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  • Legislation Introduced to Codify “Valid-When-Made” Doctrine

    Federal Issues

    On July 19, Representative Patrick McHenry (R-N.C.), the Vice Chairman of the House Financial Services Committee, and Representative Gregory Meeks (D-N.Y.) introduced legislation designed to make it unlawful to change the rate of interest on certain loans after they have been sold or transferred to another party. As set forth in a July 19 press release issued by Rep. McHenry’s office, the Protecting Consumers’ Access to Credit Act of 2017 (H.R. 3299) would reaffirm the “legal precedent under federal banking laws that preempts a loan’s interest as valid when made.”

    Notably,  a Second Circuit panel in 2015 in Madden v. Midland Funding, LLC overturned a district court’s holding that the National Bank Act (NBA) preempted state law usury claims against purchasers of debt from national banks. (See Special Alert on Second Circuit decision here.)The appellate court held that state usury laws are not preempted after a national bank has transferred the loan to another party. The Supreme Court denied a petition for certiorari last year. According to Rep. McHenry, “[t]his reading of the National Bank Act was unprecedented and has created uncertainty for fintech companies, financial institutions, and the credit markets.” H.R. 3299, however, will attempt to “restore[] consistency” to lending laws following the holding and “increase[] stability in our capital markets which have been upended by the Second Circuit’s unprecedented interpretation of our banking laws.”

    Federal Issues Federal Legislation Fintech Lending Second Circuit Appellate Usury National Bank Act

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  • Federal Reserve Task Force Shoots for Real-Time Payments Network by 2020

    FinTech

    On July 21, the Faster Payments Task Force, created by the Federal Reserve in 2015, announced the publication of its final report detailing strategic efforts to implement faster payment solutions (part one of the report was published in January of this year). The report outlines 16 proposed faster payments solutions and is the culmination of proposals and feedback from providers across the payments industry, including more than 300 representatives from financial institutions, consumer groups, payment service providers, financial technology firms, merchants, government agencies, and numerous other interested parties. The task force’s goal is to have a real-time payments network available to U.S. consumers and businesses by 2020. The report discusses various solutions and technologies for implementing faster payments and recommends a framework for ongoing collaboration, decision-making, and rule setting. The report also addresses security threats, advocates for infrastructure to support faster payments, recommends that the Fed collaborate with relevant regulators to evaluate current laws and make necessary rule changes.

    “Our goal is to ensure that anyone, anywhere is able to pay and be paid quickly and securely,” said Sean Rodriguez, the Fed's faster payments strategy leader and chair of the Faster Payments Task Force. “In real terms, that means people will not have to wait hours or days to deliver and access their money. Businesses will have enhanced cash management and better information associated with their payments.”

    Fintech Federal Reserve Consumer Finance Payments

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  • OCC Acting Comptroller Supports Fintech National Bank Charter

    FinTech

    On July 19, Acting Comptroller of the Currency, Keith A. Noreika, spoke before the Exchequer Club about the proposed concept of granting special purpose charters for financial technology (fintech) companies. In prepared remarks, Acting Comptroller Noreika said the OCC has the authority to grant national bank charters to nondepository fintech companies in “appropriate circumstances.” However, he reiterated that having the authority does not imply a determination has been made as to whether the OCC will accept or grant applications from nondepository fintech companies that rely solely on regulation 12 CFR 5.20(e)(1), which outlines eligibility requirements for receiving special purpose national bank charters. To date, no such applications have been received.

    The OCC continues to demonstrate its support for innovative developments and partnerships between banking and technology companies. As previously discussed in a Special Alert, the OCC issued a draft supplement in March to provide guidance for evaluating charter applications from fintech companies. “Providing a path for these companies to become national banks is pro-growth and in some ways can reduce regulatory burden for those companies,” Noreika remarked. However, the fintech special purpose national bank charter has recently met legal challenges from the New York Department of Financial Services (NYDFS) and the Conference of State Bank Supervisors (see Special Alerts here and here). Norieka stated that the OCC is developing its response to the NYDFS lawsuit “and plans to defend [its] authority vigorously.” He cautioned against defining banking too narrowly, and argued that fintech companies should be allowed to apply for national bank charters if they meet the criteria and are involved in the “business of banking.”

    Fintech OCC Licensing Agency Rule-Making & Guidance

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  • Noncash Payment Growth Highlighted in Sixth Federal Reserve Payments Study

    FinTech

    On June 30, the Board of Governors of the Federal Reserve issued its sixth payments study entitled The Federal Reserve Payments Study 2016: Recent Developments in Consumer and Business Payment Choices. The study includes data on business and consumer noncash payments made in the United States in 2015. Among other things, the study details the differences between business and consumer payments in 2015 compared to those from 2000, general-purpose payment card use in 2015, and increases in use of alternative payment methods.

    According to the report, the most popular noncash payment types among consumers were, in descending order: non-prepaid debit cards, general-purpose credit cards, checks, and finally, ACH debit transfers. For businesses, however, ACH credit transfers were the most popular, then checks, general-purpose credit cards, and non-prepaid debit cards. Consumers wrote fewer than half the number of checks in 2015 than they did in 2000 but almost doubled the number of noncash payments that they made. Businesses also cut check-writing by more than half but differed from consumers by more than doubling the number of ACH transfers that they initiated during the same period.

    General-purpose or “network-branded” cards accounted for more than 65 percent of noncash payments in 2015. The data showed that 60 percent of these card accounts carried revolving debt, while 40 percent of accounts were paid in full each month.

    Information on fraudulent payments also was collected and should be available in the third quarter of this year.

    Fintech Digital Commerce Federal Issues Federal Reserve Electronic Fund Transfer ACH Payments Credit Cards

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  • Florida Adds Virtual Currency to Anti-Money Laundering Law

    FinTech

    On June 23, Florida Governor Rick Scott signed H.B. 1379, which will incorporate virtual currency into the Florida Money Laundering Act. Specifically, the Bill adds virtual currency to the list of currency and negotiable instruments classified as “monetary instruments” under the Act. In addition, virtual currency will be included in the definitions section as a “medium of exchange in electronic or digital format that is not a coin or currency of the United States or any other country.” The law goes into effect on July 1.

    Fintech State Issues State Legislation Bitcoin Anti-Money Laundering Virtual Currency

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  • Data Breach Lawsuit Settled for $115 Million

    Privacy, Cyber Risk & Data Security

    On June 23, one of the nation’s largest health insurers agreed to pay $115 million to settle a data breach class action suit pending in the U.S. District Court for the Northern District of California. In 2015, the insurer announced that it had been hacked and that customer information had been compromised. On June 23, Plaintiffs submitted to the court a memorandum in support of the settlement. The settlement, if approved by the court, will provide almost 80,000 proposed class members with extended credit monitoring for at least two years. Additionally, the settlement will require the insurer to “implement or maintain meaningful, specific changes to its data security practices that directly address the security elements that Plaintiffs believe contributed to the breach,” including hiring independent consultants to perform annual IT risk assessments and compliance reviews, and providing the results of those audits to Plaintiffs’ counsel.

    Privacy/Cyber Risk & Data Security Fintech Data Breach 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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  • 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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  • New Hampshire Legislation Adds Money Transmitter Licensing Exemptions

    State Issues

    On June 7, New Hampshire Governor Chris Sununu signed into law H.B. 436, which exempts persons using virtual currency from registering as money transmitters. The law states that “persons who engage in the business of selling or issuing payment instruments or stored value solely in the form of convertible virtual currency or who receive convertible virtual currency for transmission to another location” are now exempt but are subject to the provisions of the state’s statute regulating business practices for consumer protection. The law takes effect August 1.

    Fintech Virtual Currency State Legislation Money Service / Money Transmitters

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  • House Subcommittee on Digital Commerce and Consumer Protection Holds Hearing to Discuss Consumer Fintech Needs

    Federal Issues

    On June 8, the House Energy and Commerce Committee’s Subcommittee on Digital Commerce and Consumer Protection held a hearing to discuss financial products and services offered by the fintech industry to meet consumer needs. (See previous InfoBytes coverage here.) Committee Chairman Rep. Bob Latta (R-Ohio) opened the hearing asserting, “There are serious opportunities for companies to reach consumers with new products to help them create a rainy-day fund for the first time, pay their mortgage securely, rebuild their credit, budget and manage multiple income streams, and invest their earnings . . . Cybersecurity [specifically] is an ongoing challenge, and one the Energy and Commerce Committee is tackling head on.” The June 8 hearing included testimony and recommendations from the following witnesses:

    • Ms. Jeanne Hogarth, Vice President at Center for Financial Services Innovation (CFSI) (statement). Hogarth stated that nearly three out of five American face financial health struggles and spoke about challenges fintech entrepreneurs may face when trying to help consumers, such as (i) “facilitat[ing] interstate and regulatory comity that enables consumers to access and use fintech products and service that promote financial health”; (ii) “support[ing] consumers’ access to their own data”; and (iii) “creat[ing] opportunities for pilot testing of both financial products and services and financial services regulations.” Hogath also detailed CFSI’s Financial Solutions Lab, which identifies financial health challenges faced by consumers and encourages companies to develop ways to address these issues.
    • Mr. Javier Saade, Managing Director at Fenway Summer Ventures (statement). Saade—whose venture capital firm backs emerging fintech companies—stressed the importance of understanding and mitigating associated risks as financial innovation continues to expand. Growth is supported and encouraged, he noted, provided entrepreneurs understand that the “’fail fast and often’ approach, typical of tech-driven startups in other sectors, may not be well suited for the financial services industry.” Furthermore, Saade stated that because “nearly 30 million U.S. households either have no access to financial products or obtain products outside of the banking system . . . even modest strides in achieving economic inclusion present the single largest addressable opportunity in fintech.”
    • Ms. Christina Tetreault, Staff Attorney at Consumer Union (statement). Tetreault, speaking on behalf of Consumer Union (the policy division of Consumer Reports), stated that while financial technology such as virtual currencies, digital cash, and distributed ledgers have the “potential to increase consumer access to safe financial products and return a measure of control to consumers,” safeguards devised between lawmakers and providers must be implemented with appropriate federal and state financial regulator oversight.
    • Mr. Peter Van Valkenburgh, Research Director at Coin Center (statement). Coin Center is a non-profit organization, which focuses on “public policy ramifications of digital currencies and open blockchain networks.” Van Valkenburgh emphasized the need for Congress to (i) create a nationwide federal money transmission license as an alternative to “state by state licensing,” which, in his opinion, emphasizes the needs of individual states rather than addressing the health and risk profile as a whole; and (ii) create a federal safe harbor to “protect Americans developing open blockchain infrastructure.” Van Valkenburgh also encouraged the Office of the Comptroller of the Currency to establish federal “fintech charters” to promote a unified approach to regulating blockchain companies.

    Federal Issues Fintech OCC House Energy and Commerce Committee Blockchain Digital Commerce Privacy/Cyber Risk & Data Security

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