September 2023

Consumer Financial Services Practice Digest

4 min

Legal and Regulatory Developments

CFPB Releases FCRA Rulemaking Outline Topics

The CFPB is exploring rule changes under the FCRA, releasing proposals to enhance consumer protection, improve data security, and ensure fair credit reporting. These proposals include defining data brokers as consumer reporting agencies, clarifying credit header data treatment, addressing targeted marketing, updating permissible purposes, enhancing data security, improving dispute resolution, and prohibiting medical debt use. Small businesses are being consulted through a Small Business Review Panel.

CFPB Weighs in on Credit Denials by Lenders When Using AI and Complex Credit Models

The CFPB has issued a Circular outlining adverse action notification rules and the correct use of CFPB sample forms in relation to AI and complex credit models. Financial institutions must ensure compliance with legal requirements, including anti-discrimination laws. The Circular clarifies that adverse action notices must be specific and accurately reflect the reasons for the decision. It also addresses the challenges posed by AI algorithms using unconventional data sources and highlights the importance of specificity in adverse action notices for consumers to understand decisions.

Fed Study Looks at Fintech-Issued Personal Loans and Role of Specialist Banks

A Federal Reserve Board study reveals that FinTech lenders are leveraging federal preemptions from state interest rate limits to profitably lend to higher-risk consumers in states with low rate ceilings. This poses regulatory challenges, but it also ensures access to credit for underserved populations. FinTech-bank partnerships focus on near-prime and low-prime consumers in states with restrictive rate ceilings. The study underscores the importance of understanding state laws and conducting due diligence in FinTech-bank partnerships.

Breaking Down the Proposed Rule to Bail In More Banks

The article discusses a proposed rule aimed at broadening bail-in requirements for banks within resolution plans. It outlines key aspects of the rule, including the identification of material entities, the handling of qualified financial contracts, and the potential consequences for financial institutions.

California Expands UDAAP Prohibitions to Commercial Financing

California has expanded its Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) prohibitions to encompass commercial transactions, not just consumer transactions. This development increases compliance obligations for businesses operating in California, as they must now ensure their practices are in line with the expanded UDAAP regulations in both consumer and commercial dealings.

All Things Seen and Unseen: Bank Supervision and Enforcement After the Spring 2023 Bank Failures

The article explores the evolving landscape of bank supervision, discussing both the visible and less apparent aspects of regulatory oversight. It delves into the roles of various agencies in supervising banks, the impact of technology on supervision, and the importance of understanding both the overt and covert dimensions of regulatory compliance for financial institutions.

What the Proposed Capital Rule Means for Smaller Banks and Other Non-Bank Participants in the Financial Services Market

The article analyzes the implications of a proposed capital rule on the financial industry. It discusses how the rule aims to revise and simplify the regulatory capital requirements for banking organizations. The article highlights key changes and considerations for financial institutions as they navigate potential adjustments to their capital management strategies.

Federal Reserve Updates Framework for Stablecoins, Digital Assets, and Other New Tech Activities

The Federal Reserve has updated its framework for assessing the stability of U.S. banks, with a focus on large financial institutions. The article highlights the key changes in this framework, emphasizing the importance of ensuring the continued stability of the financial system and the need for banks to adapt to evolving risks and challenges.

The FDIC Continues Its Crackdown on False or Misleading Deposit Insurance Advertising

The FDIC is intensifying its efforts to combat false or misleading statements by banks. This article discusses recent enforcement actions and guidance from the FDIC aimed at ensuring banks' transparency and accuracy in their communications with customers and investors. It underscores the importance of compliance with regulatory standards in maintaining trust and stability in the financial sector.

Another Day, Another Decision Interpreting Section 19 of the FTC Act

The article discusses a recent legal decision interpreting Section 19 of the FTC Act, which relates to cease and desist orders. It highlights the court's analysis and implications for businesses regarding the FTC's authority to seek monetary relief and the limitations on such actions under Section 19 of the FTC Act.