfoBytes here.) Adopting the Nonbank Model Data Security Law allows for a streamlined and efficient approach to data security regulations for nonbank financial institutions, CSBS explained, adding that by leveraging the existing Safeguards Rule’s applicability to state covered nonbanks, the model law imposes minimal additional compliance burdens and ensures smoother implementation for financial institutions. States can also choose an alternative approach by requiring nonbank financial institutions to conform to the Safeguards Rule, CSBS said.

    The Nonbank Model Data Security Law outlines numerous provisions, which are intended to protect customer information, mitigate cyber threats, and foster a secure financial ecosystem. These include standards for safeguarding customer information, required elements that must be included in a nonbank financial institution’s information security program, and an optional section that requires entities to notify the commissioner in the wake of a security event. CSBS noted that because “the proposed rule on notification requirements for the FTC Safeguards Rule is still pending, the model law allows each state to establish their own customer threshold number, providing flexibility in determining the extent of impact that triggers the notification obligation.” CSBS also provided a list of resources for adopting the Nonbank Model Data Security Law.

    Privacy, Cyber Risk & Data Security State Issues CSBS Nonbank FTC Safeguard Rule Compliance

  • California AG warns against unlawful employer-driven debt arrangements

    State Issues

    On July 25, California Attorney General Rob Bonta issued a Legal Alert to remind all employers of state-law restrictions on employer-driven debt. Bonta highlighted concerns about employers engaging in exploitative practices that lead to employees accumulating debts as a result of their employment. (Also covered by InfoBytes here). Such practices may include employers withholding wages, failing to reimburse necessary expenses, or charging fees that are unlawful under California labor laws.

    The alert outlines that employer-driven debt arrangements may violate California Labor Code section 2802, “which mandates that employers ‘indemnify employees for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.’” Regarding job training, the alert mentions that California law forbids employers from making workers repay training costs, except in two cases: (i) when the training is necessary for legally practicing the profession, and (ii) when the worker voluntarily undertakes the training, not due to employer mandate. The alert warns companies that engage in exploitative practices that the protections established in the Labor Code cannot be waived by contract. The alert also states that such practices risk violating the state’s Rosenthal Fair Debt Collection Practices Act, which “prohibits an employer or its agent from engaging in unfair or deceptive acts or practices when attempting to collect on employer-driven debt.” Finally, the alert notes that if an employer takes advantage of a worker’s lack of information or knowledge about the risks or costs of the debt, they may violate the California Consumer Financial Protection Law.

    State Issues State Attorney General California Consumer Finance Employer-Driven Debt Products


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