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International Trade Organizations Release “Trade Finance Principles”; Quarterly Analysis of Global Financial Market
On January 24, the Banking Commission of the International Chamber of Commerce (“ICC”) and the Bankers Association for Finance and Trade (“BAFT”) jointly announced the publication of The Wolfsberg Group, ICC and BAFT Trade Finance Principles (“Trade Finance Principles”), a replacement to the 2011 Wolfsberg Group Trade Finance Principles paper, which now addresses “due diligence required by global and regional financial institutions of all sizes in the financing of international trade.” The Trade Finance Principles outline the standard for controlling the risks of financial crime, including but not limited to “tax evasion, fraud, human trafficking, bribery and corruption, terrorist financing, the financing of proliferation of weapons of mass destruction, and other related threats to the integrity of the international financial system.” In addition, the Trade Finance Principles require the management processes undertaken by financial institutions to “address the risks of financial crime associated with Trade Finance activities.”
Separately, on March 6, the Bank for International Settlements released its Quarterly Review—an analysis that examines current global financial market trends and the uncertainty regarding potential fiscal and monetary policy changes in the changing political environment.FinCEN Releases Third Edition of SAR Stats Technical Bulletin
On March 9, the Financial Crimes Enforcement Network released SAR Stats Issue 3, which is a yearly report of Suspicious Activity Report (SAR) statistics compiled through Dec. 31, 2016. This report provides nationwide and state/territory-specific suspicious activity data. Issue 3 covers the following industry types: depository institutions, money services business, securities and futures firms, insurance companies, casinos and card clubs, loan or finance companies, housing government sponsored entities, and other types of financial institutions.
CFPB Denies Data Provider’s Petition to Set Aside CID
In a Decision and Order released last month, the CFPB denied a Petition to set aside or modify a civil investigative demand (CID) directed to a data provider (“Petitioner”). The order also directed Petitioner to produce responsive information within 10 calendar days.
The CFPB originally issued the CID on January 5 in connection with its efforts to gather information about Petitioner’s business, products, services, and operations. According to Petitioner, the stated purpose of the CID “purport[ed] to exercise jurisdiction over [Petitioner] under the Fair Credit and Reporting Act (‘FCRA’) or under ‘any other federal consumer financial law.’” On January 25, Petitioner moved to set aside or modify the CID arguing, among other things, that: (i) the Bureau lacks jurisdiction over Petitioner because Petitioner is neither a consumer reporting agency (“CRA”), nor a “covered person” or “service provider” under a “federal consumer financial law”; (ii) the CID’s Notification of Purpose is impermissibly vague in that it fails to adequately state the “nature of the conduct constituting the alleged violation” and/or “the provision of law applicable to such violation”; and (iii) the CID is “impermissibly overbroad and seeks information which cannot possibly be related to or reasonably relevant to the inquiry at hand (which itself remains unclear and undefined).”
Ultimately, the CFPB determined that none of three objections raised by Petitioner “warrant[ed] setting aside or modifying the CID.” In response to the argument that the CFPB lacks jurisdiction, the Bureau interpreted its authority under the Consumer Financial Protection Act to include investigative authority to issue CIDs to “any person” who may have information “relevant to a violation” of any federal consumer financial law, regardless of whether that person or entity is subject to CFPB authority. In response to Petitioner’s argument regarding the vagueness of the CID’s Notification of Purpose, the Bureau stated that the argument fails because “it is well settled that the boundaries of an agency investigation may be drawn ‘quite generally.’” Finally, as to Petitioner’s objection that the CID was overbroad and/or sought irrelevant information, the Bureau concluded that this was merely a restatement of the jurisdictional argument and fails for the same reasons. The CFPB explained that the question of whether Petitioner is properly subject to CFPB authority need not be answered at the outset of an investigation, because it is the type of question “the investigation is designed and authorized to illuminate.”
PA Department of Banking & Securities Releases Consumer Pamphlet on Credit Reporting
On March 7, the Pennsylvania Department of Banking and Securities announced it has published a new brochure to help consumers better understand what information should be included in their credit report and what steps to take if there is an issue.
FDIC Advisory Committee on Community Banking to Host Open Meeting on March 28
The Federal Deposit Insurance Corporation’s Advisory Committee on Community Banking will host an open meeting on Tuesday, March 28, 2017, at 9 a.m. The Advisory Committee will provide advice and recommendations on a broad range of policy issues that have particular impact on small community banks and the local communities they serve, with a focus on rural areas.
In a Split Decision, D.C. Circuit Denies John Doe Company’s Request to Remain Anonymous Pending Appeal Challenging CFPB Subpoena; Judge Kavanaugh Dissents, Reiterates Critique of CFPB
On March 3, 2017, the U.S. Court of Appeals for the District of Columbia Circuit denied the request of an anonymous California-chartered, finance company based in the Philippines to remain anonymous pending the resolution of its challenge to a CFPB administrative subpoena. See John Doe Co. v. CFPB, March 3, [Order] No. 17-5026 (D.C. Cir. Mar. 3, 2017) (per curiam). In a 2-1 decision, the court found that the company had failed to show either that it was likely to succeed on the merits of its challenge to the CFPB’s constitutionality, or that it was likely to suffer irreparable harm from being identified as being under investigation. In denying the company’s motion, the panel majority emphasized, among other things, the fact that “[t]he Company’s sole argument regarding likelihood of success on the merits before this court and the district court has been to point to the now-vacated majority opinion in PHH.” Judge Kavanaugh—who back in October, assailed the “massive, unchecked” power of the single director-led CFPB—filed a dissenting opinion, in which he reiterated his call for how to fix the CFPB: namely, giving the president greater power to remove the agency’s director.
As previously covered on InfoBytes, back in January, the John Doe finance company filed an action seeking to set aside or keep confidential a “civil investigative demand” served on the Company by the CFPB as part of an industry-wide investigation against companies that buy and sell income streams. The Company argued both that the CFPB had strayed outside the scope of its authority, and that in light of the pending challenge to the constitutionality of its structure in a separate case (PHH v CFPB), the Bureau should be barred from pursuing any investigation until the questions about its constitutionality are resolved. Fearing that the CFPB would post documents on its website revealing its identity, the company also sought a temporary restraining order to enjoin the CFPB from, among other things, disclosing the existence of its investigation and taking any action against the company unless and until the CFPB is constitutionally structured. John Doe Co. v. CFPB, D.D.C., No. 17-cv-00049 (D.D.C. Jan. 10, 2017). As covered in a recent BuckleySandler Special Alert, however, the D.C. Circuit on February 16, vacated the October 2015 panel decision in PHH v CFPB and will now rehear the case en banc.
Payroll Card Regulations in New York Are Struck Down
In a Decision released on February 16, the New York Industrial Board of Appeals struck down the portions of a New York Department of Labor regulation (12 NYCRR 192), set to go into effect on March 7, that would have restricted a New York employers’ ability to pay its employees via payroll debit card. Specifically, the board ruled that the Department had exceeded its authority under New York labor law and encroached upon the jurisdiction of banking regulators when imposing fee limits and other restrictions on the cards.
The new rule – which was adopted by the Department of Labor in September 2016, and codified at section 192 of the New York Labor Law – set forth numerous regulations clarifying and/or specifying the acceptable methods by which employers in New York State may pay wages to certain employees. Among other things, the regulation required that an employer provide written notice to the employee and obtain written consent from the employee at least seven business days prior to taking action to issue the payment of wages by payroll debit card. The new rule would also have prohibited many fees, including charges for monthly maintenance, account inactivity and overdrafts, and for checking a card’s balance and contacting customer service.
At issue before the Industrial Board of Appeals was a petition submitted by a single payroll debit card vendor challenging the Department of Labor’s authority to regulate payroll debit cards. Ultimately, the Board agreed with the vendor, finding that the Department sought to improperly regulate banking services provided by financial institutions – an area subject to the exclusive jurisdiction of the New York Department of Financial Services. In reaching this holding, the Board noted that that the Department of Financial Services already regulates and has issued guidance concerning the fees that financial institutions may charge for banking services, including those related to checking accounts and licensed check cashers. The Board also noted that, should the Department of Labor wish to challenge the Decision, it may bring an Article 78 proceeding in New York Supreme Court, or, alternatively, it may choose to revise the Prepaid Card-related provisions identified in the Decision.
FCC, FTC Issue Joint Statement on Broadband Data Security Regulation; Senate Resolution Introduced to Repeal FCC Privacy Rules
On March 1, FCC Chairman Ajit Pai and acting FTC Chairman Maureen K. Ohlhausen issued a Joint Statement announcing an FCC Order (Stay Order) staying the enactment of certain data security provisions (§ 64.2005) adopted by the Commission late last year as part of its Broadband Privacy Order while the Commission and Congress consider an appropriate resolution of the broader Net Neutrality proceeding. Absent a stay, the rule was set to go into effect on March 2. Separate and apart from explaining the Stay Order, the Joint Statement effectively serves as a commitment by both the FCC and FTC to return “jurisdiction over broadband providers’ privacy and data security practices … to the FTC, the nation’s expert agency with respect to these important subjects.” Moreover, the statement also highlights what might be considered a guiding principle behind the new leadership at both the FCC and the FTC – namely, that “[a]ll actors . . . should be subject to the same rules” and “[t]he federal government shouldn’t favor one set of companies over another.”
The Stay Order arose out of an October 2016 decision to amend the Broadband Privacy Order to include new “sector-specific privacy rules” that the FCC determined were “necessary to address the distinct characteristics of telecommunications services.” This final version, the Broadband Privacy Order – was published in the Federal Register (81 Fed. Reg. 87,274) on December 2, 2016.
This amendment marked a substantial change from the original language included in the order as proposed back in March 2016, where the Commission “propose[d] to apply the traditional privacy requirements of the Communications Act to . . . broadband Internet access service (BIAS).” Then-commissioner and current FCC Chairman Pai strongly disagreed with the amendment at the time, filing a dissenting statement in which he argued, that “it makes no sense” for the FCC to enact “rules that apply very different regulatory regimes based on the identity of the online actor” because, among other reasons, it will inhibit competition in the online advertising market and also “lead to consumer confusion about which online companies can and cannot use their data.” Thereafter, eleven separate timely petitions to reconsider the October 2016 Order were filed, along with a petition requesting that the Commission stay the effective date of the Order.
The decision to delay the enactment of the new privacy regulations relied on Chairman Pai’s earlier argument that the data security rule as amended is not consistent with current FTC privacy standards, and thus found the March 2 effective date to be based on the incorrect underlying assumption that “carriers should already be largely in compliance with these requirements because the reasonableness standard adopted in [the] Order . . . resemble[] the obligation to which they were previously subject pursuant to Section 5 of the FTC Act.” As made clear by Chairman Pai in the Joint Statement, “[t]he stay will remain in place only until the FCC is able to rule on a petition for reconsideration of its privacy rule.”
Notably, shortly after the release of the Joint Statement, on March 7, Sen. Jeff Flake (R-Ariz), chairman of the Senate Judiciary Subcommittee on Privacy, Technology and the Law, introduced a joint resolution to formally provide for “congressional disapproval” of 81 Fed. Reg. 87,274, i.e., the Broadband Privacy Order referenced above, under the Congressional Review Act (CRA). The CRA is a 1996 law that empowers Congress to repeal federal regulations. According to a statement released by his office, Sen. Flake—who has long opposed the privacy regulations at issue—sent a letter back in January of last year to FCC Chairman Tom Wheeler expressing concerns that the FCC is “overreaching its authority” with its planned broadband regulations. The Arizona Senator thereafter, on May 11, 2016, chaired a Privacy, Technology and the Law Subcommittee hearing seeking “answers on the legality of the proposed FCC rules and the consequences for consumers and the future of the internet.” And, most recently, on March 1, Sen. Flake wrote a Wall Street Journal op-ed laying out his position on the matter.
CFPB Submits Request for Information on Consumer Credit Card Market
On March 10, in accordance with the rules of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD Act), that mandates the CFPB prepare a report every two years examining developments in the consumer credit card marketplace, the Bureau submitted a Request for Information to solicit feedback from the public. As previously covered in InfoBytes, the first review occurred in October 2013 and the second review in December 2015. In preparation for the next report, the Bureau is focusing on several aspects of the consumer credit card market, as follows:
- The terms of credit card agreements and the practices of credit card issuers
- The effectiveness of disclosure of terms, fees, and other expenses of credit card plans
- The adequacy of protections against unfair or deceptive acts or practices or unlawful discrimination relating to credit card plans
- The cost and availability of consumer credit cards, the use of risk-based pricing for consumer credit cards, and consumer credit card product innovation
- Deferred interest products
- Subprime specialist products
- Third-party comparison sites
- Innovation
- Secured credit cards
- Online and mobile account servicing
- Rewards products
- Variable interest rates
- Debt collection.
Comments are due by June 8, 2017.
Ajit Pai Nominated to a Second Term as FCC Chairman
On March 7, President Trump announced his intent to nominate Ajit V. Pai for a second five-year term as Chairman of the Federal Communications Commission (FCC). The five-year appointment would span from July 1, 2016, when Pai’s first term officially ended, to 2021. FCC commissioners are able to stay on at the agency for an additional year, but Pai would have to secure confirmation from the Senate to continue beyond that time. At present, two spots still remain left to be filled in order for the Commission to get it back to full capacity. Democratic Commissioner Mignon Clyburn and Republican Commissioner Michael O’Rielly are the other two current commissioners.
Mr. Pai was designated acting Chairman of the FCC by President Trump in January 2017. He had previously served as Commissioner at the FCC, appointed by then-President Barack Obama and confirmed unanimously by the Senate in May 2012. Before this, Mr. Pai was a Partner at Jenner & Block, LLP from 2011 until 2012, and Deputy General Counsel, Associate General Counsel, and Special Advisor to the General Counsel at the FCC from 2007 until 2011. In a statement released by the FCC, Pai affirmed his commitment to “work[ing] with [his] colleagues to connect all Americans with digital opportunity, foster innovation, protect consumers, promote public safety, and make the FCC more open and transparent to the American people.” In a separate statement, Chairman Pai also announced the appointment of two staff members to the Office of the Chairman—Nathan Leamer, who will serve as the Chairman’s Policy Advisor, and Carlos Minnix, who will serve as a Staff Assistant.
Chairman Pai’s FCC website bio can be accessed here.