October 13, 2022

Consumer Financial Services Practice Digest

4 min

Legal and Regulatory Developments

White House AI Bill of Rights Highlights CFPB, FTC, and Federal Housing Regulatory and Enforcement Actions

The Biden administration's new Blueprint for an AI Bill of Rights to enhance protections for Americans elevates recent federal regulatory and enforcement actions related to consumer protection, financial services, and housing. In an attempt to help guide the design, development, and deployment of artificial intelligence (AI) and other automated systems, the White House Office of Science and Technology Policy released the Blueprint for an AI Bill of Rights on October 4, 2022. The blueprint and the ongoing and forthcoming agency actions are a reminder to consumer financial services companies to carefully design, monitor, implement, and test uses of AI.

SBA Plan to Open 7(a) Loan Program to Fintechs Moves Closer to Public Release

Non-depository financial institutions—including fintechs and other alternative lenders—may be able to apply for new Small Business Lending Company (SBLC) licenses to participate in the Small Business Administration (SBA) 7(a) Loan Program. The Biden-Harris administration recently promoted an SBA plan to issue a notice of proposed rulemaking that would lift the moratorium on new SBLC licenses that has been in place since 1982—licenses that allow non-depository financial institutions to participate in the 7(a) Loan Program.

ETA FinTech Policy Forum

Venable was the host location for the ETA FinTech Policy Forum on September 22, 2022. This recap summarizes the federal regulator panels providing key takeaways from the discussions with (a) CFPB Director Rohit Chopra and (b) representatives from the Office of the Comptroller of the Currency, the Federal Reserve, and the Consumer Financial Protection Bureau.

Bank Provider of BaaS Dinged by OCC; Blueprint for Fintech Partnerships?

A recent action by the Office of the Comptroller of the Currency (OCC) highlights how banks need to ensure that they have robust compliance programs for managing risks posed by their banking as a service (BaaS) partnerships with third-party fintechs. On August 29, 2022, the OCC entered into an agreement with Blue Ridge Bank, N.A. (Blue Ridge Bank), a Virginia-based community bank, that requires Blue Ridge Bank to make serious reforms to its compliance practices (the Agreement). The Agreement now serves as a blueprint for how banks should be thinking about their BaaS partnership programs, and the expectations that partners should be prepared to meet.

Cease and Desist to Companies Making Crypto-Related Representations Following Warnings by Government

The FDIC has issued cease and desist letters to five companies and their officers, directors, and employees for making crypto-related false or misleading representations about deposit insurance and to take immediate action to address the statements. The action taken on August 19, 2022 comes after multiple government agencies have issued warnings about the marketing of crypto.

Regulation and Risk Management of Artificial Intelligence and Machine Learning in Receivables Management

Jonathan Pompan, chair of the Consumer Financial Services Practice Group, presented "Regulation and Risk Management of Artificial Intelligence and Machine Learning in Receivables Management." In this webinar, he unpacked important developments shaping innovation and the use of artificial intelligence and machine learning in the receivables management industry and explored ways companies may be using AI and ML today and in the future, and can adopt processes for assessing risks and to help avoid discriminatory outcomes and related UDAAPs.

Keeping Up with Disclosures: SEC Punishes Kim Kardashian for Crypto Promotion

The U.S. Securities and Exchange Commission issued a cease-and-desist order to Kim Kardashian for failing to disclose that she received $250,000 to promote EthereumMax's digital tokens, "EMAX tokens," on social media. The SEC considers the EMAX token to be an investment contract, a type of security under the SEC's jurisdiction. EMAX tokens are available for public trading on cryptocurrency exchanges, and the SEC found that purchasers would have had a reasonable expectation of profits from their investment in EMAX tokens as a result of the efforts of the company behind the token.

FTC Joins with California DFPI to Obtain Asset Freeze Against Mortgage Relief Business

The Federal Trade Commission turned its attention to the mortgage relief industry once again. In its most recent enforcement action, the FTC joined forces for the first time with the California Department of Financial Protection and Innovation. On September 12, 2022, the agencies jointly filed a complaint in the U.S. District Court for the Central District of California against several companies alleged to have operated a mortgage relief scam. Two days later, the court issued a temporary restraining order appointing a receiver and freezing the defendants’ assets until the parties can be heard on whether to issue a preliminary injunction.