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Financial Services Law Insights and Observations


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  • PPP portal to re-open to all lenders on January 19

    Federal Issues

    On January 13, the Small Business Administration (SBA) announced that the Paycheck Protection Program (PPP) loan portal will open to all eligible lenders with $1 billion or less in assets for First and Second Draw applications on January 15, with the portal fully opening on January 19 to all participating lenders. As previously covered by InfoBytes, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) provides an additional $284 billion for the PPP, extending the authority to make PPP loans through March 31, amending certain aspects of the program, and allowing for certain businesses to take second loans. The PPP portal initially reopened on January 11 to community financial institutions only in order to reach underserved and minority small businesses.

    Federal Issues Covid-19 SBA CARES Act Economic Aid Act

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  • FTC comments on application of ECOA, Regulation B in response to CFPB RFI

    Federal Issues

    Recently, FTC staff submitted a comment letter in response to the CFPB’s request for information (RFI) seeking input on ways to provide additional clarity under the Equal Credit Opportunity Act (ECOA) and implementing Regulation B. As previously covered by InfoBytes, the CFPB issued the RFI last July requesting comments on ways to create a regulatory environment that expands credit access and ensures consumers and communities are protected from discrimination with respect to any aspect of a credit transaction. Included in the RFI was a request for input on whether “the Bureau should provide additional clarity regarding its approach to disparate impact analysis under ECOA and/or Regulation B.” Citing to legislative history, the FTC noted that Regulation B explicitly incorporates disparate impact, and stressed that “[a]rticulating a single approach to disparate impact analysis that covers diverse sets of present and future facts and circumstances of discrimination could be difficult and could risk being both over and under inclusive.” The FTC suggested that if the Bureau chooses to provide additional detail regarding its approach to disparate impact analysis, a disclaimer should be included that such information is not intended to “bless” any violations of ECOA and Regulation B, but is rather “intended to provide examples of how the agency might approach a fair lending matter.”

    In response to the Bureau’s request for information about ways it might support efforts to meet the credit needs of small businesses, the FTC highlighted recent enforcement actions involving small businesses, including actions involving deceptively advertised financial products and unfair billing and collection practices, particularly with respect to merchant cash advances. The FTC also urged the Bureau to remind entities offering credit to small businesses that ECOA and Regulation B apply and that entities cannot avoid application of these statutes based solely on how they characterize a transaction or the benefits they claim to provide. The FTC further stressed that collecting small business lending demographic data could aid in enforcement efforts, as would encouraging small businesses to report misconduct and refer complaints to the FTC and the states. In addition, the FTC highlighted the importance of educating small businesses about different products and terms, as well as potential law violations, which could assist small businesses in comparing products resulting in less expensive financing options.

    Federal Issues CFPB FTC ECOA Regulation B Disparate Impact Small Business Lending Merchant Cash Advance

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  • OFAC issues amended Venezuela-related general license, sanctions Venezuelan officials

    Financial Crimes

    On January 4, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License (GL) 31A and an amended related frequently asked question. GL 31A authorizes certain transactions and activities involving the IV Venezuelan National Assembly, the Interim President of Venezuela, and certain other persons that would otherwise be prohibited by Executive Order (E.O.) 13884, as incorporated into the Venezuela Sanctions Regulations. (See previous InfoBytes coverage here.)

    Additionally, earlier on December 30, OFAC announced sanctions pursuant to E.O. 13692 against two Venezuelan government officials who presided over the trials of six U.S. persons in Venezuela. According to OFAC, the six executives’ trials “were based on politically motivated charges and marred by a lack of fair trial guarantees.” As a result, all property and interests in property belonging to the identified individuals subject to U.S. jurisdiction are blocked, and “any entities that are owned, directly or indirectly, 50 percent or more by the designated persons are also blocked.” U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons.

    Financial Crimes OFAC Department of Treasury Venezuela Sanctions Of Interest to Non-US Persons OFAC designations

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  • OFAC reaches settlement with Saudi Arabian bank to resolve Sudanese and Syrian sanctions violations

    Financial Crimes

    On December 28, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $653,347 settlement with a Saudi Arabian bank to resolve 13 apparent violations of the Sudanese Sanctions Regulations, or section 2(b) of Executive Order (E.O.) 13582, which prohibits certain transactions with respect to Syria. According to OFAC’s web notice, between 2011 and 2014, the bank processed—directly or indirectly—13 U.S. dollar (USD) transactions totaling more than $5.9 million “to or through the United States in circumstances where a benefit of [the bank’s] service was received by Sudanese or Syrian counterparties, or that involved goods originating in or transiting through Sudan or Syria.” OFAC noted that the apparent violations began after the bank had implemented more robust compliance measures, “including those relating to sanctions screening and OFAC sanctions compliance.”

    In arriving at the settlement amount, OFAC considered various aggravating factors, including that the bank “conferred substantial economic benefit to U.S.-sanctioned parties,” causing “significant harm to the integrity of U.S. sanctions programs and their associated policy objectives.”

    OFAC also considered various mitigating factors, including that the bank (i) did not willfully intend to violate U.S. sanctions law or recklessly disregard its sanctions obligations; (ii) cooperated with the investigation and signed a tolling agreement; and (iii) has undertaken remedial measures and has enhanced its compliance controls and internal policies, including by requiring the screening of all payments against international sanctions lists and prohibiting the opening of USD accounts for any Sudanese customers or financial institutions.

    Financial Crimes OFAC Department of Treasury Enforcement Sanctions Syria Sudan Of Interest to Non-US Persons OFAC designations

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  • NY bill requires licensing for all commercial financing under $500K

    On January 6, a member of the New York Senate introduced S1061, which would update the New York Banking Law (the “Law”) to require a license for persons or entities engaging in the business of making or soliciting a “commercial financing product” in New York. The legislation defines a commercial financing product as “any advance of funds to a commercial or business enterprise made for the purpose of assisting the business with its capital needs,” including (i) loans made to a commercial enterprise of $500,000 or less; (ii) asset-based financing in the amount of $500,000 or less; and (iii) leasing transactions in the amount of $500,000 or less.

    “Making or soliciting” includes:

    • Providing commercial financing products to small businesses;
    • Marketing commercial financing products for providers of commercial financing products;
    • Receiving compensation from a provider of a commercial financing product in exchange for a referral; and
    • An entity that partners with a federal or state banking organization originator and the entity: (i) acquires a participation interest in the commercial financing product, if the entity either (a) receives compensation from the originator or (b) services the commercial financing product; or (ii) provides indemnity or loss protection to the originator for losses the originator may incur based on the performance of the commercial financing product.

    The legislation would exempt banking organizations as defined by the Law (all banks, trust companies, private bankers, savings banks, safe deposit companies, savings and loan associations, credit unions and investment companies), any lender who makes or solicits five or fewer commercial financing products within a 12-month period, and check casher licensees, among others. Notably, the legislation does not currently contemplate any changes to existing Section 340, Article 9 of the Law, which generally requires licensure to originate commercial-purpose loans in New York of $50,000 or less with a rate above 16 percent.

    Licensing State Issues Small Business Lending State Legislation Commercial Finance Merchant Cash Advance

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  • New York enacts commercial lending disclosure requirements

    State Issues

    On December 23, the New York governor signed S5470, which establishes consumer-style disclosure requirements for certain commercial transactions. For open and closed-end commercial financing transactions, the legislation requires that the disclosures include, among other things, (i) the amount financed or the maximum credit line; (ii) the total cost of the financing; (iii) the annual percentage rate; (iv) payment amounts; (v) a description of all other potential fees and charges; and (vi) prepayment charges. Violations are subject to a civil penalty no greater than $2,000 per violation. Notably, the legislation exempts (i) financial institutions (defined as a chartered or licensed bank, trust company, industrial loan company, savings and loan association, or federal credit union, authorized to do business in New York); (ii) lenders regulated under the federal Farm Credit Act; (iii) commercial financing transactions secured by real property; (iv) technology service providers; (v) lenders who make no more than five applicable transactions in New York in a 12-month period; and (vi) any individual commercial financing transaction over $500,000. The legislation is effective 180 days after enactment.

    As previously covered by InfoBytes, California is currently finalizing proposed regulations implementing the requirements of the commercial financing disclosures required by SB 1235 (Chapter 1011, Statutes of 2018), which was enacted in September 2018. The California Department of Financial Protection and Innovation previously signaled its intent to finalize the regulations by January 2021.

    State Issues Small Business Lending State Legislation Commercial Finance Merchant Cash Advance Disclosures

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  • CFPB denies guaranty agency’s petition to set aside CID

    Federal Issues

    On December 16, the CFPB denied a petition by a non-profit guaranty agency that serves as a guarantor of federal student loans to set aside a civil investigative demand (CID) issued by the Bureau last September. The CID requested information from the company to determine, among other things, whether “debt collectors, guaranty agencies, or associated persons” violated the CFPA’s UDAAP provisions by improperly causing borrowers to incur costs or fees in connection with the collection of student loans. The company petitioned the Bureau to set aside the CID. Among other things, the company argued that the Bureau lacked jurisdiction, because it does not provide a consumer financial product or service, but rather a commercial service to the Department of Education (Department). The company also argued that the Bureau lacked jurisdiction due to the company’s fiduciary relationship with the Department, citing a Memorandum of Understanding (MOU) between the Bureau and the Department related to their respective responsibilities for handling student borrower complaints. Additionally, the company claimed that any potential allegations are time-barred, and that, in the alternative, the CID should be stayed until the U.S. District Court for the District of Columbia issues a decision in a pending lawsuit challenging the validity of the Department’s Guaranty Agency Collections Fee Rule.

    The Bureau rejected the company’s request to set aside or modify the CID, finding that (i) it has a “reasonable basis to investigate” whether guaranty agencies, like the company, fall within its jurisdiction; (ii) the CID is proper because it seeks information “relevant to a violation” of consumer financial protection laws, as well as information related to the company’s relationships with private collection agencies and loan servicers; (iii) the Bureau’s MOU with the Department has “no relevance” to the Bureau’s exercise of its investigative or enforcement authority; (iv) its investigation is not time-barred because the CFPA’s statute of limitations begins to run upon the Bureau’s discovery of the violation, and, moreover, the Bureau is not limited to gathering information from only within the limitations period; and (v) the company “fail[ed] to establish any basis for an indefinite stay of the CID.”

    Federal Issues CFPB Enforcement CIDs Guaranty Agency CFPA UDAAP

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  • OFAC sanctions Iraqi militia leader for human rights abuse

    Financial Crimes

    On January 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against an Iraqi militia leader for his alleged connection to serious human rights abuses. According to OFAC, the sanctions are taken pursuant to Executive Order 13818, which implements the Global Magnitsky Human Rights Accountability Act and “targets perpetrators of serious human rights abuse and corruption.” As a result of the sanctions, all of the militia leader’s property and interests in property that are in the United States, as well as any entities that are owned 50 percent or more by him are blocked and must be reported to OFAC. Additionally, OFAC regulations “generally prohibit” U.S. persons from participating in financial transactions with the individual and blocked entities.

    Financial Crimes OFAC Department of Treasury Iraq Sanctions Of Interest to Non-US Persons OFAC designations

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  • States seek to invalidate OCC true lender rule


    On January 5, the New York attorney general, along with the attorneys general from six other states and the District of Columbia filed a complaint against the OCC in the U.S. District Court for the Southern District of New York challenging the OCC’s “true lender” final rule. As previously covered by InfoBytes, in October 2020, the OCC issued a final rule addressing when a national bank or federal savings association is the “true lender” in the context of a partnership between a bank and a third party to provide certainty about key aspects of the legal framework that applies. The final rule amends 12 CFR Part 7 to state that a bank makes a loan when it, as of the date of origination, (i) is named as the lender in the loan agreement, or (ii) funds the loan. The complaint argues, among other things, that the OCC exceeded its statutory authority, and “acted in a manner contrary to centuries of case law [and] the OCC’s own prior interpretation of the law.” The attorneys general reject the OCC’s contention that the final rule is intended to address “‘ambiguity’ in provisions of three federal banking statutes that generally authorize National Banks to make loans,” and instead argue that the rule seeks to preempt state usury law and “infringe on the States’ historical police powers and facilitate predatory lending.” The complaint seeks a declaratory judgment that the OCC violated the Administrative Procedures Act and requests the court set aside the final rule as unlawful. 

    Courts State Attorney General OCC True Lender Valid When Made State Issues

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  • CFPB taskforce releases recommendations for modernizing consumer financial marketplace

    Federal Issues

    On January 5, the CFPB Taskforce on Federal Consumer Financial Law released a two volume report with approximately 100 recommendations on ways the CFPB, Congress, and state and federal regulators can improve and modernize the legal and regulatory environment for the consumer financial services market. The report is the end-product of a request for information issued by the taskforce last March (covered by InfoBytes here). The report’s first volume provides a historical and economic overview of the legal and regulatory landscape for consumer finance, and explores issues related to consumer financial protection, competition, innovation, and financial inclusion. The second volume outlines more than 100 proposed recommendations for strengthening consumer protections and maintaining competition in the financial marketplace. Among these are recommendations related to the regulation of non-banks and fintech companies, including:

    • Recommending that Congress either (i) “authorize the Bureau to issue licenses to non-depository institutions that provide lending, money transmission, and payments services,” with licenses “provid[ing] that these institutions are governed by the regulations of their home states, even when providing services to consumers located in other states,” or (ii) “clarify that the OCC has the authority to issue charters to non-depositories engaged in lending, money transmissions, or payment services.” Acting Comptroller of the Currency, Brian P. Brooks released a statement the next day endorsing the need for federal charters for fintech companies, but stressed that the OCC, not the Bureau, should be responsible for granting national charters;
    • Identifying and addressing competitive barriers and making appropriate recommendations to policymakers and regulators for expanding access to the payments systems by non-bank providers;
    • Recommending that the Bureau weigh the costs and benefits of preempting state law where potential conflicts “can impede provision of valuable products and services, such as the regulation of [fintech] companies engaged in money transmission”; and
    • Ensuring that fintech companies with multistate operations are subject to a single set of laws to promote consistency, reducing unnecessary regulatory costs, and promoting competition.

    The taskforce further recommends that the Bureau establish an independent review of its regulatory cost-benefit analyses, and calls for increased regulatory coordination between the Bureau and other federal and state regulators. Other recommendations address, among other things, the use of alternative data; suggested changes to the Bureau’s internal organization; competition in the consumer financial marketplace, including with respect to the cost of credit, the effect and burden of state licensure requirements, and settlement servicing prices; consumer credit reporting, including clarifying the obligations of credit reporting agencies and furnishers with respect to dispute investigations; consumer empowerment and education; equal access to credit and financial inclusion; disclosure requirements; electronic signatures and document requirements; disparate impact; privacy; small dollar credit; and enforcement and supervision.

    Federal Issues CFPB Agency Rule-Making & Guidance Consumer Finance Consumer Protection Fintech OCC

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