Democratic Senators Criticize CFPB’s Proposed Debt Collection Rule

On June 7, 2019, 26 Democratic senators sent a letter to Consumer Financial Protection Bureau (the “Bureau”) Director Kathleen Kraninger criticizing the Bureau’s proposed rule to modify Regulation F under the Fair Debt Collection Practices Act.  As we have previously discussed, the Bureau released its long-anticipated proposed rule on May 7, 2019.  Director Kraninger described the proposal as an effort to “modernize the legal regime for debt collection” and “ensure we have clear rules of the road where consumers know their rights and debt collectors know their limitations.”

The letter describes and criticizes the proposal in the following ways:

  • According to the letter, the proposed rule’s provisions regarding text messages and emails would “permit collectors to overwhelm consumers with intrusive communications” and “exacerbate and increase troubling harassment tactics.”
  • Collectors would not be required to use free-to-end-user text messaging; consumers can be required to receive information by clicking hyperlinks, which “raises security concerns”; and the rule allows an supported assumption that emails have been received by the consumer unless an “undeliverable” message is returned.  For these reasons, the rule generally “authorizes new forms of communication between debt collectors and consumers without extending essential consumer protections.”
  • Permitting collectors to make seven calls per week, per debt would “effectively permit[] debt collectors to inundate consumers with calls.”
  • By prohibiting the filing or threatening of filing a lawsuit only if the collector “knows or should know” that debt is not enforceable, the Bureau “could encourage collectors to practice willful ignorance about the status of the debt they collect.”

The following senators signed the letter: Senators Bob Menendez (D-N.J.), Sherrod Brown (D-Ohio), Catherine Cortez Masto (D-Nev.), Kirsten Gillibrand (D-N.Y.), Cory Booker (D-N.J.), Richard Blumenthal (D-Conn.), Chris Van Hollen (D-Md.), Angus King (I-Maine), Tammy Duckworth (D-Ill.), Dianne Feinstein (D-Calif.), Elizabeth Warren (D-Mass.), Ben Cardin (D-Md.), Kamala Harris (D-Calif.), Tammy Baldwin (D-Wisc.), Edward Markey (D-Mass.), Doug Jones (D-Ala.), Tina Smith (D-Minn.), Jack Reed (D-R.I.), Richard Durbin (D-Ill.), Bernie Sanders (I-Vt.), Sheldon Whitehouse (D-R.I.), Amy Klobuchar (D-Minn.), Brian Schatz (D-Hawaii), and Mazie Hirono (D-Hawaii), Jeff Merkely (D-Or.), Ron Wyden (D-Or.).

Comments on the Bureau’s proposed rule are due August 19, 2019.

FDIC Chairman McWilliams Speaks at Community Development Bankers Association Meeting

On June 4, 2019, Jelena McWilliams, the Chairman of the Federal Deposit Insurance Corporation (“FDIC”), addressed the Community Development Bankers Association. Her remarks emphasized the importance of community banking in the U.S. economy while also touching upon a number of related topics including Minority Depositary Institutions (“MDIs”), the Community Reinvestment Act (“CRA”), Small-Dollar Lending and Innovation.

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SEC Issues Guidance on Changes to Stock Exchange Fees for Market Data and Connections

On May 21, 2019, the U.S. Securities and Exchange Commission (the “SEC”) issued guidance to national securities exchanges and the Financial Industry Regulatory Authority (“FINRA”) (referred to as “SROs”) clarifying the SEC’s expectations with respect to their market data fees. These guidelines clarify enhanced standards for SROs to increase their fees for products and services, including fees for market data and connections, which has become a significant revenue source for data providers. Continue Reading

OCC Publishes its Semiannual Risk Perspective for Spring 2019

The Office of the Comptroller of the Currency (OCC) released earlier this week its Semmiannual Risk Perspective for Spring 2019.  The 30-page report, authored by the OCC’s National Risk Committee, reflects the agency’s view of current risks facing OCC-regulated banks.  One of the functions of the National Risk Committee is to guide bank examiners on issues warranting supervisory attention, and thus the risks identified by the Committee can foreshadow areas that will receive particular attention from bank examination teams over the next several months.

The Semiannual Risk Perspective for Spring 2019 reflects a continuing focus from the OCC on compliance risk, with the report describing Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance risk, in particular, as “high.”  The report states that “[b]anks are challenged to effectively manage money-laundering risks in a complex, dynamic global operating and regulatory environment,” and it emphasizes that “BSA/AML compliance risk management systems should be commensurate with the risk associated with a bank’s products, services, customers, and geographic footprint.”

The Semiannual Risk Perspective also describes operational risk as elevated, flagging cybersecurity threats as a key driver of such risk.  The report additionally identifies an anticipated increase in merger and acquisition activity by banks as a driver of operational risk, particularly where acquisitions and post-acquisition integrations are “not well-planned and executed.”

The Semiannual Risk Perspective addresses fintech and regtech issues under several different categories of risk, noting that rapid growth in both sectors “touch[es] each of [the] risk themes” discussed in the report.  Fintech is identified as a source of strategic risk, with the report emphasizing that banks should consider, among other things, the extent to which deployment of fintech increases a bank’s dependence on vendors.  The report’s observations in this regard reflect longstanding concerns from regulators, including that banks across the industry may become dependent on a single vendor, or a small group of vendors, who are market leaders with respect to a particular software application or technological service.

The report’s emphasis on the strategic risk resulting from technological change is noteworthy in light of the OCC’s encouragement of a national bank fintech charter and its recent promotion of innovation pilot programs.  Notwithstanding the risks associated with new technologies, the OCC’s report acknowledges that banks cannot stay competitive without making use of them.

In addition to the above non-financial risks, the report addresses credit, liquidity, and other financial risks resulting from:  “successive years of [economic] growth” and an accompanying “incremental easing in underwriting”; competitive pressures that may lead to an increase in the cost of deposits; and, relatedly, the potential that deposits have become less sticky, meaning that fluctuations in interest and deposit rates could give rise to liquidity risk.

FinCEN Issues Guidance to Synthesize Regulatory Framework for Virtual Currency

On May 9, 2019, the Financial Crimes Enforcement Network (“FinCEN”) published interpretive guidance to reiterate how FinCEN’s existing regulations relating to money services businesses (“MSBs”) apply to business models involving convertible virtual currencies (“CVCs”). The guidance is the most significant CVC-related guidance that FinCEN has released since its 2013 guidance on the application of money transmission regulations to CVC transactions. The guidance does not establish any new regulatory requirements but, rather, synthesizes FinCEN’s existing framework of regulations, administrative rulings, and guidance since 2011 and applies this framework to common business models involving CVCs.

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House Financial Services Committee Passes BSA/AML Overhaul Legislation

On May 9, 2019, the House Financial Services Committee (“HFSC”) unanimously approved an amendment in the nature of a substitute to H.R. 2514, the Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act (the “COUNTER Act” or the “Act”).  The COUNTER Act, introduced by Representative Emanuel Cleaver (D-MO) would be the first major reform of the Bank Secrecy Act, 31 U.S.C. §§ 5311 et seq. (“BSA”) and related anti-money laundering (“AML”) regulations since 2001.  The COUNTER Act will now move to the House floor for debate.  The HFSC postponed a vote on a related bill that is aimed at combating illicit financial activity in anonymous shell companies and that would require most corporations and limited liability companies to disclose beneficial ownership information at the time of incorporation.

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OCC Solicits Public Comments on Innovation Pilot Program

On April 30, 2019, the Office of the Comptroller of the Currency (“OCC”) opened a 45-day public comment period on its Innovation Pilot Program (the “Program”).  In accordance with the agency’s objective of providing constructive and proactive supervision, the OCC’s proposed Program is intended to encourage the testing of innovative activities – including products, services, and processes – to benefit consumers and financial institutions.  The Program is another in a series of OCC initiatives aimed at fostering responsible deployment of financial technology , or “fintech,” in the institutions the OCC supervises. [1]  The Program is not limited to fintech activities, however; the OCC does not intend to limit participation based on size, complexity, or business model.  Comments on the Program are due no later than June 14, 2019.

Since 2015, the OCC has developed initiatives and examined regulatory sandbox models with the goal of supporting responsible innovation.  For instance, in 2016, the OCC established an Office of Innovation with offices in New York, San Francisco, and Washington, to serve as a resource for innovation-related matters and facilitate discussions with industry.  The OCC’s latest decision to launch the Innovation Pilot Program builds on existing efforts and provides a framework for small-scale, short-term tests – or pilots – to determine the feasibility of new activities at scale.

Key Program objectives include:

  • Supporting the development and delivery of more effective and efficient activities within the U.S. financial system;
  • Engaging with eligible entities regarding safety and soundness expectations, risk management principles, and compliance requirements;
  • Improving the OCC’s understanding of, and supervisory approaches to, innovative activities and their related risks;
  • Encouraging the development of controls and safeguards commensurate with the type, scale, and risk posed by innovative activities; and
  • Promoting OCC policy objectives, while avoiding those that might unintentionally or unnecessarily inhibit responsible innovation.

To be eligible to participate in the Program, an entity must demonstrate:  (1) that the OCC’s involvement in the pilot is appropriate; specifically, that the proposed activity is within the scope of the OCC’s supervisory authority and involves uncertainty that may be a barrier to its development or implementation; and (2) how the activity has the potential to achieve one or more specific Program goals, including, for example, promoting financial inclusion, fair access, and fair treatment of consumers or small businesses, or improving the efficiency of bank processes, operations, or the provision of financial services.

Third parties are prohibited from submitting proposals independently, but eligible entities can propose a pilot individually, collaborate with multiple banks, or partner with a third party that has been engaged to offer innovative activities.  Pilot programs generally will range from 3 months to not more than 24 months in duration.

Importantly, the OCC is not providing a safe harbor from financial or consumer protection requirements, so all participating entities must comply with applicable laws and regulations.  Entities also are expected to incorporate reasonable controls and safeguards into the design of proposed activities.  The Program may include the use of tailored regulatory tools, however, including the use of interpretive letters (which an applicant could request in order to establish the legal permissibility of a proposed activity), supervisory feedback, and technical assistance.

Eligible entities are encouraged to engage with the OCC in preliminary discussions about proposed pilots to allow for informal feedback before submitting an application, referred to as an expression of interest (“EOI”), to the Office of Innovation.  The EOI “should be tailored to the scope and complexity of the proposed pilot” and include key details, such as the pilot’s objectives, expected outcomes, governance process, and the scope of OCC engagement.

The OCC will consider proposals in various states of development, including proofs of concept and pilots that call for limited beta testing.

[1] For purposes of the Program, the OCC defines financial institutions as national banks, federal savings associations, their subsidiaries, and federal branches and agencies of foreign banking organizations.

English Competition Appeals Tribunal to Reconsider £14 Billion Class Action Against MasterCard

England’s Court of Appeal has decided that the Competition Appeals Tribunal (the “CAT”) erred in rejecting certification of former financial ombudsman Walter Merricks’ class action against MasterCard, for £14 billion.  As a result, the CAT will now reconsider whether to certify the class.  The decision has lowered the bar that will need to be cleared in this and future class actions in order to achieve certification.  In this alert, we consider the decision and its implications for the UK’s fledgling class action regime.

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CFPB Proposes Debt Collection Rule under FDCPA

On May 7, 2019, the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) released its long-anticipated proposed rule on debt collection. The proposed rule would amend Regulation F, which implements the Fair Debt Collection Practices Act (“FDCPA”), and would govern the activities of debt collectors, as defined in the FDCPA. Certain provisions also rely on the Bureau’s authority under sections 1031 and 1036 of the Dodd-Frank Act to regulate unfair, deceptive, or abusive acts or practices. CFPB Director Kathleen Kraninger described the Bureau’s action as an effort to “modernize the legal regime for debt collection” and “ensure we have clear rules of the road where consumers know their rights and debt collectors know their limitations.”

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CFPB Proposes Revisions to HMDA to Provide Relief for Smaller Lenders

On May 2, 2019, the Consumer Financial Protection Bureau (“CFPB”) released a notice of proposed rulemaking (the “NPRM”) proposing to raise coverage thresholds for collecting and reporting data under the Home Mortgage Disclosure Act (“HMDA”).  In addition, the Bureau released an advanced notice of proposed rulemaking (the “ANPR”) requesting comment on the costs and benefits of certain HMDA reporting requirements. CFPB Director Kraninger described the proposals as providing “much needed relief to smaller community banks and credit unions while still providing federal regulators and other stakeholders with the information we need.”

The NPRM proposes changes to the HMDA coverage thresholds for both closed-end mortgages and open-end lines of credit:

  • Closed-end mortgage loans: The current coverage threshold is originating 25 or more closed-end mortgage loans in both of the two prior years.  The NPRM proposes two alternatives – raising the threshold to either 50 or 100 closed-end mortgage loan originations.
  • Openend lines of credit: The current coverage threshold is temporarily set at 500 or more open-end lines of credit in each of the two prior years. The proposed rule would extend this temporary threshold until January 1, 2022, and would set the permanent threshold at 200 open-end lines of credit.

The ANPR solicits comment on the costs and benefits of reporting certain data points currently required under HMDA, based on industry’s “concerns about the burden associated with reporting certain of the new or revised data points relative to the value of the information in serving HMDA’s purposes.”  Examples of such data points include whether a borrower owns or leases the land on which a manufactured home is located, disaggregated ethnicity categories, and free-form text fields for certain data fields, including the reason for loan denial.

The NPRM and ANPR are scheduled to be published in the Federal Register on May 8, 2019.  Comments will be due 60 days after publication, on July 7, 2018.

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