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  • OCC to Host Operational Risk Workshop, Will Hold Innovation Office Hours

    Agency Rule-Making & Guidance

    On July 25, the OCC will host an operational risk workshop in Charleston, WV for directors of national community banks and federal savings associations supervised by the OCC. The workshop will focus on the key components of operational risk, governance, third-party risk, vendor management, and cybersecurity.

    Additionally, on July 24 through the 26, the OCC’s Office of Innovation will hold “Office Hours” in New York City for national banks, federal savings associations, and fintech companies to provide an opportunity for attendees to discuss matters related to financial technology, new products and services, bank or fintech partnerships, as well as other items related to financial innovation. Meeting requests are due by July 5 and may be submitted here.

    Agency Rulemaking & Guidance OCC Risk Management Vendor Management Privacy/Cyber Risk & Data Security

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  • 15 State Attorneys General Clarify Data Breach Notification Laws

    Privacy, Cyber Risk & Data Security

    On June 5, 15 state attorneys general issued a joint letter to an e-commerce hosting company refuting the company’s assertion in its FAQ provided to online retailers that they are not obligated to notify customers of a data breach in situations where credit card CVV numbers were not disclosed. According to claims made by the attorneys general, the company erroneously stated that, pursuant to the identified states’ data breach notification laws, “there is no obligation to notify in those states . . . if your customers’ CVV data was not exposed.” The attorneys general argued that this is incorrect and stated, “[t]he CVV number does not have to be disclosed to trigger our states’ notification obligations.” The letter noted as an example, New York General Business Law § 899-aa(1)(b)(3), which stipulates that companies must provide notification of a data breach to affected customers when a credit or debit card number plus “any required security code, access code, or password” that would permit access to the account is obtained by an unauthorized party. The attorneys general stated that a CVV code is not a required access code because the card can be used without it. The company is required to provide clarification regarding its FAQ to affected client retailers.

    Privacy/Cyber Risk & Data Security State AG Data Breach Credit Cards Consumer Finance

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  • BAFT Announces 2017 Global Payments Symposium; Will Highlight Advances in Payments Innovation, Blockchain, and Artificial Intelligence

    FinTech

    On July 19 and 20, the Bankers Association for Finance and Trade (BAFT) will host its 2017 Global Payments Symposium in New York City. The symposium will help bankers and payments professionals understand the latest innovation trends affecting compliance, payments, blockchain, fintech, cybercrime, and artificial intelligence, among others. BAFT will also discuss methods to integrate innovations into the business lines and how global challenges and best practices impact the U.S.

    Fintech BAFT Blockchain Privacy/Cyber Risk & Data Security Payments

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  • House Financial Services Committee Advances Two Flood Insurance Measures, Delays Action on Other Bills

    Federal Issues

    On June 15, the House Financial Services Committee announced it had passed two flood insurance measures during a meeting to consider several bills to reform and reauthorize the National Flood Insurance Program (NFIP).

    The Committee approved the 21st Century Flood Reform Act of 2017 (H.R. 2874) by a vote of 30-26. The bill, sponsored by Rep. Sean Duffy (R-Wis.), is designed to (i) improve the financial stability of the NFIP; (ii) improve the development of more accurate flood risk estimates through new technology and better maps; (iii) “increase the role of private markets in the management of flood insurance risks”; and (iv) “provide for alternative methods to insure against flood peril.”

    Also approved by a vote of 53-0 was the National Flood Insurance Program Policyholder Protection Act of 2017 (H.R. 2868). The bill, sponsored by Rep. Lee Zeldin (R-N.Y.), is designed to protect NFIP policyholders from “unreasonable premium rates” and require FEMA to analyze “the unique characteristics of flood insurance coverage of urban properties” such as cooperative housing projects.

    The Committee will consider additional measures the week of June 19.

    Federal Issues House Financial Services Committee National Flood Insurance Program

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  • Illinois Finalizes Digital Currency Regulatory Guidance

    FinTech

    On June 13, the Illinois Department of Financial and Professional Regulation (IDFPR) issued final guidance on the regulatory treatment of digital currencies with an emphasis on decentralized digital currencies. (See IDFPR news release here). As previously covered in InfoBytes, the IDFPR requested comments on its proposed guidance in December of last year in order to devise the proper regulatory approach to digital currency in compliance with money transmission definitions in the Illinois Transmitters of Money Act, 205 Ill. Comp. Stat. 657/1, et seq. (TOMA).

    The “Digital Currency Regulatory Guidance” clarifies that digital currencies are not money under TOMA, and therefore, those engaged in the transmission of digital currencies are not generally required to obtain a TOMA license. The IDFPR noted, however, that “should transmission of digital currencies involve money in a transaction, that transaction may be considered money transmission” and suggested persons engaging in such transactions request a determination regarding whether or not the activity will require a TOMA license.

    To provide additional clarity, the guidance includes examples of common types of digital currency transactions that qualify as money transmissions, as well as examples of activities that do not qualify as money transmission.

    Fintech State Issues Digital Commerce Virtual Currency Money Service / Money Transmitters

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  • CFPB Seeks Comments on Proposed Amendments to Prepaid Rule, Releases Updated Small Entity Compliance Guide

    Agency Rule-Making & Guidance

    On June 15, the CFPB announced a request for comment on proposed amendments to Regulation E, which concerns prepaid accounts under the Electronic Fund Transfer Act (EFTA) and the Truth in Lending Act (Regulation Z). According to the Bureau, the request aims to address prepaid companies’ concerns over “unanticipated complexities” regarding certain aspects of the rule. As previously covered in InfoBytes, in April the CFPB issued a final rule delaying the general effective date to April 1, 2018. The prepaid rule provides consumers, among other things, additional federal protections under EFTA on prepaid financial products, person-to-person payment products, and other electronic accounts with the ability to store funds. Specifically, the proposed amendments would impact error resolution requirements for unregistered accounts, enhance flexibility for credit cards linked to digital wallets, and open for consideration whether a further delay to the rule’s effective date is necessary due to the proposed amendments or if safe harbor provisions should be added for early compliance. The proposal also addresses amendments affecting the following: (i) the exclusion of loyalty, award, or promotional gift cards; (ii) “unsolicited issuance of access devices and pre-acquisition disclosures”; and (iii) submission of account agreements to the Bureau. Comments are due 45 days after the request is published in the Federal Register.

    Separately, on the same day, the Bureau released an updated edition of its small entity compliance guide for the prepaid rule. The guide notes the new effective date, and also offers clarification on prepaid reload packs, the consistent use of fee names and other terms, foreign language disclosure requirements, URL names in short form disclosures, mobile accessible transaction histories, account agreement submissions to the Bureau, and clarification that stipulates “reversing a provisional credit does not otherwise trigger Regulation Z coverage under the Prepaid Rule.”

    Agency Rulemaking & Guidance CFPB Prepaid Rule EFTA TILA Regulation E Regulation Z Prepaid Cards

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  • ABA, State Bankers Associations Respond to HUD’s Request for Comment; Discuss Need to Clarify Disparate Impact

    Agency Rule-Making & Guidance

    On May 15, HUD issued a request for comment on its review of regulations as required by Executive Order 13777, which compels each agency to review and carry out regulatory reform. According to the request for comment, the self-assessment will address suggestions for “specific current regulations that may be outdated, ineffective, or excessively burdensome, and therefore, warranting repeal, replacement, or modification.” The request, which closed for public comment on June 14, received 100 comments from state bankers associations, financial institutions, and individuals.

    American Bankers Association (ABA) and State Bankers Associations. On June 14, a joint comment letter was sent on behalf of the ABA and state bankers associations representing all 50 states. A key issue raised by the letter was that HUD adopted an incorrect and improper standard for disparate impact liability in its rule implementing the Fair Housing Act’s discriminatory effects standard—a rule the groups calls “outdated and legally wrong.” Under the terms of the rule, HUD provided that “[l]iability may be established under the Fair Housing Act based on a practice’s discriminatory effect . . . even if the practice was not motivated by a discriminatory intent” and then articulated a burden shifting framework for such claims in which a plaintiff can establish a prima facie case using statistics alone. However, the groups claim that the burden shifting framework conflicts with a Supreme Court decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, and assert that “a case premised on statistics alone is a prime example of an abuse of disparate impact.” The groups further wonder if HUD will “maintain the supervisory view that statistics alone can establish a prima facie case, as stated in the [r]ule[.]” It is the opinion of the groups that the Supreme Court enforced strict limitations of the use of disparate impact—“in stark contrast to the Rule’s approach”—in order to “avoid injecting the consideration of race into decision making and . . . address important constitutional concerns.” Thus, “[a] rule that creates, rather than eliminates, confusion undermines its own purpose and is entirely ineffective.” Furthermore, the letter (i) indicates that the groups are willing to engage in discussions with HUD on the topic of disparate impact, and (ii) raises the issue of whether a revised rule or a reopening of comments on the existing rule are in order.

    Agency Rulemaking & Guidance ABA HUD Fair Housing Disparate Impact

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  • Senators Introduce Bipartisan National Flood Insurance Program Reauthorization Bill

    Federal Issues

    On June 13, a bipartisan group of senators introduced draft legislation to reauthorize the National Flood Insurance Program (NFIP) for six years, while incorporating reforms to address sustainability, affordability, and efficiency. Senator Bob Menendez (D-N.J.), a senior member of the Senate Banking Committee overseeing the NFIP, and a co-sponsor of the Sustainable, Affordable, Fair and Efficient National Flood Insurance Program Reauthorization Act of 2017 (SAFE NFIP), stated in a press release issued by his office, “SAFE NFIP addresses critical problems with the program, administered by the Federal Emergency Management Agency (FEMA), following Superstorm Sandy and other disasters: unsustainability, low participation rates, inaccurate flood maps, an indifference to the benefits of flood control infrastructure, agency mismanagement, unsustainable debt service costs and contractor profiteering.” Among other things, the Act proposes a cap on premium rate hikes and an interest freeze on the NFIP’s debt to the Treasury for six years after enactment and fosters investments in mitigation efforts. U.S. Senators John Kennedy (R-La.), Chris Van Hollen (D-Md.), Marco Rubio (R-Fla.), Elizabeth Warren (D-Mass.), Thad Cochran (R-Miss.), Cory Booker (D-N.J.), and Bill Nelson (D-Fla.) cosponsored the bill.

    Federal Issues National Flood Insurance Program Senate Banking Committee Federal Legislation

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  • Nevada Passes Bill Revising Motor Vehicle Technology Device Provisions, Assigns Responsibility to Creditors and Lessors

    State Issues

    On June 12, Nevada Governor Brian Sandoval signed into law SB 350, which amends deceptive trade practices provisions to prohibit certain creditors and lessors of motor vehicles from installing or requiring installation of certain GPS and starter interrupt devices without written notice. Specifically, the bill requires creditors or long-term lessors to either provide advance written notice to, or obtain written agreement from, the consumer purchasing or leasing the vehicle before installing or requiring the installation of GPS devices. Additionally, the creditor/lessor must receive a written agreement from the consumer consenting to installation and use of a starter interrupt device. The bill outlines requirements and restrictions on the use of these technology devices, and provides that “such technology devices generally are the responsibility of a creditor or long-term lessor or, if applicable, any successor in interest or another secured party . . . .” It further specifies that “such responsibility includes paying for certain costs associated with, and any damage to a motor vehicle that is caused by, the use of such technology devices.” With the passage of SB 350, any violation of the aforementioned is a “deceptive trade practice.” The law takes effect July 1, 2017.

    State Issues Auto Finance State Legislation

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  • DOJ Intervenes in False Claims Act Litigation Against City of Los Angeles for Alleged Misuse of HUD Funds

    Courts

    On June 7, the Department of Justice (DOJ) announced that the United States has intervened (see proposed order here) in a lawsuit against the city of Los Angeles (City) alleging that the City misused Department of Housing and Urban Development (HUD) funds intended for affordable housing that is accessible to people with disabilities. See U.S. ex rel Ling et al v. City of Los Angeles et al, No. 11-00974 (D.C. Cal. 2017).

    The DOJ joins in the lawsuit originally instituted by a disabled Los Angeles resident, who filed the False Claims Act (FCA) suit as a whistleblower. The FCA whistleblower provision allows private citizens to file suit on behalf of the government and likewise permits the government to intervene in the suit. Together, the DOJ and the whistleblower allege that the City and a city agency called the CRA/LA falsely certified compliance with federal accessibility laws, including the Fair Housing Act and Section 504 of the Rehabilitation Act as well as the duty to further fair housing in the City, in order to receive millions of dollars in HUD housing grants.

    As recipients of the HUD funds, the City and the CRA/LA were obligated to ensure that (i) “five percent of all units in certain federally-assisted multifamily housing be accessible for people with mobility impairments”; (ii) “an additional two percent be accessible for people with visual and auditory impairments”; (iii) “the City and the CRA/LA maintain a publicly available list of accessible units and their accessibility features”; (iv) “the City and the CRA/LA have a monitoring program in place to ensure people with disabilities are not excluded from participation in, denied the benefits of, or otherwise subjected to discrimination in, federally-assisted housing programs and activities solely on the basis of a disability.” The false certifications resulted in too few accessible housing units, the suit claims.

    The City denies the allegations.

    Courts HUD Litigation Fraud False Claims Act / FIRREA Whistleblower Fair Housing DOJ

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