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Nevada AG Issues Advisory Opinion Finding Assignment of a Retail Installment Sales Contract Does Not Subject Assignee to Licensure or Regulation Under Ch. 675 of the NV Code
Last month, the Office of the Attorney General for the State of Nevada (OAG) issued an Advisory Opinion[1] finding that a retail seller financing its own sales pursuant to the retail installment sales contract (RISC) provisions found in Chapter 97 of the Nevada Revised Statutes (NRS), but which is otherwise not engaging in lending activity, is not required to secure a lender’s license under Chapter 675 of the NRS. In reaching this conclusion, the OAG references another opinion[2]it had issued earlier this year concerning retail installment lending, and noted that “[w]hen a retail seller finances its own sales pursuant to the provisions of Chapter 97, but otherwise engages in no lending activity, the retailer's business activity is governed exclusively by the provisions of Chapter 97” (emphasis added). In light of this earlier holding, the OAG reasoned as follows:
[W]hen a person purchases or takes an assignment of a RISC pursuant to the provisions of Chapter 97 of the NRS, the person’s acceptance of the assignment does not subject the person to regulation or licensure under NRS Chapter 675. Assuming that the person is not independently engaged in lending activity subject to licensure and regulation under NRS Chapter 675, the person’s financing activity is governed exclusively by the provisions of NRS Chapter 97. To the extent that a vehicle dealer adopts the contractual terms of the form RISC as prescribed by the Commissioner in accordance with Chapter 97, the vehicle dealer is permitted to assign the RISC to a financial institution. Although it applies in general terms to certain types of lending activity, NRS Chapter 675 does not specifically abrogate the exclusive provisions of Chapter 97 that govern the parties to a RISC made and assigned pursuant to Chapter 97.
Notably, the Opinion was issued in response to a request from the Commissioner of the Financial Institutions Division of the Nevada Department of Business and Industry (NDBI), seeking a “formal opinion” regarding certain indirect vehicle financing transactions that use the form retail installment contract prescribed for use in the sale of vehicles pursuant to NRS 97.299. Specifically, the Commissioner sought an opinion addressing “[w]hether a financial institution that purchases Retail Installment Sales Contracts ("RISC[ s ]") from motor vehicle dealers in the State of Nevada (i.e. engages in indirect financing) is required to be licensed pursuant to Chapter 675 of the NRS[.]” The Commissioner also requested clarification addressing “[w]hether NRS Chapter 675 requires such a financial institution to have an in-state physical presence[.]”
Comptroller Curry Shares Departing Thoughts on the Fintech “Wave of Innovation” at Conference
In prepared remarks delivered on April 28 at a fintech conference hosted by Northwestern University, Thomas J. Curry—who on May 5, will be stepping down from his role as Comptroller after completing his five-year term—took the opportunity to “share [his] perspective on where financial innovation is today,” as well as what he believes the OCC “is doing to encourage responsible innovation within the banking system.” In so doing, the departing Comptroller also addressed some of the criticism received by the OCC over its recent efforts to move forward with developing a special purpose national bank charter for fintech companies. (See related InfoBytes coverage here.) Among other things, Curry noted that, for him, “one of the most exciting parts of this [fintech] wave of innovation is the potential for technology to expand access to the unbanked and underserved, in the same way that the Internet helped democratize information.” On this point, he explained further that “[d]ata from the FDIC and others show that minorities and other traditionally underserved populations may embrace fintech at even higher rates than the general population.” The outgoing Comptroller also highlighted several ways the OCC’s Office of Innovation is already working to enhance the delivery of financial products and make banking more efficient, including, for instance, its recently-unveiled “Office Hours” initiative, which was created to provide a new means by which stakeholders can seek regulatory guidance. Curry did, however, caution the audience about the importance of proceeding “cautiously,” so as to avoid “compromis[ing] the integrity of the banking system” and/or “allow[ing] untested products to result in unintended consumer harm.”
According to an OCC press release, Curry will be replaced by Keith Noreika, who is slated to become Acting Comptroller of the Currency on May 5, until President Trump appoints, and the Senate confirms, a new comptroller. Noreika began his career in private practice and has advised banks on Volcker Rule, Bank Secrecy Act, and consumer protection regulation compliance and has worked extensively with all of the federal bank regulatory agencies.
Gov. Cuomo Announces New Title Insurance Regulations Target Business Gifts, Ancillary Fees and Transactions with Affiliates
On May 1, New York Governor Andrew M. Cuomo announced two new proposed regulations to “crack down on unscrupulous practices in the title insurance industry.” According to the Governor, the proposed measures were drafted in response to an investigation by the state Department of Financial Services (“NYDFS”), which found that “meals, entertainment, gifts” and other “inducements” provided in exchange for referring business to a title insurance company or agents, were charged to customers under the guise of “marketing expenses.” The first proposed regulation would, among other things, clarify the rules about “meals and entertainment” expenses, and other ancillary fees that title agents or title insurers may charge a customer. The second proposed regulation would require title insurance companies or agents that generate a portion of their business from affiliates to function separately and independently from any affiliate and obtain business from other sources. Importantly, a press release issued by NYDFS explains that “emergency” versions of both of these regulations have already been adopted by NYDFS (in response to the aforementioned investigation). As explained by NYDFS, the emergency rules, which are currently in effect, will remain in effect until final regulations are adopted.
West Virginia Enacts Law Defining "Cryptocurrency" in Context of Money Laundering
On April 26, West Virginia Governor Jim Justice approved new legislation (H.B 2585) that defines cryptocurrency in the context of money laundering. Specifically, “cryptocurrency” is defined as “digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, and which operate independently of a central bank.” Furthermore, the term “monetary instruments”—traditionally defined, for example, as coin, currency, checks, gift and prepaid credit cards—would now include cryptocurrency. With respect to the anti-money laundering clause, the legislation makes it unlawful to “conduct or attempt to conduct a financial transaction,” which would include cryptocurrency transactions, “involving the proceeds of criminal activity knowing that the property involved in the financial transaction represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity.” H.B. 2585 also outlines penalty structures for violations of the legislation—misdemeanor or felony charges depending on the severity of the crime—and allows for forfeiture or disgorgement of cryptocurrency.
Federal Regulators Enter Settlement Agreement with Former Chief Compliance Officer Following AML Program Investigation
On May 4, FinCEN and the U.S. Attorney’s Office for the Southern District of New York announced a $250,000 settlement with the former chief compliance officer of an international money transfer company over allegations that he failed to report suspicious activity and knowingly participated in the company’s failure to maintain an effective anti-money laundering program. The settlement resolves a lawsuit filed in December of 2014 against the defendant, in which the district court dismissed the defendant’s motion to dismiss, ruling that the Bank Secrecy Act’s (BSA) general civil penalty provision, § 5321(a)(1), could subject a partner, director, officer, or employee of a financial institution to civil penalties for violations of any provision of the BSA or its regulations, excluding the specifically excepted provisions, and that because § 5318(h) was not listed as one of those exceptions, “the plain language of the statute provides that a civil penalty may be imposed on corporate officers and employees like [the defendant], who was responsible for designing and overseeing [the company's] AML program.” U.S. Dep’t of Treasury v. Haider, No. 15-cv-01518, WL 107940 (Dist. Ct. Minn. Jan. 8, 2016). (See previous InfoBytes summary.) In the stipulation and order of settlement and dismissal, the defendant (i) accepted responsibility for failing to further investigate consumer fraud reports; (ii) is required to pay $250,000 to the Department of the Treasury; and (iii) is banned for three years from performing compliance functions for other U.S.-based money transmitters. Notably, in February 2016, the money transfer company agreed to pay $13 million to settle claims from 49 states and the District of Columbia over charges that it transferred money to third parties that were defrauding customers. As part of the company’s settlement, it was required to ensure its agents attend mandatory compliance training, enhance its comprehensive anti-fraud compliance program, and implement a hotline system for employees to report noncompliance.
OCC Names New Senior Leadership in Midsize and Community Bank Supervision
On May 2, the OCC announced the promotion of two long-time OCC employees to leadership roles within its Community Bank Supervision unit. Starting this May, Scott Schainost will serve as one of two deputies responsible for overseeing the supervision of midsize national banks and federal savings associations where he will oversee a portfolio of companies with assets generally ranging from $5 billion to $60 billion, as well as a number of nationally chartered institutions. This is a new position created to enhance the supervision of midsize banks. Schainost – who has held a variety of positions at the OCC during his 33 years at the agency – started his career as an Assistant Bank Examiner in Kansas City, before moving on to supervise banks of all sizes.
Beginning this June, Troy Thornton will serve as the head of one of the OCC’s four districts that make up community bank supervision, where he will oversee the supervision of more than 390 national banks, federal savings associations, and trust companies, while also overseeing 28 technology service providers spread over nine states from Texas to Florida. His responsibilities will include managing staff in 21 field and satellite offices throughout the district. Thornton began his career at the OCC 31 years ago as a Field Examiner in Texas. He is filling a vacancy left by Gilbert Barker’s retirement in November 2016.
FDIC Releases May List of CRA Compliance Examinations
On May 3, the FDIC published its monthly list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). The list reports CRA evaluation ratings assigned to institutions in February 2017. Monthly lists of all state nonmember banks and their evaluations that have been made publicly available can be accessed through the FDIC’s website. As noted by the FDIC, the CRA is “intended to encourage insured banks and thrifts to meet local credit needs, including those of low- and moderate-income neighborhoods, consistent with safe and sound operations.”
Advocacy Organization Argues Need for CFPB Prepaid Rule Communications Before CRA Vote
On April 28, an advocacy organization filed a reply to the CFPB’s opposition for expedited handling of two FOIA requests issued to the Bureau on April 12. The organization filed a lawsuit in the U.S. District Court for the District of Columbia on April 18 contending that the Bureau failed to comply with a statutory expedition processing request, and asserts that there is a “compelling need” for information that would enable the public to learn about efforts to influence the government's policymaking process before a proposed Congressional vote in mid-May to overturn the CFPB’s Prepaid Rule. The organization further argues—despite the Bureau’s assertions to the contrary—that in order to fulfill its mission it is “primarily engaged in disseminating information” with its public education efforts, and therefore, like others whose requests have been granted expedited processing, has “met the dissemination of information as a primary activity” requirement (citing Leadership Conference on Civil Rights v. Gonzales, 404 F. Supp. 2d 246, 260 (D.D.C. 2005)). Additionally, the organization claims that its FOIA requests pertain to issues for which there is an “urgency to inform the public” because of an imminent deadline under the Congressional Review Act (CRA), which “permits Congress to overrule a regulation within a certain amount of time after its promulgation.” Specifically, the FOIA requests seek access to communications about the Prepaid Rule between the CFPB and 12 Senators, and between the Bureau and two prepaid companies. The organization is asking the court to order the Bureau to take whatever steps are necessary to comply with the FOIA requests prior to the CRA vote on the Prepaid Rule.
PHH v CFPB Update: D.C. Circuit Grants CFPB’s Request to Go Last at May 24 En Banc Oral Arguments
In an per curium order handed down on May 1, the U.S. Court of Appeals for the D.C. Circuit granted an uncontested motion brought by the CFPB seeking to revise the order of the oral arguments in the upcoming PHH Corp. v. CFPB hearing before the en banc court. With all briefing on the merits having been submitted, the case awaits oral arguments, which have been set for May 24. The Bureau sought to change the order of arguments such that the CFPB presented its argument last—after both PHH and the DOJ. In seeking a change in scheduling order, the CFPB argued that the original schedule—pursuant to which the DOJ would go last—did not afford the Bureau an opportunity to respond to the DOJ’s arguments. The Court’s May 1 Order, having granted the Bureau’s Motion, provides for the following argument order:
- Petitioners (PHH Corp.) – 30 minutes
- Amicus Curiae United States – 10 minutes
- Respondent (CFPB) – 30 minutes
Also, note that the CFPB’s motion agrees-in-advance to PHH to likewise respond to both the DOJ and CFPB, should it wish to do so.
As previously discussed in InfoBytes, the once-cooperative relationship between the CFPB and the DOJ recently turned adverse after the Sessions-led DOJ presented arguments in its latest briefing that differed markedly from both the CFPB’s positions and from the arguments asserted in briefing submitted by the Obama Administration in December 2016. For additional background, please see our recent PHH Corp. v CFPB Case Update.
FDIC Releases List of Enforcement Actions Taken Against Banks and Individuals in March 2017
On April 28, the FDIC released its list of 24 administrative enforcement actions taken against banks and individuals in March. Among the consent orders on the list are civil money penalties for violations of the Food Disaster Protection Act of 1973 and its flood insurance requirements. An additional six actions listed relate to unsafe or unsound banking practices and breaches of fiduciary duty, including five removal and prohibition orders. There are no administrative hearings scheduled for May 2017. The FDIC database containing all of its enforcement decisions and orders may be accessed here.