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  • NYDFS Files Independent Lawsuit Against OCC Fintech Charter

    FinTech

    Following the April 26 lawsuit filed by the Conference of State Bank Supervisors (CSBS) opposing the OCC’s fintech charter (see previous InfoBytes post), the New York Department of Financial Services (NYDFS) filed its own lawsuit on May 12, asking the court to block the OCC from creating a new special purpose fintech charter. “The OCC’s charter decision is lawless, ill-conceived, and destabilizing of financial markets that are properly and most effectively regulated by New York and other state regulators,” NYDFS Superintendent Maria T. Vullo said in a statement announcing the lawsuit. “This charter puts New York financial consumers . . . at great risk of exploitation by newly federally chartered entities seeking to be insulated from New York’s strong consumer protections.” NYDFS’s complaint, filed in the U.S. District Court for the Southern District of New York, alleges that the OCC’s charter would include “vast preemptive powers over state law.” Specific concerns include the risk of (i) weakened regulatory controls on usury, payday loans, and other predatory lending practices; (ii) consolidation of multiple non-depository business lines under a single federal charter, thus creating more “too big to fail” institutions; and (iii) creating competitive advantages for large, well-capitalized fintech firms that could overwhelm smaller market players and thus restrict innovation in financial products and services. The complaint also asserts that the “OCC’s action is legally indefensible because it grossly exceeds the agency’s statutory authority.” Finally, the complaint claims that the proposed fintech charter would injure NYDFS monetarily because the regulator’s operating expenses are funded by assessments levied by the OCC on New York licensed financial institutions. According to NYDFS, every non-depository financial firm that receives a special purpose fintech charter from the OCC in place of a New York license deprives NYDFS of crucial resources that are necessary to fund its regulatory function.

    Citing violations of the National Bank Act and conflicts with state law in violation of the Tenth Amendment of the U.S. Constitution, NYDFS seeks declaratory and injunctive relief that would declare the fintech charter proposal to be unlawful and prohibit the OCC from taking further steps toward creating or issuing the charter without express Congressional authority.

    In a press release issued the same day, the CSBS said it “strongly supports the [NYDFS] lawsuit” and reiterated that the OCC “does not have the authority to issue federal charters to non-banks, and its unlawful attempt to do so will harm markets, innovation and consumers.”

    Fintech OCC NYDFS CSBS Licensing Agency Rulemaking & Guidance

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  • OCC Issues Revised Comptroller’s Licensing Manual Booklets

    Agency Rule-Making & Guidance

    On May 8, the OCC announced the release of a revised Fiduciary Powers booklet of the Comptroller’s Licensing Manual, which replaces the version issued in June 2002, and applies to all national banks and federal savings associations proposing to exercise fiduciary powers. This revised booklet incorporates updated procedures and requirements following the integration of the Office of Thrift Supervision (OTS) into the OCC in 2011 and the revisions to 12 C.F.R. § 5 (effective July 1, 2015), which address applications for national banks and federal savings associations proposing to exercise fiduciary powers. Specifically, the revised booklet addresses the: (i) policies and procedures to guide a bank in submitting a request to exercise fiduciary powers or submitting a notice to the OCC that it is exercising fiduciary powers in a new state; and (ii) procedures for a bank to surrender its fiduciary powers and for the OCC to revoke those powers. The booklet also lists references and links to informational resources to assist applicants during the filing process.

    That same day, the OCC also released a revised Public Notice and Comments booklet of the Comptroller’s Licensing Manual, which replaces the version updated in March 2007. This revised booklet incorporates public notice and comments procedures and requirements that were updated following the integration of OTS into the OCC, and the issuance of revised 12 CFR Part 5, and applies to national banks and federal savings associations, unless otherwise noted, as well as federal branches and agencies of foreign banks. In particular, the booklet addresses the “general requirements related to the public notice process, impact of Community Reinvestment Act (CRA) performance on certain applications or notices (filings), application of the convenience and needs standard under the Bank Merger Act, and requirements and procedures for conducting public hearings, public meetings, and private meetings.”

    Agency Rulemaking & Guidance OCC Licensing

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  • Conference of State Bank Supervisors Announce Initiatives to Obviate Need for Fintech Charter, New York Joins Nationwide Mortgage Licensing System for Fintechs

    FinTech

    On May 10, the Conference of State Bank Supervisors (CSBS) announced a “series of initiatives to modernize state regulation of non-banks, including financial technology [fintech] firms.” The raft of initiatives, branded “Vision 2020,” appear to be generally geared towards streamlining the state regulatory system so that it is capable of supporting business innovation, while still protecting  the rights of consumers. As explained by CSBS Chairman and Texas Commissioner of Banking Charles G. Cooper, the CSBS is “committed to a multi-state experience that is as seamless as possible,” and, to this end, “state regulators will transform the licensing process, harmonize supervision [and] engage fintech companies.”

    The initial set of actions that CSBS and state regulators are taking includes the following: 

    • Redesign the Nationwide Multistate Licensing System (NMLS). CSBS plans to redesign the NMLS, which is a web-based system that allows non-depository companies, branches, and individuals in the mortgage, consumer lending, money services businesses, and debt collection industries to apply for, amend, update, or renew a license online. In particular, the CSBS’s redesign will “provide a more automated licensing process for new applicants, streamline multi-state regulation, and shift state resources to higher-risk cases.”
    • Harmonize multi-state supervision. CSBS has created “working groups to establish model approaches to key aspects of non-bank supervision,” to “enhance uniformity in examinations, facilitate best practices,” and “capture and report non-bank violations at the national level.” CSBS also intends to “create a common technology platform for state examinations.”
    • Form an industry advisory panelCSBS will “establish a fintech industry advisory panel to identify points of friction in licensing and multi-state regulation, and provide feedback to state efforts to modernize regulatory regimes.”
    • Assist state banking departments. CSBS intends to start “education programs” that “will make state departments more effective in supervising banks and non-banks.”
    • Make it easier for banks to provide services to non-banksCSBS is also “stepping up efforts to address de-risking—where banks are cautious about doing business with non-banks, due to regulatory uncertainty – by increasing industry awareness that strong regulatory regimes exist for compliance with laws for money laundering, the Bank Secrecy Act, and cybersecurity.”
    • Make supervision more efficient for third parties. CSBS also intends to “support[] federal legislation that would allow state and federal regulators to better coordinate supervision of bank third-party service providers.”

    By harmonizing the supervision and licensing system and working more closely together, state regulators appear to want to eliminate a key reason to seek the OCC charter, namely the ability to deal with one federal agency and follow a single set of rules. As previously covered in InfoBytes, the CSBS and a number of individual stakeholders have fiercely opposed the OCC’s other main fintech initiative—the development of a special purpose national bank charter for payments processors, online lenders and other new entrants in the financial industry. CSBS sued the OCC last month, arguing it lacked the legal power to move forward. The overall initiative appears to be a response to the OCC’s own “responsible innovation” efforts, which—as previously covered in InfoBytes—culminated in the creation of a new office last year to correspond with fintechs and the banks interested in partnering with them.

    Concurrent with CSBS’s Vision 2020 initiatives, on May 11, the New York State Department of Financial Services (NYDFS) announced that beginning July 1, 2017, it will transition to the NMLS to manage the license application and ongoing regulation of all nondepository financial institutions conducting business in the state, commencing with money transmitters. Specifically, on July 1, 2017, financial services companies holding New York money transmitter licenses will have the opportunity to transition those licenses to NMLS, and companies applying for new licenses will be able to apply through NMLS. As previously covered in InfoBytes, NMLS—a secure, web-based licensing system—will allow for easier on-line licensing renewal and enable NYDFS to “provide better supervision of the money transmitter industry by linking with other states to protect consumers.” Financial Services Superintendent Maria T. Vullo stressed that “[b]y working with the CSBS, which is leading the modernization of state regulation through Vision 2020, DFS is supporting the strong nationwide regulatory framework created by states to provide improved licensing and supervision by State regulators.”

    Additional information about NMLS can be accessed through the NMLS Resource Center.

    Fintech Licensing NYDFS NMLS Agency Rulemaking & Guidance CSBS OCC

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  • Vermont Enacts Law Expanding Requirements for Certain Businesses Regulated by Department of Financial Regulation

    State Issues

    On May 4, Vermont Governor Phil Scott signed into law H. 182, which amends a number of laws relating to businesses regulated by the state’s Department of Financial Regulation. Among other things, the law: (i) amends registration requirements for consumer litigation funding companies; (ii) amends the licensing requirements for licensed lenders, money transmitters, check cashers and currency exchangers, debt adjusters, and loan servicers; (iii) amends the mortgage loan originator prelicensing and relicensing education requirements; (iv) defines the term “virtual currency” under the Money Services chapter and provides that “virtual currency” is a permissible investment for licensees; and (v) sets forth requirements for money transmitters related to receipts and refunds. The law also creates new types of licenses (and other related requirements (e.g., disclosures, record retention)) for “loan solicitation” activity, which includes, among other things, lead generation. The law took effect May 4, 2017, with the exception of provisions relating to money transmitter receipts and refunds, lead generator disclosure requirements, and loan solicitor disclosure requirements, which take effect July 1, 2017.

    State Issues Licensing Virtual Currency

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  • Maryland and Tennessee Expand Use of Reporting Requirements for Money Services Businesses

    State Issues

    As previously covered by InfoBytes, the Nationwide Licensing System (NMLS) for Money Services Businesses (MSBs) recently unveiled the MSB Call Report that standardizes and streamlines routine reporting requirements for state-licensed MSBs. On April 18, Maryland Governor Larry Hogan signed into law HB 182, which requires specified licensees to obtain and maintain a valid unique identifier and transfer licensing information to the NMLS. The law will go into effect July 1, 2017. Among those who must now register with NMLS are check cashers, collection agencies, consumer lenders, debt management service providers, credit service businesses, and sales finance companies. Licenses for mortgage lenders, mortgage originators, and money transmitters are already processed through NMLS. The Commissioner of Financial Regulation is charged with establishing a time period that is “not less 2 months within which a licensee must transfer licensing information to the NMLS.” Furthermore, at least 30 days before the transfer period begins, the Commissioner shall notify all licensees of the transfer period and provide instructions for the transfer of licensing information to NMLS.

    On April 12, Tennessee Governor Bill Haslam enacted SB 1202, authorizing Tennessee’s Department of Financial Institutions to license industrial loan and thrift companies, title lenders, and individuals regulated under the Check Cashing Act or the Premium Finance Company Act through a multi-state automated licensing system. The law allows for the sharing of information—subject to specified confidentiality requirements—with state and federal regulatory officials having consumer finance industry oversight authority or finance industry oversight. Licenses for these types of entities will expire on December 31 of each year. The law includes staged effective dates, the first being July 1, 2017.

    State Issues Consumer Finance Lending NMLS Mortgage Origination Licensing

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  • Nationwide Mortgage Licensing System Unveils New Money Services Businesses Call Report

    State Issues

    On April 1, the Nationwide Mortgage Licensing System (NMLS) Money Services Businesses (MSB) unveiled “the first comprehensive report to consolidate state MSB reporting requirements and provide a database of nationwide MSB transaction activity.” It also allows licensees to report directly in NMLS  for all states on a quarterly and annual basis. The release of the MSB Call Report culminates “a multi-year effort by state regulators to develop a tool to standardize and streamline routine reporting requirements for state-licensed Money Services Businesses”—including money transmitters, check cashers, and prepaid card issuers. The MSB Call Report contains three sections: (i) “company financial information”; (ii) “information about the licensee’s company and state level transactional activity”; (iii) “company permissible investments information”; (iv) “and transaction destination country information.” According to the MSB Call Report webpage, 18 state agencies will adopt the MSB Call Report for Q1 2017 reporting.

    NMLS is the system of record for non-depository, financial services licensing or registration in participating state, territory and local agencies. Although NMLS does not grant or deny license authority, it does—in participating jurisdictions—serve as the official system for companies and individuals seeking to apply for, amend, renew and surrender licenses. NMLS is also the sole system of licensure for mortgage companies and the system of record for the registration of depositories, subsidiaries of depositories, and Mortgage Loan Originators (MLOs) under the CFPB’s Regulation G (S.A.F.E. Mortgage Licensing Act—Federal Registration of Residential Mortgage Loan Originators).

    Additional information and a list of the state agencies that have adopted the report as of March 2017 can be accessed through the NMLS Resource Center.

    State Issues Lending NMLS Call Report Mortgage Origination Licensing

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  • Amendment to Utah Law Clarifies “Deferred-Deposit” Lender Registration Process; Adds Criminal Background Check

    State Issues

    On March 17, Utah Governor Gary Herbert signed an amendment to HB. 40, Utah’s Check Cashing and Deferred Deposit Lending Registration Act, which modifies registration requirements relating to the disclosure of criminal conviction information for individuals engaged in the business of cashing checks or deferred deposit lending. The amendment requires that the registration or renewal statement shall disclose whether there has been a criminal conviction involving an “an act of fraud, dishonesty, breach of trust, or money laundering” regarding any officer, director, manager, operator, principal, or employee. This information must be obtained through either a Utah Bureau of Criminal Identification report or by conducting an acceptable background check similar to the aforementioned report.

    The amendment also addresses operational requirements for deferred deposit loans. Interest and fee schedules are required to be conspicuously posted, as should contact information for filing complaints and listings of states where the deferred deposit lender is authorized to offer loans. The amendment also provides clarification on rescinding loans, partial payment allowances, and restrictions on loan extensions.

    State Issues State Regulators Lending Licensing Deposit Products

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  • California Amends Finance Lenders Law and Residential Mortgage Lending Act

    State Issues

    The California legislature amended  the California Finance Lenders Law (CFLL) allowing persons to make one commercial loan in a 12-month period without obtaining a license. This change effectively reenacts a de minimis exemption that was repealed in 2014, and is effective January 1, 2017 through January 1, 2022.

    Effective September 28, 2016, the implementing regulations to the CFLL and California Residential Mortgage Lending Act (CRMLA) were amended such that subsidiaries and affiliates of exempt institutions are no longer exempt, by nature of this association, from the licensing requirements with respect to consumer and residential mortgage loans. The Department of Business Oversight filed the action to reverse through regulation previous Commissioner opinions that interpreted licensing exemptions under the CFLL and CRMLA to apply broadly to include subsidiaries of exempt financial institutions.

    The definition of a lender under the CRMLA was also amended and now includes a person, other than a natural person, and a natural person who is also an independent contractor, who engages in the activities of a loan processor or underwriter for residential mortgage loans, but does not solicit loan applicants, originate mortgage loans, or fund mortgage loans. Further, the Commissioner may require a licensee who is engaged in the processing or underwriting of residential mortgage loans to continuously maintain a minimum tangible net worth in an amount that is greater than $250,000, but that does not exceed the net worth required of an approved lender under the Federal Housing Administration.

    State Issues Mortgages Consumer Finance FHA Commercial Lending Licensing

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  • State Regulatory Registry Proposes Policy Change Related to NMLS Public Comment Procedures

    Lending

    On August 30, the State Regulatory Registry LLC (SRR), a subsidiary of the Conference of State Bank Supervisors (CSBS) and the entity that operates the Nationwide Multistate Licensing System and Registry (NMLS), requested public comment on a proposal to adopt a formal policy that would govern procedures and processes for requesting comments on NMLS-related updates that impact outside parties. Proposed matters warranting public comment would include (i) major NMLS functionality updates; (ii) call report updates; (iii) impacts to NMLS usability; (iv) Uniform Form changes; and (v) fee changes. SRR proposes that the comment period for NMLS-related updates last for at least 60 days but no longer than 180 days unless, as determined by the SRR Senior Vice President of Policy, there is good cause for extending the comment period. Comments on SRR’s proposed policy change, which defines the roles and responsibilities of various persons and working groups that would be involved in considering proposed NMLS updates, are due by October 31, 2016.

    Mortgage Licensing NMLS CSBS SRR Licensing

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  • NYDFS Issues Virtual Currency License to XRP II, LLC

    FinTech

    On June 13, the NYDFS announced that it approved XRP II, LLC’s application for a virtual currency license. Before approving the company’s August 2015 application, NYDFS conducted a “rigorous review” of the company’s anti-money laundering, capitalization, consumer protection, and cybersecurity standards. To date, NYDFS has received 26 BitLicense applications; two companies, including this one, have been approved for BitLicenses and two have received state trust charters. NYDFS further noted that it recently denied two applications for a virtual currency license; the companies in receipt of the denial letters were ordered to stop any New York operations.

    Anti-Money Laundering Virtual Currency Licensing NYDFS Privacy/Cyber Risk & Data Security

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