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  • House passes bipartisan bill granting Federal Reserve exclusive authority to implement Volcker Rule

    Federal Issues

    On April 13, the House passed H.R. 4790, the “Volcker Rule Regulatory Harmonization Act,” by a vote of 300-104. The bipartisan bill designates the Federal Reserve Board (Fed) as the exclusive regulatory authority to implement and amend rules under Section 13(b) of the Bank Holding Company Act. (Currently the Fed, the OCC, the FDIC, the SEC, and the CFTC share rulemaking authority under the rule.) H.R. 4790 also provides clear exemptions for banking entities with $10 billion or less in consolidate actions or those comprised of five percent or less of trading assets and liabilities. A similar exemption is included in the bipartisan Senate financial regulatory reform bill, S.2155, which passed the Senate in March (previously covered by InfoBytes here). According to a press release issued by the House Financial Services Committee, while H.R. 4790 does not repeal the Volcker Rule—which restricts banking entities from engaging in proprietary trading or entering into certain relationships with hedge and private equity funds—it does create a streamlined, efficient framework to provide increased regulatory clarity for entities required to comply with the rule.

    Federal Issues Federal Legislation U.S. House Volcker Rule Federal Reserve Bank Holding Company Act

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  • Conference of State Bank Supervisors releases nationwide list of fintech innovation contacts


    On April 10, following a nationwide fintech forum for state banking regulators and financial services executives co-hosted by the New York Department of Financial Services and the Conference of State Banking Supervisors (CSBS), CSBS issued a press release announcing that regulators from all 50 states and the District of Columbia have designated an “Innovation Staff Contact” within each of their offices to facilitate and streamline communications between state regulators and the financial services industry. Fintech topics include money transmissions, payments, lending, and licensing. According to the president of CSBS, “State regulators see how fintech is reshaping the financial services industry. And an Innovation Contact is but the latest step that states are taking to engage with industry and modernize nonbank regulation.” Last year, as previously covered in InfoBytes, CSBS introduced “Vision 2020,” an initiative geared towards streamlining the state regulatory system to support business innovation and harmonize licensing and supervisory practices, while still protecting the rights of consumers. Additionally, this past February, CSBS announced that financial regulators from seven states have agreed to a multi-state compact that will offer a streamlined licensing process for money services businesses, including fintech firms. (See previous InfoBytes coverage here.)

    Fintech NYDFS CSBS Nonbank Supervision

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  • Bank petitions for rehearing of 9th Circuit preemption decision; OCC intends to file support for bank


    On April 13, a national bank filed a petition for an en banc rehearing of the U.S. Court of Appeals for the 9th Circuit’s March decision, which held that a California law that requires the bank to pay interest on escrow funds is not preempted by federal law. As previously covered by InfoBytes, the 9th Circuit held that the Dodd-Frank Act of 2011 (Dodd-Frank) essentially codified the existing National Bank Act (NBA) preemption standard from the 1996 Supreme Court decision in Barnett Bank of Marion County v. Nelson. The panel cited to Section 1639d(g)(3) of Dodd-Frank, which, according to the opinion, expresses Congress’ view that the type of law at issue does not “prevent or significantly interfere with a national bank’s operations” because the law does not “prevent or significantly interfere” with the national bank’s exercise of its power. Additionally, the 9th Circuit concluded that the OCC’s 2004 preemption regulation had no effect on the preemption standard.

    In its petition for rehearing, the bank argues that the 9th Circuit’s decision, if allowed to stand, “will create confusion regarding which state laws apply to national banks and restrict the terms on which they may extend credit” because the decision conflicts with previous decisions by the same court, the Supreme Court, and other circuits. The bank also acknowledges the OCC’s intent to file an amicus curiae brief in support of the petition no later than April 23.

    Courts Ninth Circuit Appellate State Issues Escrow National Bank Act Mortgages OCC Preemption

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  • FTC and Florida Attorney General settle with debt relief scammers

    Consumer Finance

    On April 12, the FTC and the Florida Attorney General announced an $85 million settlement with three individuals who allegedly sold fake debt relief services. As previously covered by InfoBytes, in May 2017, the FTC and the Florida Attorney General filed a complaint against the individuals for allegedly violating the FTC Act, the FTC’s Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act. According to the complaint, consumers, after collectively paying hundreds or thousands of dollars a month for promised debt-consolidation services marketed by the individuals, discovered their debts were unpaid, their accounts had defaulted, and their credit scores damaged. Under the proposed orders (here and here), all three marketers are restrained and enjoined from “advertising, marketing, promoting, offering for sale, selling” credit repair products and services, debt relief products and services, and financial products and services. The $85 million judgment is held jointly and severally against each of the individuals with a suspended judgment for two if all material assets are surrendered. The judgment for the third individual, considered the ringleader of the operation, is not suspended and the individual is still required to surrender all material assets.

    Consumer Finance Federal Issues State Issues State Attorney General FDCPA Debt Collection FTC

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  • Houses passes two bipartisan bills to ease stress test requirements and nonbank challenges to SIFI designations

    Federal Issues

    On April 11, by a vote of 245-174, the House passed H.R. 4293, the “Stress Test Improvement Act of 2017,” which would amend the Dodd-Frank Act to modify stress test requirements for bank holding companies and certain nonbank financial companies. Among other things, H.R. 4293 prohibits the Federal Reserve Board’s (Board) to object to a company’s capital plan “on the basis of qualitative deficiencies in the company’s capital planning process” when conducting a Comprehensive Capital Analysis and Review (CCAR), and reduces the frequency of stress testing from semiannual to annual. As previously covered in InfoBytes, on April 10, the Board issued its own proposed changes intended to simplify the capital regime applicable to bank holding companies with $50 billion or more in total consolidated assets by integrating the Board’s regulatory capital rule and CCAR and stress test rules.

    Separately on April, 11, the House passed H.R. 4061 by a vote of 297-121. The bipartisan bill, “Financial Stability Oversight Council (FSOC) Improvement Act of 2017,” would require FSOC to consider the appropriateness of subjecting nonbank financial companies (nonbanks) designated as systemically important to prudential standards “as opposed to other forms of regulation to mitigate the identified risks.” Among other things, the bill would also require FSOC to allow nonbanks the opportunity to meet with FSOC to present relevant information to contest the designation both during an annual reevaluation, as well as every five years after the date of final determination.

    Federal Issues Federal Legislation U.S. House Stress Test Dodd-Frank Federal Reserve FSOC SIFIs Nonbank Supervision

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  • Fannie Mae and Freddie Mac release updates to servicing guides

    Federal Issues

    On April 11, Fannie Mae updated its Servicing Guide, regarding servicing transfer welcome calls. Pursuant to Fannie Mae SVC-2018-03, transferee servicers are no longer required to, among other things, initiate welcome calls within five days of the transfer of servicing. Transferee servicers may now implement their own processes for borrower contact as long as the servicer remains in compliance with applicable laws. Fannie Mae also updated the Servicing Guide to add flexibility in connection with the collection of escrow shortages during a mortgage modification.  Under the amendment to the Servicing Guide, servicers may spread repayment of the shortage amount over a term of up to 60 months, unless the borrower decides to pay up-front. Additionally, Fannie Mae released a revised Reverse Mortgage Loan Servicing Manual, which includes updates to expense reimbursement claim submissions and mortgage loan status codes.

    On the same day, Freddie Mac released Guide Bulletin 2018-6, which, among other things, updates servicer requirements on Subsequent Transfers of Servicing (STOS) and borrower-paid mortgage insurance. Effective July 23, transferor servicers must use the automated STOS request system and new transfer requests must be submitted at least 45 days and no more than 60 days prior to the effective date of the transfer. The Bulletin also provides additional details on initiating the electronic STOS and executing the STOS agreement. There will be a temporary moratorium on STOS requests and modifications to existing requests from July 9 through July 20, in order for Freddie Mac to implement the new process.

    Separately, the Bulletin includes various changes to streamline servicer responsibilities in canceling borrower-paid mortgage insurance, such as now allowing servicers to process a borrower’s verbal request to cancel mortgage insurance and simplifying the process to determine current value.  

    Consistent with the Fannie updates, Freddie Mac also modified its escrow shortage collection requirements to allow repayment to be spread over up to 60 months.

    Federal Issues Fannie Mae Freddie Mac Servicing Guide Mortgages Mortgage Modification Mortgage Servicing Reverse Mortgages Mortgage Insurance

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  • Arizona governor amends data breach law, updates security freeze legislation

    Privacy, Cyber Risk & Data Security

    On April 11, the Arizona governor signed HB 2154 to amend the state’s existing data breach notification law. The amendments require entities conducting business in the state that maintain, own, or licenses unencrypted and unredacted computerized data to conduct a reasonable investigation of possible breaches of personal information. Owners or licensees of personal information must then notify affected individuals within 45 days, pending the needs of law enforcement. Key amendment highlights are as follows:

    • makes revisions to definitions, which include (i) expanding “personal information” to include a combination of a user’s name, password/security question, and answer that grants access to an online account; (ii) defining the term “redact”; and (iii) clarifying that a “specified data element” now includes an individual’s unique “private key” used when authenticating or signing an electronic record;
    • adds a requirement that for breaches impacting more than 1,000 individuals, the Attorney General and the three largest consumer reporting agencies must be notified in writing;
    • amends a provision concerning “substitute notice,” which removes requirements that a notification must to be sent to affected individuals via email as well as notifying major statewide media. The amendments now stipulate that an entity is required to notify the Attorney General’s office in writing to demonstrate the reasons for substitute notice in addition to posting a notice on the entity’s website for at least 45 days; and
    • clarifies a section that states entities are no longer required to notify affected individuals if an independent third-party forensic auditor or law enforcement agency “determines after a reasonable investigation that a security system breach has not resulted in or is not reasonably likely to result in substantial economic loss to affected individuals.”

    Separately, on April 3, the governor signed SB 1163, which amends existing law to prohibit credit reporting agencies from charging a fee to a consumer for the placement, removal, or temporary lifting of a security freeze. Moreover, it prevents credit reporting agencies from charging fees for replacing a lost personal identification number or password. 

    Both bills are scheduled to take effect 91 days after the end of the legislative session.

    Privacy/Cyber Risk & Data Security State Issues State Legislation Data Breach Security Freeze

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  • OFAC sanctions Russian oligarchs and government officials; releases new general licenses and updated FAQs

    Financial Crimes

    On April 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced its decision to sanction seven Russian oligarchs along with 12 companies they own or control, 17 senior Russian government officials, and a state-owned Russian weapons trading company and its Russian bank subsidiary, pursuant to the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA) and Executive Orders 13661, 13662, and 13582. In a foreign policy statement released the same day, President Trump explained that the identified persons placed on the Specially Designated Nationals (SDNs) and Blocked Persons List engaged in actions that have reportedly contributed to “advancing Russia’s malign activities,” including (i) profiting from “Russia's destabilizing activities”; (ii) election meddling; (iii) undermining U.S. cybersecurity; (iv) engaging in weapons proliferation; (v) continuing to occupy Crimea; (vi) instigating violence in eastern Ukraine; and (vii) providing military equipment and support for the Government of Syria's continued attacks against Syrian citizens. Pursuant to OFAC’s sanctions, all property or interests in property of the designated persons along with any other entity owned 50 percent or more by one or more designated persons that is within U.S. jurisdiction are blocked, and U.S. persons are “generally prohibited” from participating in transactions with these individuals and entities. Additionally, “non-U.S. persons could face sanctions for knowingly facilitating significant transactions for or on behalf of the individuals or entities blocked today.”

    The same day, OFAC issued two Ukraine-/Russia-related general licenses to “minimize immediate disruptions to U.S. persons, partners, and allies.” General License 12 authorizes through June 5 certain activities necessary to “wind down” operations, contracts, or agreements in effect prior to April 6 involving specified blocked persons. General License 13 authorizes through May 7 divestiture transactions with certain blocked persons to a non-U.S. person, as well as the facilitation of transfers of debt, equity, or other holdings involving listed blocked persons by a non-U.S. person to another non-U.S. person. OFAC also released eight new FAQs related to this action and published one updated FAQ related to CAATSA.

    Visit here for additional InfoBytes coverage on Ukraine/Russian sanctions.

    Financial Crimes OFAC Department of Treasury Sanctions CAATSA Russia Ukraine Trump

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  • Electronic contracting tools provide evidence and records necessary to undermine opposing affidavits


    On April 3, the Court of Appeals of North Carolina upheld an agreement executed using a third-party electronic contracting service vendor, after finding that the agreement was ratified by the plaintiff’s conduct, even if an unauthorized employee executed it in the first instance. The plaintiff argued that it had never seen the contract and that an employee must have electronically signed the contract without authority. However, the defendant produced evidence and an affidavit showing that its electronic contracting vendor had sent the contract to the plaintiff’s email address, that the emails were viewed and the link to the contract was opened, and that the contract was electronically signed in the vendor’s system. The record also showed several other emails referencing the agreement sent to plaintiff and responses thereto by plaintiff. The court observed that “[w]ere this a more traditional contract negotiation, in which the parties had mailed proposed contracts back and forth, a sworn affidavit stating that [plaintiff] never reviewed or signed the contracts might be sufficient to create a genuine issue of material fact” as to plaintiff’s knowledge of the agreement and its terms, but in the electronic context, the affidavits and audit trails produced by the vendor foreclosed any genuine dispute that the plaintiff company had received the agreement and had knowledge of it before ratifying it through its actions.

    Fintech Courts State Issues ESIGN

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  • Court upholds clickwrap agreement, reiterating that general principles of contract apply


    On March 28, the U.S. District Court of New Mexico enforced an arbitration agreement entered into by a consumer on a website. Before completing a purchase of a product through the defendant’s website, the plaintiff had to check a box next to a statement that she had read and agreed to the terms of the hyperlinked user agreement, which included an arbitration clause. The defendant was able to present evidence that it was impossible for the plaintiff to complete the purchase without checking the box and clicking on a button to accept the agreement. Plaintiff provided testimony that she couldn’t remember ever seeing the terms of use or agreeing to them.

    The court, in upholding the agreement, reiterated that electronic contracts are still governed by traditional contract principles, including reasonable notice and unambiguous assent requirements. Because the agreement was made available, twice via hyperlink, and because the plaintiff acknowledged her awareness and assent of the agreement by clicking a button in the affirmative twice, the court held that the plaintiff had sufficient notice and had demonstrated adequate assent to the terms. This decision reinforces the effectiveness of electronic arbitration agreements and the use of hyperlinks to present documents, when presented in a manner consistent with underlying contract law.

    Fintech Courts ESIGN Arbitration

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