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May courts look beyond the face of a loan transaction to identify the “true lender”?  In a lawsuit filed by California’s financial regulator, a California state court recently answered yes, finding that a fact-intensive inquiry into the “substance” of a loan transaction was necessary to determine who the “true lender” is and declining to dismiss a lawsuit. See Opportunity Fin., LLC v. Hewlett, No. 22STCV08163 (Cal. Super. Ct. Sept. 30, 2022).…

Continue Reading California Court Applies “Substance Over Form,” Allows True Lender Claim to Proceed

This past week, co-defendants in a class action related to the theft of cryptocurrency engaged in their own lawsuit over alleged security failures.  IRA Financial Trust, a retirement account provider offering crypto-assets, sued class action co-defendant Gemini Trust Company, LLC, a crypto-asset exchange owned by the Winklevoss twins, following a breach of IRA customer accounts.  IRA claims that Gemini failed to secure a “master key” to IRA’s accounts, and that hackers were able to exploit this alleged security flaw to steal tens of millions of dollars of cryptocurrency.  This lawsuit demonstrates the growing trend of cryptocurrency thefts resulting from cyber breaches, and ensuing litigation activity.…

Continue Reading Litigation Between FinTech Companies Follows Class Action Over Cryptocurrency Theft

A bank partnership is the target of yet another “true lender” attack in a new class action filed last week.  Michael v. Opportunity Fin., LLC, No. 1:22-cv-00529 (W.D. Tex. June 1, 2022).  The lawsuit is aimed at the lending partnership between OppFi (a fintech) and FinWise Bank (its bank partner), which was also the target of a recent investigation by California’s banking regulator and another class action earlier this year.  This latest development cements a growing trend of true lender attacks after Congress repealed a regulation on the topic last year, dashing hopes of a uniform and predictable standard to identify the “true lender” in bank partnerships.…

Continue Reading Bank Partnership Attacked (Again) Under True Lender Theory

In the wake of rulings upholding federal regulators’ “valid when made” rules, a new lawsuit serves as a reminder that state regulators and class-action plaintiffs’ lawyers may continue to challenge the bank partnership lending model under the “true lender” doctrine.
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Continue Reading Fintech Lawsuit Highlights True Lender Risk for Bank Partnership Lending Model

Delivering a significant win for the financial services industry, a California federal judge upheld “valid when made” rules promulgated by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) in California v. OCC, No. 4:20-cv-05200 (N.D. Cal. Feb. 8, 2022) and California v. FDIC, No. 4:20-cv-05860 (N.D. Cal. Feb. 8, 2022).  Those rules sought to undo the Second Circuit’s 2015 decision in Madden v. Midland Funding—a decision that class-action plaintiffs’ lawyers and state regulators have invoked to bring lawsuits challenging so-called “rent-a-bank” schemes between banks and third parties.  The rules were finalized in June and July 2020, and established a bright-line rule that the interest rate charged on a bank-made loan may still be charged after the loan is sold to a third party.…

Continue Reading A Closer Look: Federal Court Upholds OCC’s & FDIC’s Valid-When-Made Rules

On Tuesday, July 13, 2021, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (collectively, the “Agencies”) invited public comment on proposed interagency guidance on managing risks associated with third-party relationships (the “Proposed Guidance”). By harmonizing for the first time the…

On June 30, President Biden signed into law a joint resolution to repeal the Office of the Comptroller of the Currency’s (OCC) so-called true lender rule.  The rule was repealed under the Congressional Review Act (CRA), which allows Congress to repeal new federal regulations by passing a joint resolution of disapproval that must be later signed by the president.  Federal regulations repealed under the CRA are treated as if they had never gone into effect.
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Continue Reading Congress Repeals the OCC’s True Lender Rule

On June 3, 2021, in Lacewell v. OCC, the United States Court of Appeals for the Second Circuit (the “Second Circuit”) dismissed the New York State Department of Financial Services’ (“DFS”) lawsuit against the Office of the Comptroller of the Currency (“OCC”). DFS challenged the OCC’s decision to commence accepting applications for special-purpose national bank (“SPNB”) charters from financial technology companies (“fintechs”) that do not accept deposits. The Second Circuit ultimately decided the case on justiciability grounds, holding that DFS lacked standing and that its claims were constitutionally unripe without reaching the merits of DFS’s claims.
Continue Reading Second Circuit Rejects New York State Department of Financial Services’ Lawsuit Against the Office of the Comptroller of the Currency

On Wednesday, May 5, 2021, the Board of Governors of the Federal Reserve System (“Federal Reserve”) issued a notice requesting public comment on proposed guidelines articulating a series of principles to be used by Federal Reserve Banks in evaluating requests for Reserve Bank master accounts and payment services (the “Proposed Guidelines”). The Federal Reserve intends…

On January 5, 2021, the CFPB’s (the “Bureau”) Taskforce on Federal Consumer Financial Law (the “Taskforce”) released a report (the “Report”) recommending how consumer protection in the financial marketplace may be improved.  Chartered by the Bureau in January of 2020, the Taskforce was charged with “examin[ing] the existing legal and regulatory environment facing consumers and financial services providers,” and “report[ing] its recommendations for ways to improve and strengthen consumer financial laws and regulations.”…
Continue Reading CFPB’s Taskforce on Federal Consumer Financial Law Releases Report