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  • States Challenge Delaware Law on Unclaimed Property

    Consumer Finance

    A group of 27 states, led by Arkansas and Texas, is seeking leave to file a complaint with the U.S. Supreme Court to challenge Delaware’s unclaimed property laws. The states’ challenge centers on a Delaware escheat law through which the state claims ownership of certain types of financial accounts and securities if the owner has failed to claim them for three years, and the issuer or holder is incorporated in Delaware. The dispute, although broad in implications, addresses a specific situation whereby a money transfer company was directed to provide all unpresented and uncashed money transfers to Delaware Escheator, and not to the states where the transfers were originated. The states claim that the Delaware law is in contravention to the federal Disposition of Abandoned Money Orders and Traveler’s Checks Act.

    Unclaimed Property

  • Federal Court Denies FinCEN's Second Attempt to Ban Foreign Bank

    Federal Issues

    On September 21, the U.S. District Court for the District of Columbia stayed enforcement of FinCEN’s second attempt to cut off a Tanzania-based bank’s access to the U.S. banking system. The dispute originated from FinCEN’s attempt to prohibit domestic financial institutions from opening or maintaining correspondent accounts on behalf of the foreign bank under the authority of Section 311 of the USA PATRIOT ACT, which authorizes FinCEN take special measures against banks of primary money laundering concern. FinCEN first promulgated a final rule imposing the prohibition in July 2015, which was enjoined by the court in August, 2015. FinCEN agreed to a voluntary remand to correct deficiencies in its rulemaking process, such as providing the bank access to declassified information and considering the use of less drastic measures to address its concerns. In March 2016, FinCEN promulgated a revised final rule in which it indicated that the bank’s AML compliance remained inadequate and that the bank continued to engage in “illicit financial activity.” Upon a second review, the court again found that FinCEN had failed to adequately disclose declassified information to the bank prior to releasing the revised final rule, and did not properly respond to other of the bank’s concerns. In addition, the court was not satisfied that FinCEN had made the required consultations with other executive-branch agencies as required by statute.

    Anti-Money Laundering FinCEN Patriot Act Agency Rule-Making & Guidance

  • CFPB Imposes $8 Million Civil Penalty on For-Profit Company over Allegedly Deceptive Student Lending Practices

    Consumer Finance

    On September 12, the CFPB entered into a consent order with a San Diego-based for-profit education company to resolve allegations that its student lending practices were deceptive in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Starting in 2009, the company, which owns two for-profit colleges, has operated an in-house institutional-lending program (Program). The CFPB alleged that under the Program thousands of students borrowed in the aggregate approximately $23,544,184, of which the company collected more than $4,900,000 in principle and interest, with more than $18,000,000 in debt remaining outstanding. The company claimed that, through the Program, students could repay their loans with a minimum monthly payment of $25; the CFPB contends, however, that the company’s marketing practices were deceptive because the typical loan payments under the Program exceeded $25. Pursuant to the consent order, the company must (i) provide cancellation of $18.5 million in existing student debt and pay $5 million in redress directly to affected students; (ii) ensure that students utilize the CFPB’s newly released Electronic Financial Impact Platform, which ultimately generates a customized disclosure for students regarding, among other things, finance offerings available and estimated post-graduate expenses; (iii) stop making allegedly misleading statements regarding students’ monthly payment obligations; (iv) remove any negative information that was reported to consumer-reporting agencies; and (v) pay an $8 million civil penalty.

    CFPB Dodd-Frank Student Lending Enforcement Settlement

  • House Financial Services Committee Approves Financial CHOICE Act

    Consumer Finance

    On September 13, the House Financial Services Committee approved by a 30-26 vote the Financial CHOICE Act, Congressman Jeb Hensarling’s (R-TX) legislative replacement to the Dodd-Frank Act. In his opening remarks, Hensarling claimed that the bill aims to end bailouts, support economic growth, and provide regulatory relief to community banks. House Democrats did not offer amendments to the bill, although many expressed adamant disapproval. Congresswoman Carolyn Maloney (D-NY) claimed that the “deeply disturbing” legislation “would take us back to the regulatory stone age.” Various Democrats referenced the CFPB’s recent enforcement action against a national bank to argue that the Financial CHOICE Act’s attempt to remove the CFPB’s authority over abusive practices was one of many reasons to oppose the bill. Democrats unanimously voted against the legislation, while all but one Republican, Congressman Bruce Poliquin (R-ME), voted in favor of moving the legislation forward.

    CFPB Dodd-Frank UDAAP U.S. House Community Banks

  • OCC Comptroller Curry Addresses Regulatory Concern Related to Fintech Industry; Outlines Possible Fintech Charter

    Consumer Finance

    On September 13, OCC Comptroller Curry delivered remarks at the Marketplace Lending Policy Summit, an inaugural event during which policy implications and regulatory concerns prevalent in the marketplace lending industry were discussed. Similar to past reports and remarks about marketplace lending, Curry expressed concern that the underwriting and business models used by the industry have yet to go through a complete credit cycle: “A less favorable credit cycle will test this business in ways it hasn’t yet experienced, and how sources of funding will hold up under stress remains to be seen.” In addition, drawing attention to the “long-term performance” issues related to marketplace lending, Curry posed the following inquiries: (i) whether new credit underwriting technologies and algorithms comply with existing laws and regulations, such as the Equal Credit Opportunity Act; (ii) whether existing laws, such as the Community Reinvestment Act, should be “amended radically” to ensure that consumers are sufficiently protected against nonbank lenders; (iii) whether an entirely new regulation or law is needed to “protect the public’s interest or prevent risk to the broader financial system”; and (iv) whether innovation itself should be regulated, and, if so, by which primary regulator(s). Notably, Comptroller Curry revealed that the OCC is in the process of developing a potential federal “fintech charter,” a framework that is expected to be released this fall. Comptroller Curry emphasized that, if the OCC grants limited-purpose fintech charters, institutions receiving the charters “will be held to the same strict standards of safety, soundness, and fairness that other federally chartered institutions must meet.”

    OCC Fair Lending ECOA Consumer Lending Fintech Marketplace Lending

  • OCC Proposes Framework for Placing Uninsured Banks into Receivership

    Consumer Finance

    On September 13, the OCC published a proposed rule under the authority of the National Bank Act, to provide a framework for receiverships for national banks that are not insured by the FDIC. For years the OCC has not placed uninsured banks into receivership, but the agency claims that establishing a clear and efficient process for handling failed uninsured banks would “contribute to the broader stability of the federal banking system.” Intended to “provide clarity to market participants about how they will be treated in receivership,” the OCC’s proposed framework outlines processes parallel to that of the FDIC’s receivership capacities. The proposal describes, among other things, (i) certain powers the receiver would hold, as well as the receiver’s duties in “winding up” an uninsured bank’s affairs; (ii) the process for submitting claims against the uninsured bank in receivership, and the receiver’s responsibilities to review such claims; (iii) the payment of dividends on claims and the distribution to shareholders of residual proceeds; and (iv) the receiver’s powers and duties related to the status of fiduciary and custodial accounts. Comments on the proposal are due November 14, 2016.

    FDIC OCC National Bank Act

  • FDIC Announces Mortgage Lending Resources for Community Bankers

    Lending

    On September 15, the FDIC announced two new resources intended to provide community bankers with information on federal housing programs: the Affordable Mortgage Lending Guide, Part I: Federal Agencies and Government Sponsored Enterprises and the Affordable Mortgage Lending Center. The FDIC released the guide in response to feedback from community bankers, who claimed “they did not understand the wide array of federal housing programs.” The purpose of the resource center, according to the FDIC, is to assist community bankers “[to] compare a variety of current affordable mortgage programs and to identify the next steps if they seek to expand or initiate affordable mortgage lending.” The FDIC plans to release Part II, State Housing Finance Agencies, and Part III, Federal Home Loan Banks, of the guide at a later date this year.

    FDIC Mortgage Origination Community Banks

  • SEC Continues to Show Interest in Municipal Bond Market

    Securities

    In a first for the SEC, on September 15, a federal jury has found a municipality and its former Budget Director liable for violations of federal securities laws by acting “knowingly” or with “severe recklessness” while making representations about the financial condition of the City of Miami during three separate offerings of municipal securities in 2009. The SEC alleged, and the jury agreed that city officials violated federal law when they transferred cash from capital projects—funds that had already been allotted, or were needed to cover ongoing expenses—to mask shortfalls in the city’s general fund in order to convince bond-rating agencies that the city’s finances were better than they really were. Miami had been operating under a 2003 SEC cease-and-desist order based on similar conduct. On September 9, the SEC also reached a settlement agreement with an Oklahoma-based bank to resolve allegations that it failed to detect and alert bond holders as to problems in various municipal bond offerings while acting as indenture trustee. As outlined by the SEC final order, the bank allegedly knew that some of the assisted living facilities serving as collateral for the bonds had been closed, and that an individual had withdrawn investor money from reserve funds for the bond offerings and used such funds for other business ventures and personal expenses. The bank did not admit or deny the SEC’s allegations, but agreed to pay $984,000 in disgorgement, as well as a $600,000 civil penalty.

    SEC

  • FTC Issues Paper on Lead Generation, Recaps "Follow the Lead" 2015 Workshop

    Privacy, Cyber Risk & Data Security

    On September 15, the FTC issued a paper summarizing the insights garnered through its October 2015 “Follow the Lead” workshop on lead generation. As previously covered in InfoBytes, the workshop focused on lead generation issues in the mortgage and education lending space. The FTC paper “detail[s] the mechanics of online lead generation and potential benefits and concerns associated with lead generation for both businesses and consumers.” The paper provides a synopsis of payday lenders’ role in the lead generation industry by describing their use of the “ping tree,” an automated process that enables aggregators to sell consumers’ personal information to lenders or other aggregators. Although the paper acknowledges that lead generators provide potential benefits to consumer, including the ability to offer competitive prices in the mortgage lending space, it never-the-less identifies the following key areas of concern: (i) complexity and lack of transparency surrounding industry policies and processes; (ii) the use of potentially aggressive or deceptive marketing techniques; and (iii) the potential misuse and mishandling of consumers’ personal information in the payday lending space.

    FTC Payday Lending Student Lending Consumer Lending Lead Generation

  • FTC Seeks Additional Comments Regarding Proposed Research on Consumers' Experience with the Auto Finance Industry

    Consumer Finance

    On September 14, the FTC published its second Federal Register notice regarding a proposed consumer survey designed to provide the FTC with insights into consumer understanding of the process whereby automobiles are purchased and financed through a dealer. The FTC issued its first notice regarding the survey on January 7, 2016. The second notice summarizes industry comments received in response to its first notice. Commenters suggested that the survey include questions addressing such topics as, (i) consumers’ experiences specifically with “Buy Here Pay Here” dealers; (ii) “yo yo financing scams”; and (iii) add-on products or services. The second notice outlines the FTC’s planned methodology for conducting the survey, and identifies the areas on which the consumer interview questions will focus. The FTC estimates that 170 consumers will participate in the survey and that it will require approximately 367 burden hours. Comments regarding the accuracy of burden estimates, as well as ways to minimize the information collection burden, are due by October 14, 2016.

    FTC Auto Finance Consumer Lending

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