August 10, 2020

Consumer Financial Services Practice Digest

4 min

CFPB's 2020-2021 Regulatory Initiatives

The Consumer Financial Protection Bureau (CFPB or Bureau) under Director Kathleen Kraninger has maintained a steady, albeit slower, pace on regulatory initiatives. The COVID-19 public health crisis has divided the Bureau's attention between its guidance and action in response to the COVID-19 emergency and the Bureau's existing regulatory agenda (which was set prior to the crisis). The Bureau's "business as usual" regulatory work has focused on deregulation and addressing major upcoming changes to the financial industry.

CFPB Ratifies Most Existing Regulations, but Questions Remain

On July 7, 2020, the Consumer Financial Protection Bureau (CFPB) announced the ratification by Director Kathleen Kraninger of "most" of its prior regulatory actions. However, the CFPB excepted rules regarding arbitration agreements and small-dollar lending from its omnibus ratification, while issuing on the same day a separate ratification of the payments provisions of the small-dollar-lending rule. The Bureau left the status of pending enforcement actions uncertain, declining to include such actions within the omnibus ratification but indicating that some may be ratified on an ad hoc basis in the future.

The Elusive Madden Fix Part 2: FDIC Codifies "Valid When Made" for Loans by State Banks

As we explained in Part 1, the Office of the Comptroller of the Currency (OCC) implemented a "Madden Fix" for national banks and federal savings associations (OCC Rule) in early June. Later that month, the Federal Deposit Insurance Corporation (FDIC) followed suit with its own Madden Fix, this one for state banks and insured branches of foreign banks. The FDIC's final rule on Federal Interest Rate Authority (FDIC Rule) addresses ambiguities in section 27 of the Federal Deposit Insurance Act (Section 27) that were revealed by the Second Circuit's 2015 decision in Madden v. Midland Funding, LLC (Madden). The FDIC Rule provides that under Section 27 the permissible interest on a loan is (i) determined at the time the loan is made and (ii) not affected by a subsequent change in state law or relevant commercial paper rate, or by the sale, assignment, or other transfer of the loan.

Fighting the Fix: Three States Sue the OCC for Codifying the Valid When Made Doctrine

In the midst of the economic fallout from a global pandemic, struggling consumer lenders saw a glimmer of good news when two federal banking regulators coordinated to bring clarity to the secondary loan market. A suit filed last week now threatens to rollback that effort.

Volcker Relief: Agencies Simplify and Narrow the Rule's Covered Fund Provisions

It was a modest proposal: following the 2008 financial crisis, former chairman of the Federal Reserve Board Paul Volcker suggested banning banks from trading and investing with their own capital. Included as section 619 of the Dodd-Frank Act, the Volcker Rule is intended to prohibit proprietary trading and certain relationships with various types of funds. The Volcker Rule is conceptually simple, but the layered, interconnected, and complex reality of the financial system all but guaranteed a cumbersome snarl of implementation.

Crypto Custody: OCC Confirms That National Banks Can Provide Custody Services for Cryptocurrency

On July 23, 2020, the Office of the Comptroller of the Currency (OCC) released Interpretive Letter #1170 (Letter) confirming that safekeeping and custody of cryptocurrency and crypto-assets are traditional banking services and, therefore, are permissible activities for national banks and federal savings associations. Banks have long provided safekeeping and custody services for their customers, and, over time, these services evolved along with the business of banking to now include safekeeping and custody of various physical and electronic assets. The Letter recognizes this evolution, and states that safekeeping and custody of cryptocurrency is a logical outgrowth of national banks’ existing authority.

Building Trust and Compliance When Working with Lead Generation Advertising and Affiliate Marketing

Over the last several years, advertisers have focused increasingly on the quality and transparency of lead generation advertising. This focus has been progressing, although some lenders have seen a limited view of what consumers experience and how they enter the marketplace. This presentation from Online Lenders Alliance Compliance University explored how to expand the ways lenders can understand what the consumer is experiencing, including the benefits of stakeholder coordination, the role of contract terms, and best ways for lenders to use lead generation effectively without inviting legal risk.

The Telemarketing Sales Rule Debt Relief Rule at 10: The Effect on Debt Relief Business Remains Challenging

The Federal Trade Commission (FTC) announced the Final Rule to amend the Telemarketing Sales Rule (TSR), 16 C.F.R. Part 310, to enhance consumer protections related to the sale of debt relief services, including debt management and debt settlement services, on July 29, 2010. The landmark regulatory action established a regime for how for-profit-operated debt relief services may be structured and advertised, protecting consumers in financial distress, and more. While the TSR Debt Relief Rule had a significant impact throughout the consumer credit market, the impact on debt relief service providers was profound and is still being felt today.

COVID-19 Recent News

FinCEN Releases Third COVID-19 Advisory: Cybercrime and Cyber-Enabled Crime

SBA Issues New Guidance Clarifying the PPP Loan Forgiveness Process