Legal and Regulatory Developments
Navigating the CFPB’s Nonbank Enforcement Action Registry Coverage and Deadlines
It may be a familiar role for legal and compliance teams to advise on and implement compliance decisions related to registrations, but that doesn't mean the upcoming deadlines for complying with the first-of-its-kind CFPB nonbank registry won't produce hand-wringing and angst.
A Variety of Fees and Surcharges Implicated in Early Cases Enforcing California's Honest Pricing Law
Since July 1, when California's "Honest Pricing Law" or "Hidden Fees Statute" became effective, the plaintiffs' bar has filed more than a dozen complaints alleging violations of the statute. These complaints challenge alleged "junk fees" or "drip pricing" structures, including "service fees" charged by merchants through their websites, "processing fees" charged by third-party platforms, and various forms of credit card surcharges and debit card fees.
CFPB Issues FAQs: Expands Interpretive Rule for BNPL Products
On September 18, the CFPB issued a set of Frequently Asked Questions (FAQs) related to Buy Now, Pay Later (BNPL) products. These FAQs follow the CFPB's release of the 2024 BNPL Interpretive Rule, which subjected BNPL products to certain provisions of Regulation Z that typically apply to conventional credit card providers. The Interpretive Rule became effective on July 30, 2024. However, on August 16, 2024, Director Chopra stated in a BNPL blog post that the CFPB would not enforce the rule right away.
Federal Agencies Increase Focus on Pricing Enforcement
The Federal Trade Commission and U.S. Department of Justice jointly hosted a public meeting of the interagency "Strike Force on Unfair and Illegal Business Practices." The meeting was a continuation of an effort, initially announced by President Biden in March, to "strengthen interagency efforts to root out and stop illegal corporate behavior that hikes prices on American families through anti-competitive, unfair, deceptive, or fraudulent business practices," according to a press release.
Custody Battles: The FDIC's Latest Proposed Rule on FBO Accounts
The FDIC has issued a proposed rule that would apply to practically all bank-fintech arrangements that use custodial deposit accounts to provide customers with transactional features (also called "FBO" accounts for short). The proposed rule would impose prescriptive and technical requirements directly on insured depository institutions and affect fintechs or other third-party service providers that rely on these types of accounts. If the proposed rule is adopted, banks and fintechs will need to reassess their contracts related to custodial account services, data formats for sharing and reporting data, recordkeeping and access to data, validation and reconciliation efforts, business continuity, and related concerns.
Banking on a Nonbank Bank in 2024—The ILC Option Revisited
Becoming or owning an industrial loan company (or ILC)—the elusive "nonbank bank" option, as Congress coined the term in 1987— still has an allure for financial services providers that want to (1) lend on a national scale while avoiding state-by-state licensure, (2) accept (insured) deposits with some limits, and (3) avoid full, comprehensive regulation and supervision of parent companies and various affiliates by the Federal Reserve under the Bank Holding Company Act.
Missouri Tells Commercial Financing Providers to "Show Me" Disclosures
Missouri is the latest state to enact a disclosure requirement for commercial financing, joining the growing number of states that have done the same. California, New York, Utah, Virginia were the first states to pass some form of commercial financing disclosure law, followed by Connecticut, Florida, Georgia, and Kansas.
CFPB to Tackle Customer Service, Chatbots
The CFPB is expected to initiate a rulemaking process that would require companies under its jurisdiction to let customers talk to a human by pressing a single button.
CFPB Proposes Revamping Mortgage Servicing Rules
The CFPB released its much-anticipated proposed update to the mortgage servicing rules in July that would make permanent many of the temporary servicing rules enacted in response to the COVID-19 pandemic. The proposed changes would represent a large shift in servicer practices by allowing servicers to offer loss mitigation relief to borrowers earlier than servicers can do now and without a "complete application" under the current mortgage servicing rules. The proposed rule would also provide updated borrower protections related to loss mitigation options, early intervention communications, and language requirements for borrower communications.
FDIC Rethinks Brokered Deposits, Again
The FDIC recently proposed a rule that would substantially change the 2020 final rule on brokered deposits that largely liberalized the FDIC’s framework. The proposed rule would eliminate many of the changes from 2020 and return to a more restrictive and cautious approach that could affect many banks and non-banks by bringing more entities under the brokered deposits regulation and classifying more deposits as brokered.
Federal Banking Agencies Highlight Bank-Fintech Partnership Risks and Invite Comment
On July 25, 2024, the federal banking agencies issued a joint statement flagging potential risks in bank-fintech arrangements, along with a request for public information (RFI) on the benefits, risks, and risk management practices associated with these innovative and often complex arrangements. The RFI requests feedback on a broad range of bank-fintech arrangements, including with respect to deposits, payments, and lending products and services; how they are structured; their benefits and risks; best practices for managing safety, soundness, and risk, and competition.
Loper Bright, Jarkesy, Corner Post, and Cantero – Reconciling the Supreme Court’s Overhaul of Agency Action in the Financial Services Industry
Through a series of opinions, the Supreme Court’s most recent term has created a watershed moment for agencies and regulated industries, particularly for financial services. Our discussion focused on these cases and how they are going to impact regulatory agency action moving forward, with an emphasis on how these decisions may change regulator activity with respect to financial services providers and banking institutions.
FDIC Finalizes Large Bank Resolution Plan Rule and OCC Proposes Changes to Recovery Plans
The FDIC recently finalized its resolution planning rule for large banks, which becomes effective October 1, 2024. Resolution plans, or "living wills," are plans to wind down operations in the event of bank failures. The current rule requires covered insured depository institutions (CIDIs) with $50 billion or more in total assets to periodically submit resolution plans to the FDIC. The FDIC has made key changes based on its experience with the filings over the last decade generally and the 2023 spring bank failures specifically.
Supreme Court Broadens Statute of Limitations for Challenges to Federal Regulations
In the last of a series of watershed opinions this term that curtail federal agency power, the Supreme Court in Corner Post, Inc. v. Board of Governors of the Federal Reserve System has ruled (6-3) that the statute of limitations for challenging agency action under the Administrative Procedure Act (APA) does not accrue until the specific plaintiff in question has been injured. The holding opens the door for challenges to long-standing rules, including the rule at issue in Corner Post, which the Federal Reserve promulgated in 2011 to set the maximum interchange fees for debit card transactions.
California Amends Autorenewal Law, with Stricter Consent Requirements and a "One Save" Rule