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Financial Services Law Insights and Observations


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  • SBA releases PPP guidance as portal reopens

    Federal Issues

    On January 19, the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) loan portal re-opened to all participating lenders (covered by InfoBytes here). To assist lenders, the SBA released an interim final rule, consolidating prior rules related to PPP loan forgiveness and incorporating changes made by the Economic Aid Act. The interim final rule also addresses conflict of interest provisions and related disclosure requirements, and applies to PPP loans for which loan forgiveness payments have not been remitted by the SBA as of December 27, 2020. To assist lenders, the SBA also issued a set of frequently asked questions addressing how to calculate revenue reduction and maximum loan amounts for Second Draw PPP loans, as well as documents borrowers must provide to substantiate their calculations. The SBA reiterated that borrowers and lenders may rely on this guidance as the agency’s interpretation of the CARES Act, the Economic Aid Act and the PPP interim final rules (covered by InfoBytes here), emphasizing that the “government will not challenge lender PPP actions that conform to this guidance and to the PPP interim final rules and any subsequent rulemaking in effect at the time the action is taken.”

    In preparation for the re-opening, the SBA also released guidance for lenders on calculating the maximum amount for First Draw PPP loans. The guidance outlines documentation requirements for different types of businesses, and advises lenders handling second-draw loans to make sure the loan number for a borrower’s first-draw PPP loan is included on the second-draw application. The SBA also released two procedural notices. The first notice informs PPP lenders of the process for borrower resubmission of loan forgiveness applications (see SBA Form 3508S, SBA Form 3508EZ, and PPP Loan Forgiveness Calculation Form, all revised January 19), as well as lender responsibilities for notifying borrowers of lender and SBA decisions to approve or deny forgiveness in full or in part. The notice also discusses the process for remitting any portion of the loan forgiveness amount by the SBA to the lender, along with offsets of remittances to lenders to cover a lender’s outstanding debts. The second notice addresses PPP excess loan amount errors, and clarifies that borrowers may not receive forgiveness for excess loan amounts, even if “the excess loan amount was caused by borrower error or lender error.”

    Federal Issues SBA CARES Act Covid-19

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  • OFAC updates CAATSA FAQs

    Financial Crimes

    On January 5, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the publication of two new FAQs related to the Countering America’s Adversaries Through Sanctions Act (CAATSA). FAQ 869 states that entities owned 50 percent or more by a person subject to the non-blocking menu-based sanctions in Section 235(a) of CAATSA are not subject to the same non-blocking sanctions. FAQ 870 details the prohibitions of the loan and credit-related sanction described in Section 235(a)(3) of CAATSA. Additionally, OFAC amended FAQ 545 and 546.

    Find continuing InfoBytes covered on CAATSA-related sanctions here.

    Financial Crimes OFAC CAATSA Of Interest to Non-US Persons Sanctions OFAC designations

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  • OFAC issues Syria-related settlement with French bank for $8.5 million

    Financial Crimes

    On January 4, the Department of Treasury’s Office of Foreign Assets Control (OFAC) announced an over $8.5 million settlement with a French bank that facilitates trade finance between Europe and the Middle East, North Africa, sub-Saharan Africa, and Asia for 127 apparent violations of Syria-related sanctions. The 127 apparent violations include: (i) 114 internal transfers on behalf of Syrian entities totaling over $1 billion, with 45 of the transfers processed between two clients, one being a sanctioned Syrian entity and 69 of the transfers conducted as a foreign exchange transaction with a sanctioned Syrian customer; and (ii) 13 “back-to-back” letter of credit transactions or other trade finance transactions involving sanctioned Syrian parties, processed through a U.S. bank.

    In arriving at the settlement amount, OFAC considered various aggravating factors, including that management had “actual knowledge” of the conduct, and 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 (i) the majority of the violations occurred in late 2011, after an August 2011 Executive Order significantly expanded U.S. sanctions against Syria; (ii) the bank voluntarily self-disclosed the apparent violations and cooperated with the investigations; and (iii) had a compliance program in place at the time of the apparent violations.

    Financial Crimes OFAC Sanctions Syria Of Interest to Non-US Persons Settlement OFAC designations

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  • California appellate court concludes lender’s arbitration provision unenforceable


    On January 11, the Court of Appeals of the State of California affirmed the denial of an auto lender’s motion to compel arbitration, concluding that the arbitration clause was invalid and unenforceable. According to the opinion, in May 2019, consumers filed a class action complaint alleging the lenders charged unconscionable interest rates in violation of California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA). The company moved to compel arbitration, which the consumers opposed, arguing that the agreement was “procedurally and substantively unconscionable,” and that the California Supreme Court decision in McGill v. Citibank, N.A. (covered by a Buckley Special Alert here, holding that a waiver of the plaintiff’s substantive right to seek public injunctive relief is not enforceable) applied. The trial court denied the motion to compel arbitration, concluding that the McGill rule applied and that the injunctive relief provision could not be severed from the rest of the arbitration agreement because severability did not apply to the class waiver provision.

    On appeal, the state appellate court agreed with the trial court, concluding that the McGill rule applied. Specifically, the appellate court concluded that the injunctive relief the consumers were seeking “encompasses all consumers and members of the public,” and “an injunction under the CLRA against [the lender]’s unlawful practices will not directly benefit the Customers because they have already been harmed and are already aware of the misconduct.” Moreover, the appellate court determined that there is no precedent holding that “the remedy of public injunctions under CLRA and UCL should be limited to false advertising claims.” The court further concluded that the class waiver was not severable, stating that the lender’s argument that the arbitration agreement could not be determined void until after an appellate court reviews the viability of the class waiver was “illogical.” Accordingly, the appellate court affirmed the denial of the motion to arbitrate.

    Courts State Issues Arbitration Lending Consumer Finance

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  • OCC releases final rule to ensure fair access to financial services

    Agency Rule-Making & Guidance

    On January 14, the OCC released a final rule to ensure that covered national banks, federal savings associations, and federal branches and agencies of foreign bank organizations provide fair access to financial services. The final rule is largely unchanged from the notice of proposed rulemaking (NPRM) issued last November (covered by InfoBytes here). Among other things, the final rule codifies more than a decade of OCC guidance stating that fair access to financial services, capital, and credit should be based on the risk assessment of individual customers, rather than broad-based decisions affecting whole categories or classes of customers. Building upon the principle of nondiscrimination and implementing language included in Title III of Dodd-Frank—“which charged the OCC with ‘assuring the safety and soundness of, and compliance with laws and regulations, fair access to financial services, and fair treatment of customers by, the institutions and other persons subject to its jurisdiction’”—the OCC stressed that the final rule establishes that “a covered bank’s decision to deny services based on an objective assessment would not violate the bank’s obligation to provide fair access.” While banks are still free to make “legitimate business decisions about what and whom to serve” and may still determine their product lines and geographic markets, they are required to make the “products and services they choose to offer available to all customers in the communities they serve, based on consideration of quantitative, impartial, risk-based standards established by the bank.”

    In finalizing the rule, the OCC considered stakeholder comments received in response to the NPRM. In response, the OCC stated that the final rule will not prevent banks from denying or limiting services in an effort to (i) prevent a person from entering or competing in a particular market; or (ii) disadvantage a person in order to benefit another person in which the bank has a financial interest. According to the OCC, this requirement would have created a regulatory burden outside of the primary objectives of the final rule. The final rule affects banks with more than $100 billion in assets and will take effect April 1.

    Separately, the OCC announced the departure of Acting Comptroller of the Currency Brian P. Brooks. Brooks stepped down on January 14, and was replaced by Chief Operating Officer Blake Paulson.

    Agency Rule-Making & Guidance OCC Dodd-Frank Bank Compliance Of Interest to Non-US Persons

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  • CFPB releases LEP statement

    Agency Rule-Making & Guidance

    On January 13, the CFPB released fair-lending guidance for financial institutions that provide services to borrowers with limited English proficiency (LEP). As previously covered by InfoBytes, last July the Bureau issued a request for information that sought, among other things, information on ways to provide clarity under the Equal Credit Opportunity Act (ECOA) and/or Regulation B related to meeting the credit needs of LEP borrowers. During a 2020 roundtable focusing on LEP issues, the Bureau was also urged to publish additional guidance to assist financial institutions in expanding products and services to LEP consumers while also maintaining compliance with statutes and regulations. The Statement Regarding the Provision of Financial Products and Services to Consumers with Limited English Proficiency (Statement) incorporates feedback received from stakeholder groups, advocacy organizations, financial institutions, financial regulators, and trade associations. The Statement addresses, among other challenges, issues “related to balancing legal requirements and practical considerations” and potential UDAAP risks associated with offering support in certain non-English languages but not in others. The Statement further provides principles and guidance to assist financial institutions when making decisions related to assisting LEP consumers. Additionally, the Statement also includes key considerations and guidelines for institutions to use when developing compliance solutions for providing products and services in non-English languages to LEP consumers, while at the same time complying with Dodd-Frank, ECOA, and other applicable laws and regulations.

    Agency Rule-Making & Guidance CFPB Limited English Proficiency Fair Lending ECOA Regulation B Dodd-Frank

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  • CFPB lets QM cure provision expire

    Federal Issues

    January 10 was the sunset date for the QM Rule’s provision allowing creditors to cure loans that exceed the rule’s limitation on points and fees. For transactions consummated prior to January 10, a creditor could cure any loan exceeding the (generally 3 percent) points and fees limit by refunding to the consumer the excess amount plus interest within 210 days of consummation (assuming the borrower had not notified the creditor of the error or become 60 days past due). The cure provision was originally added by the amendments to the ATR/QM Rule published in November 2014 and was always set to expire on January 10, 2021. The new QM rulemakings issued by the CFPB in December 2020 (covered by a Buckley Special Alert) do not extend it or replace the cure provision.

    Federal Issues CFPB Ability To Repay Qualified Mortgage

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  • OCC conditionally approves conversion of digital bank

    Federal Issues

    On January 13, the OCC announced it has conditionally approved a South Dakota non-depository public trust company’s application to convert to a national trust bank. The digital bank—which offers digital asset and cryptocurrency custody services in certain states—has entered into an operating agreement as an enforceable condition of approval, which specifies capital and liquidity requirements and risk management expectations. By receiving a national trust bank charter, the digital bank will be allowed to expand its digital asset custody services nationally and may perform the functions and “activities of a fiduciary, agency, or custodial nature, in the manner authorized by federal and state law” with oversight being conducted by the OCC. According to the OCC, this approval “demonstrates that the national bank charters provided under the National Bank Act are broad and flexible enough to accommodate evolving approaches to financial services in the 21st century.”

    Federal Issues OCC Fintech Cryptocurrency Bank Charter National Bank Act

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  • Illinois legislature passes 36 percent rate cap for all consumer loans

    State Issues

    On January 13, the Illinois legislature unanimously passed the “Predatory Loan Prevention Act,” (available in House Amendment 3 to SB 1792), which would prohibit lenders from charging more than 36 percent APR on all consumer loans. Specifically, the legislation would apply to any non-commercial loan, including closed-end and open-end credit, retail installment sales contracts, and motor vehicle retail installment sales contracts. For calculation of the APR, the legislation would require lenders to use the system for calculating a military annual percentage rate under the Military Lending Act. Any loan made in excess of 36 percent APR would be considered null and void and no entity would have the “right to collect, attempt to collect, receive, or retain any principal, fee, interest, or charges related to the loan.” Additionally, each violation would be subject to a fine up to $10,000.

    State Issues Consumer Lending APR Military Lending Act Usury Interest Rate State Legislation

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  • National bank settles merchant processing fee class action for $40 million


    On January 12, a national bank’s merchant services division agreed to pay up to $40 million to settle a class action alleging that the bank overcharged for payment processing services. According to the November 2017 amended complaint filed in the U.S. District Court for the Eastern District of New York, six small businesses alleged that the bank fraudulently induced merchant customers to enter into contracts by failing to properly disclose rates and charges that applied to their accounts. Specifically, the plaintiffs alleged that the bank induced merchants to retain its card payment processing services by promising low card processing fees at the time of enrollment but then charged higher rates and surcharges for the “vast majority of transactions.” Plaintiffs also alleged that the bank used an “upcharge” method, in which customers contract for “fixed” processing fees, but that the vast majority of transactions are ultimately deemed “non-qualified” and charged at higher rates than disclosed. Additionally, the bank allegedly told potential merchant customers that they could “cancel at any time without penalty,” when merchant customers that canceled prior to the expiration of the contract term were charged an “early termination fee [] of several hundred dollars.”

    Under the proposed settlement, the bank will pay up to $40 million—and no less than $27 million—to class members and cover attorneys’ fees and expenses, service awards, and settlement administration costs. Additionally, the bank, among other things, has agreed to (i) continue to allow customers to switch, penalty-free to a newer standard pricing plan from the fixed pricing plan; and (ii) modify contract terms to allow customers to leave without termination fees within 45 days of being assessed new or increased fees.

    Courts Merchant Services Class Action Payment Processors

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