June 17, 2022

Consumer Financial Services Practice Digest

5 min

Legal and Regulatory Developments

California Finalizes Commercial Financing Disclosure Regulations

The California Office of Administrative Law (OAL) has approved the California Department of Financial Protection and Innovation's (DFPI) final regulations, which require providers of commercial financing, including nonbank lenders, to provide commercial borrowers with cost-of-credit disclosures similar to those provided to consumer customers. These regulations become effective on December 9, 2022.

CFPB Warns Users of Algorithms, AI, and Machine Learning of Anti-Discrimination Compliance Requirements

Anti-discrimination law applies to companies with black-box credit models using complex algorithms, according to a circular issued by the CFPB on May 26, 2022. According to the CFPB, the anti-discrimination law requires companies to explain to applicants the specific reasons for denying an application for credit or taking other adverse actions, even if the creditor is relying on credit models using complex algorithms. In addition, the CFPB highlights creditors' adverse action notice requirements under the Equal Credit Opportunity Act (ECOA). This warning complements another recent CFPB announcement that it intends to use its general UDAAP authority to prosecute discrimination in any financial services category, whether it be banking (including deposits), servicing, collections, credit reporting, payments, or money transfers and remittances.

States Encouraged by CFPB to Enforce Federal Consumer Financial Law

The CFPB released an Interpretive Rule—which is exempt from notice-and-comment requirements of the Administrative Procedure Act—that sets out its view on the power of states to bring enforcement actions pursuant to the federal Consumer Financial Protection Act (CFPA). Of note, under the Bureau's interpretation of the CFPA, states can enforce consent orders issued by the Bureau, and the limits applicable to the Bureau's enforcement authority do not apply to states. The Interpretive Rule also may signal the Bureau's apparent comfort with state regulators and state attorneys general bringing specific enforcement actions under CFPA without first consulting with the CFPB.

CFPB Opens New Office of Competition and Innovation

The CFPB has opened a new Office of Competition and Innovation. The move comes "as part of a new approach to help spur innovation in financial services by promoting competition and identifying stumbling blocks for new market entrants," according to a press release issued on May 24, 2022.

CFPB Knows Best: Consumer Financial Protection Circulars Will Explain How CFPB Intends to Enforce Federal Consumer Financial Law

The CFPB has begun issuing Consumer Financial Protection Circulars to the government agencies responsible for co-enforcing federal consumer financial law. The Circulars are policy statements that outline how the CFPB intends to enforce the law. According to the CFPB, the goal is to "promote consistency among enforcers and fair competition in the market."

Generating Leads Legally: Regulatory and Litigation Quick Hits

Venable hosted another jam-packed session on the regulatory and litigation risks facing the lead generation industry today, and strategies for mitigating them. In the webinar Alexandra Megaris, and Jonathan Pompan covered federal and state law enforcement priorities; TCPA, legislative, licensing, and regulatory developments; and more.

Payment Processors in the Regulatory Crosshairs: Updates on Regulatory Scrutiny and Best Practices for Compliance

Venable attorneys hosted a webinar on the recent regulatory action against payment processors and financial intermediaries regarding their alleged failures to monitor their customers for signs of fraud or other illegal activity. Topics included best practices to minimize potential risk, including the importance of merchant due diligence and ongoing monitoring programs, as well as what to expect if your company learns that a regulator is already knocking on your door.

Washington State and New York Join the State Telemarketing Law Amendment Fray

Several states recently amended (or attempted to amend) their telemarketing laws, especially as they relate to regulating autodialers. While they don't affect autodialing, telemarketers should take notice of the amendments to Washington state's telemarketing statutes (available here), which went into effect on June 9. And both houses of the New York General Assembly have passed a bill amending its Do Not Call Law (although it has not yet been signed by the governor).

FTC Proposes Updates to its Endorsements and Testimonials Guides

The FTC held an open meeting in May to review proposed amendments to its Guides Concerning the Use of Endorsements and Testimonials in Advertising. The Endorsement Guides, first issued in 1980 and last amended in 2009, reflect the commission's interpretation of how the FTC Act applies to endorsements and testimonials in advertising. Some of the proposed updates to the guides include: expanding the definition of "endorser" to include computer-generated influencers; updates to the definition of clear and conspicuous disclosure; new sections to address consumer reviews; additional guidance on material connections between advertisers and endorsers; and review of targeted audience ads and endorsements in advertising directed toward children.

FTC Approves Administrative Settlement with Payment Processor, Electronic Payment Systems

The FTC moved to dismiss its long-running enforcement action against Electronic Payment Solutions (EPS) pending in the District of Arizona after the Commission voted 4-0 to approve a final settlement with EPS and certain of its owners. The case against EPS, a third-party payment processor, is just the most recent example of the FTC's heightened focus on holding financial intermediaries responsible for failing to police the actions of their merchant customers.

FTC Proposes Changes to the Telemarketing Sale Rule; Seeks Restoration of Equitable Relief Authority

The FTC is seeking comments on updates to the Telemarketing Sales Rule that would extend the scope of the TSR's restrictions to B2B telemarketing, address tech-support scams that target seniors, and extend click-to-cancel requirements to telemarketing. And, the FTC continues to seek a congressional fix to Section 13(b) after the one-year anniversary of AMG Capital Management LLC v. FTC.

Your Legal Guide to NFTs, the Metaverse, and Web3

Non-fungible tokens (NFTs), the metaverse, and Web3 bring with them a host of new legal challenges in such areas as IP, securities law, tax, and advertising. As NFTs revolutionize the digital landscape and global economy, it is crucial to stay ahead of the game by remaining informed. In this three-part webinar series, our attorneys covered the legal issues you must navigate in the next phase of the digital revolution, including NFTs, the metaverse, and Web3. Recordings of all three sessions will be available next week.