FCC: Bitcoin Mining Equipment is Causing Interference to T-Mobile in Brooklyn

Yesterday, the Federal Communications Commission sent a letter to an individual in Brooklyn, New York, alleging that a device in the individual’s residence that is being used to mine Bitcoin is generating spurious radiofrequency emissions, causing interference to a portion of T-Mobile’s mobile telephone and broadband network.

The letter states that on November 30, 2017, FCC agents investigated complaints of interference by T-Mobile and determined that it was being caused by an Antminer 5s Bitcoin Miner device. The letter states that the determination was specific to this particular device, and is not meant to suggest or find that all Antminer s5 devices cause unlawful interference. As a consequence, the letter does not suggest that all Bitcoin mining devices raise regulatory concerns.

Nevertheless, the letter is an important reminder that while consumer electronics products such as the Antminer s5 do not require an FCC license to operate, they emit radiofrequency energy and therefore must operate within certain parameters to avoid causing harmful interference to other devices or networks.

CFPB Introduces New Strategic Plan under Acting Director Mulvaney

Yesterday, the CFPB released a new Strategic Plan for fiscal years 2018 to 2022.  The new Plan is a further demonstration of Acting Director Mulvaney’s efforts to reshape the Bureau.  As the Acting Director says in the message that prefaces the Plan, “if there is one way to summarize the strategic changes occurring at the Bureau, it is this: we have committed to fulfill the Bureau’s statutory responsibilities, but go no further.”

The result is a plan that is half the size of the earlier Draft Strategic Plan (issued in October 2017 when Richard Cordray was still the Bureau’s Director) and offers a vision of markets “where the rights of all parties are protected by the rule of law.”  Consumer access to products now stands alongside consumer protection as a central goal, and reducing unwarranted regulatory burdens commands a place beside promulgating needed regulations.

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CFPB Issues Request for Information on Enforcement Processes

On February 7, 2018, the Consumer Financial Protection Bureau issued a Request for Information (“RFI”) seeking comments and information from the public regarding the Bureau’s enforcement processes. The RFI seeks public input on “how best to achieve meaningful burden reduction or other improvement” to the Bureau’s enforcement processes “while continuing to meet the Bureau’s statutory objectives and ensuring a fair and transparent process for parties subject to enforcement authority.” The following is a brief summary of the RFI. For more in-depth analysis, please click here.

The RFI provides a non-exhaustive list of aspects of the enforcement process that commenters may wish to address:

  1. The timing, frequency, and contents of communications between the CFPB and the subjects of its investigations;
  2. The length of the Bureau’s investigations;
  3. The Notice and Opportunity to Respond and Advise (“NORA”) process;
  4. Whether the subject of a potential enforcement action should have the right to make an in-person presentation to the CFPB before the Bureau initiates legal proceedings;
  5. The calculation of civil money penalties, including the possibility of adopting a civil money penalty matrix;
  6. The standard provisions in the CFPB’s consent orders, including its conduct, compliance, monetary relief, and administrative provisions; and
  7. The manner and extent to which the Bureau can and should coordinate its enforcement activities with other agencies.

The RFI closely follows on two prior RFIs: One on the CFPB’s civil investigative demand process, issued on January 24, 2018, and one on the CFPB’s use of administrative adjudications, issued on January 31, 2018.

Notably, the Bureau has also announced a fourth reexamination RFI – regarding the CFPB’s supervisory processes – to be issued very shortly.

U.S. Copyright Protections for Market Data

Data is of particular importance to businesses in the financial sector. This blog post provides a high level overview of how United States copyright law treats data.

U.S. copyright protection for raw, unstructured data is generally regarded as thin or unavailable. The reason for this is that such raw data may not satisfy the creativity requirement for “original works of authorship.”[1] To the extent that individual data points represent facts, “facts do not owe their origin to an act of authorship.”[2] However, there are circumstances where the courts have been willing to extend copyright protection to works that involve data and are sufficiently creative.

For example, compilations of data do garner copyright protection if the data is “selected, coordinated or arranged in such a way that the resulting work as a whole constitutes an original work of authorship.”[3] Importantly, the copyright protection resides in the original aspects of the data compilation — the selection and arrangement of the data.[4] Thus ownership of a copyrightable database does not necessarily prevent third parties from using the underlying facts contained within that database. Another example is a creative classification scheme or taxonomy of data or numbers, which could also potentially be subject to copyright protection.[5]

However, because of the creativity requirement and the fact that U.S. law does not have a sui generis form of protection for data (like the database right in the EU), it is important for businesses in the financial sector to document permissions and restrictions for use of market data in contracts. While a business may not be able to prevail against a third party on a copyright infringement theory for unauthorized use of the business’s data, it may be possible to prevail on a breach of contract claim.[6]

To the extent that there are gaps in existing legal protections for data, we may see businesses turn to the blockchain as a technological (rather than legal) mechanism for tracking and monetizing their data.

[1] 17 U.S.C. § 106.

[2] Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., Inc., 499 U.S. 340, 345 (1991).

[3] 17 U.S.C. § 101; see also Feist, 499 U.S. at 348.

[4] See, e.g., CCC Info. Servs., Inc. v. Maclean Hunter Mkt. Reports, Inc., 44 F.3d 61, 67 (2d Cir. 1994).

[5] American Dental Assoc. v. Delta Dental Plans Assoc., 126 F.3d 977 (7th Cir. 1997).

[6] The copyright law’s ability to preempt state breach of contract claims is not without debate. Nevertheless, courts in the Second Circuit have permitted such claims to co-exist. See BanxCorp v. Costco Wholesale Corp., 978 F. Supp. 2d 280, 315-16 (S.D.N.Y. 2013) (citing Forest Park Pictures v. Universal Television Network, Inc., 683 F.3d 424 (2d Cir. 2012)) (finding copyright infringement claim not equivalent to a breach of contract claim, and noting three differences between the two claims: (1) plaintiff asserted a right to receive payment under the applicable contract, (2) the contract claim required proving mutual assent and valid consideration, and (3) the contract claim only entailed an assertion of rights against the defendant, rather than the public at large).


CSBS Announces Multi-State Compact to Standardize Money Transmitter Licensing

On February 6, 2018, the Conference of State Bank Supervisors (“CSBS”) – the nationwide organization representing banking regulators from all 50 states, the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands – announced that seven states have agreed to a compact that standardizes five major areas of the licensing process for money services businesses (“MSBs”).

Under the compact, the state financial regulators of Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas and Washington agreed to accept each other’s findings on money transmitter license applicants regarding a company’s IT, cybersecurity, business plan, background check, and compliance with the Bank Secrecy Act. Although other state-by-state licensing processes will remain in place, the CSBS stated that the agreement will reduce the regulatory burden of applying state-by-state, and the organization characterized the agreement as an important “first step” in achieving “an integrated, 50-state system of licensing and supervision for fintechs.” The group expressed an expectation that other states will join the compact.

The announcement comes as both federal and state regulators are exploring – and at times competing over – avenues for standardizing the current patchwork of MSB regulation faced by money transmitters. In December 2016, the Office of the Comptroller of the Currency (“OCC”) announced plans to begin issuing special purpose national bank charters to fintech companies. The CSBS expressed opposition to the plan, partly on the theory that federally-chartered fintech banks would be exempt from state consumer protection laws by virtue of preemption afforded to national banks under the National Bank Act. In April 2017, the CSBS sued to block the OCC from going forward with the special purpose fintech charter. The U.S. District Court for the District of Columbia has not yet ruled in that case, although the U.S. District Court for the Southern District of New York has dismissed as premature a similar suit brought by the New York State Department of Financial Services.

New York State Department of Financial Services Issues Guidance on Fraud and Market Manipulation in Virtual Currency Markets

On February 7, 2018, the New York State Department of Financial Services (“DFS”) issued guidance for all virtual currency business entities (“VCBEs”) regarding the prevention of market manipulation and other wrongful activity. In a brief, two-page document, the DFS: (1) emphasized the importance of effectively preventing and responding to fraud and similar wrongdoing; (2) stated that effective measures must include implementation of a written policy to, among other things, identify and effectively prevent risks; and (3) required VCBEs to provide reports to DFS immediately upon the discovery of “any wrongdoing”.

DFS directed each VCBE to take effective measures to detect, prevent, and respond to fraud or market manipulation. At a minimum, DFS expects such measures to include the effective implementation of a written policy that:

  1. identifies and assesses the full range of fraud-related and similar risk areas, including, as applicable, market manipulation;
  2. provides effective procedures and controls to protect against identified risks;
  3. allocates responsibility for monitoring risks; and
  4. provides for periodic evaluation and revision of the procedures, controls and monitoring mechanisms in order to ensure continuing effectiveness, including continuing compliance with all applicable laws and regulations.

DFS also directed each VCBE to provide for the “effective investigation” of fraud or other wrongdoing as part of its procedures and controls.

Should a VCBE discover any wrongdoing, it must immediately submit a report to DFS “stating all pertinent details known” and, thereafter and as soon as practicable, submit further reports regarding any material developments. The expectation of DFS is that in most cases, it should be feasible for a VCBE to submit such a follow-on report within 48 hours after the original report of wrongdoing. DFS also stated that VCBEs must maintain records of each incident of wrongdoing.

DFS’s guidance applies to any entity that has a license under 23 NYCRR Part 200 or that is chartered as a limited purpose trust company under the New York Banking Law.” According to DFS, DFS has granted four licenses and two charters to date.


CFPB’s Fair Lending Office Stripped of Supervision and Enforcement Powers

The Consumer Financial Protection Bureau (the “Bureau” or “CFPB”) has made its first major organizational change under the leadership of Acting Director Mick Mulvaney. The Bureau moved the Office of Fair Lending and Equal Opportunity (the “Fair Lending Office”) inside the Office of the Director and stripped it of responsibility for enforcement and day-to-day oversight of companies. Fair lending enforcement and supervision has been assigned to the Office of Enforcement and Office of Supervision, respectively. 

The Fair Lending Office, which previously was responsible for enforcement matters alleging discrimination in lending, will now focus on advocacy, coordination, and education, rather than supervision and enforcement. Certain fair lending enforcement actions led by the Fair Lending Office, particularly those involving allegations of discrimination in indirect auto lending as a result of dealer markups, proved extremely controversial. To some observers, the indirect auto lending actions exemplify the Bureau “pushing the envelope” on fair lending discrimination theories and its own jurisdiction. Acting Director Mulvaney has vowed that “pushing the envelope” is the one thing that will change at the Bureau under his leadership.

While civil rights and consumer groups worry that removing the Fair Lending Office’s enforcement powers may increase the likelihood that consumers will face continued discrimination in the economic arena, Acting Director Mulvaney’s spokesman dismissed that possibility.  The spokesman stated that “[b]y elevating the Office of Fair Lending to the Director’s Office, we have enhanced its ability to focus on its other important responsibilities …[and b]y combining these efforts under one roof, we gain efficiency and consistency without sacrificing effectiveness.”

CFPB Issues Request for Information on Administrative Adjudications

On January 31, 2018, the Consumer Financial Protection Bureau (the “Bureau” or “CFPB”) issued a Request for Information (“RFI”) seeking comments and information from the public regarding the Bureau’s use of administrative adjudications.  The Bureau intends to use the comments received to inform deliberations as to whether and how to revise and update the Bureau’s Rules of Practice for Adjudication Proceedings.  This RFI is the second installment in a call for evidence to reexamine CFPB activities to “ensure the Bureau is fulfilling its proper and appropriate functions to best protect consumers.”  Acting Director Mick Mulvaney initiated this effort to reevaluate, and potentially adjust, how the Bureau performs its functions.

In the RFI, the Bureau notes that it is “especially interested” in receiving suggestions on the following topics:

  • Methods for updating, streamlining, or revising the Bureau’s administrative adjudication Rules and processes to better achieve the Bureau’s statutory objectives;
  • Methods of minimizing burdens, impacts, or costs to parties subject to the proceedings;
  • Methods for aligning the Bureau’s administrative adjudication Rules more closely with those of other agencies; and
  • Methods for better providing fair and efficient process to parties involved in adjudication proceedings, including ensuring those parties have a full and fair opportunity to present evidence and arguments relating to the proceeding.

The Bureau, however, invites feedback on all aspects of the administrative adjudication process.

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D.C. Circuit Holds CFPB Structure Constitutional in PHH v. CFPB Reversal

Today, the D.C. Circuit Court of Appeals, sitting en banc, held that the structure of the CFPB is constitutional, overturning an earlier ruling by a panel of the Court that would have allowed the President to fire the CFPB director at will.  The Court’s decision, finding that the Bureau’s structure is protected by well-established precedent and does not violate the separation of powers provision of Article II of the U.S. Constitution, preserves the CFPB’s current structure as an independent agency headed by a single Director removable only for cause.  As a result, the pending nomination of the Bureau’s next Director takes on more weight, while litigation relating to PHH itself has been remanded to the Bureau for further proceedings.

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CFPB Issues Request For Information on Civil Investigative Demands

On January 24, 2018, the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) published a Request for Information (“RFI”) on its civil investigative demand (“CID”) process. This is the first in a series of planned RFIs on the Bureau’s activities. In the RFI, the CFPB recognizes that “responding to a CID can impose burdens on the recipients” and expresses interest in how the CID process can be “updated, streamlined, or revised” to achieve the CFPB’s objectives “while minimizing burdens.” The RFI seeks “feedback on all aspects” of the CID process, but specifically requests comment on eleven questions representing “a preliminary attempt by the Bureau to identify” elements of its CID process “on which it should immediately focus.” The RFI signals the Bureau’s potential openness to revising its CID process, which has been regarded as difficult, expensive, and time consuming by many financial institutions.

The Bureau’s specific questions cover topics such as:

  • The processes for initiating investigations and issuing CIDs, including the delegation of authority for those tasks;
  • The approaches through which the Bureau could improve recipients’ understanding of investigations;
  • The timeframes associated with the CID process, including return dates and the timeframes set for meet and confer sessions and the filing of petitions to modify or set aside a CID;
  • The nature and scope of requests in CIDs, “including whether topics, questions, or requests for written reports effectively achieve the Bureau’s statutory and regulatory objectives, while minimizing burdens”;
  • Various aspects related to the manner by which the CFPB conducts investigations, including the standards governing the taking of testimony from an entity and the handling of inadvertent production of privileged information;
  • The requirements for responding to a CID, including certification requirements and document submission standards; and
  • The process by which CID recipients must file petitions to modify or set aside a CID, including whether it is appropriate for investigators to provide the Director with a response to the petition without serving that response on the petitioner, the costs and benefits of the petition process compared to direct adjudication in court, and whether petitions should be made public. As to that last point, it is worth noting that, while investigations are generally non-public, a petition to modify or set aside a CID is made public, which may discourage recipients from filing a petition.

Given the recent email Acting Director Mick Mulvaney emphasizing that the Bureau must work for covered entities as well as consumers, it is likely that comments raising concerns with the CID process will receive a fair hearing.