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Louisiana amends virtual currency licensing
On June 13, the Louisiana governor signed SB 185 (the “Act”), which amends provisions relating to the regulation and licensure of virtual currency businesses and is effective immediately. The Act adds and amends several definitions, including “acting in concert,” “affiliate,” “blockchain,” “mining,” “non-fungible token,” “responsible individual,” “unsafe or unsound act or practice” “virtual currency business activity,” and “virtual currency network.” With respect to licensure, the Act now requires applicants to provide a copy of their business plan, detailing, among other things, the anticipated volume of virtual currency business activities in the state, the expected number of virtual currency locations (including kiosks) in the state, and information on surety bonds and tangible net worth. Applicants must also provide audited financial statements and certificates of coverage for each liability, casualty, business interruption, and cybersecurity insurance policies (applicable policies for affiliates, agents, and control persons are required as well) with respect to an applicant’s virtual currency business activities. The Act also adds numerous licensing conditions and includes new requirements relating to background checks/criminal records/character fitness and fees and costs. Applicants will now be required to provide their financial services-related regulatory history, including information concerning money transmission, securities, banking, insurance, and mortgage-related industries. The Act extended the time that the state’s office of financial institutions has after the completion of an application to notify an applicant of its decision from 30 days to 60 days. If the office denies a license application, an advanced change of control notice, or an advanced change of responsible individual notice, an applicant has 30 days to appeal. Information on submitting annual licensing renewal applications, as well as guidance on providing appropriate disclosures is also included.
Furthermore, the Act outlines provisions to protect residents’ assets, including prohibitions on selling, transferring, and assigning virtual currency and commingling assets belonging to a resident with assets belonging to a licensee. Also stipulated within the Act are authorities granted to the commission relating to examinations, investigations, and enforcement activity, as well as the authority to coordinate and share information and conduct joint examinations with other state regulators of virtual currency business activities.
Unregistered crypto platform to pay $1.8 million to New York
On June 15, the New York attorney general announced a settlement with a Hong Kong-based cryptocurrency platform to resolve allegations that the company failed to register as a securities and commodities broker-dealer and falsely represented itself as a crypto exchange. The respondent’s platform enables investors to buy and sell cryptocurrency. An investigator was able to create an account on the platform using a New York-based IP address to buy and sell tokens even though the respondent was not registered with the state. (Under New York law, securities and commodities brokers are required to be registered.) The respondent is ordered to refund more than one million dollars to investors and pay more than $600,000 to the state. According to the settlement, investors will receive their refunds in the form of cryptocurrency within 90 days. Additionally, the respondent must cease operating in the U.S., and implement geoblocking to prevent New York IP addresses from accessing its platform. The platform is also banned from offering, selling, or purchasing securities and commodities in New York, and must send weekly emails to its investors in New York, advising them to withdraw their funds from their accounts, or their funds will be transferred to the AG’s office. “Unregistered crypto platforms pose a risk to investors, consumers, and the broader economy,” the AG said, further warning of the serious consequences to other crypto platforms that do not follow New York law. This settlement follows other crypto-related legislation and suits from the New York AG (covered by InfoBytes here).
Colorado amends GAP requirements
The Colorado governor recently signed HB 23-1181 (the “Act”) to codify and amend rules relating to guaranteed asset protection (GAP) agreements (designed to relieve “all or part of a consumer’s liability for the deficiency balance remaining, after the payment of all insurance proceeds,” upon the total loss of a consumer’s motor vehicle that served as collateral for a loan). In addition to adding new definitions and outlining exemptions, the Act also, among other things, (i) establishes conditions, notices, and provisions that must be included in order to offer, sell, provide or administer a GAP agreement in connection with a consumer finance agreement; (ii) establishes that the maximum fee that may be charged for a GAP agreement must not exceed four percent of the amount financed in the consumer credit transaction or $600, whichever amount is greater; (iii) provides that a creditor may contract for, charge, and receive only one GAP fee as part of an agreement regardless of the number of co-borrowers, co-signers, or guarantors; (iv) lays out the process for calculating a deficiency balance and how much a consumer is owed in the event of a total loss; (v) establishes requirements in the event a GAP agreement is cancelled; (vi) details when a consumer must submit a GAP agreement claim after a total loss; and (vii) prohibits the sale of a GAP agreement in specific circumstances.
The Act is effective January 1, 2024, and applies to GAP agreements entered into on or after this date.
Colorado bill amends student loan provisions and UCCC licensing renewal deadlines
On June 5, the Colorado governor signed SB 23-248 (the “Act”), which addresses consumer protection in certain credit transactions. Among other things, the bill amends, repeals, and adds sections around lender nomenclature in the Colorado Student Loan Equity Act. The Act defines the terms “private education creditor” and “creditor” as (i) “any person engaged in the business of making or extending private education credit obligation”; (ii) “a holder of a private education credit obligation”; or (iii) “a seller, lessor, lender, or person that makes or arranges a private education credit obligation and to whom the private education credit obligation is initially payable or the assignee of a creditor’s right to payment.” Several exemptions are outlined. The Act also establishes the term “refinanced” to mean when “an existing private education credit obligation is satisfied and replaced by a new private education credit obligation undertaken by the same consumer.” In subsequent sections, words like “lender” and “loan,” amongst other things, are replaced with the newly defined terms. The Act also amends certain provisions relating to Uniform Consumer Credit Code (UCCC) licensing renewal and fee due dates. Specifically, all supervised lender licensees must file for renewal and pay the appropriate renewal fees by July 1 annually, where previously the renewal due date was January 1 each year.
The Act takes effect the day after the expiration of the 90-day period following adjournment of the general assembly.
Republicans seek to overturn CFPB small-biz lending rule; Georgia AG says rule is unnecessary and burdensome
Recently, several House Republicans introduced a joint resolution of disapproval (H.J. Res. 66) under the Congressional Review Act to overturn the CFPB’s small business lending rule. As previously covered by InfoBytes, last month the Bureau released its final rule implementing Section 1071 of the Dodd-Frank Act. Effective August 29, the final rule will require financial institutions to collect and provide to the Bureau data on lending to small businesses (defined as an entity with gross revenue under $5 million in its last fiscal year). Both traditional banks and credit unions, as well as non-banks, will be required to collect and disclose data about small business loan recipients’ race, ethnicity, and gender, as well as geographic information, lending decisions, and credit pricing. The final rule prescribes a tiered compliance date schedule, with the earliest compliance date being October 1, 2024, for financial institutions that originate at least 2,500 covered small business loans in both 2022 and 2023 (financial institutions with lower origination amounts have later compliance dates).
Also opposing the final rule, Georgia Attorney General Christopher M. Carr sent a letter to CFPB Director Chopra requesting that the final rule be rescinded. Carr argued that the final rule places an unnecessary and expensive burden on financial institutions, and that “[w]ith the current uneasiness in the market and a plethora of other challenges facing community banks, now is not the time to require them to gather more information that has absolutely nothing to do with the process of evaluating which applicants are the strongest and most deserving of capital.” Carr further contended that if lending discrimination is a “rampant problem,” the Bureau should use channels already in place to address this issue. Pointing out that states already have their own consumer protection and anti-discrimination statutes in place, Carr argued that the final rule imposes redundant compliance requirements on financial institutions, particularly community banks. Carr asked the Bureau to “allow states to continue to address lending issues as they occur, rather than saddling small businesses with burdensome regulations.”
Additionally, in April, a group of plaintiffs, including a Texas banking association, filed a lawsuit against the Bureau seeking to invalidate the final rule. (Covered by InfoBytes here.) Plaintiffs argued that the final rule will drive from the market smaller lenders who are not able to effectively comply with the final rule’s “burdensome and overreaching reporting requirements” and decrease the availability of products to customers, including minority and women-owned small businesses.
DFPI highlights CCFPL enforcement actions
On June 8, the Department of Financial Protection and Innovation (DFPI) released its second annual report covering California Consumer Financial Protection Law (CCFPL) actions two years after the statute took effect. DFPI reported growth across rulemaking, enforcement, supervision, complaint handling, stakeholder outreach, and consumer education. It also developed several new department functions to support historically underserved communities.
According to the report, DFPI’s increased visibility in the consumer protection space has generated more consumer complaints, resulting in more enforcement actions. Compared to 2021, there was a 514 percent increase in CCFPL-related complaints (approximately 454 complaints), and an 85 percent increase in CCFPL-related investigations (approximately 196 investigations). Top complaint categories included debt collection and crypto assets, with student loan servicers and credit reporting closely following at third and fourth. To address these issues, DFPI opened 110 crypto-related investigations and launched a consumer alerts page on its website featuring 67 public actions and 65 consumer alerts.
Other key takeaways from the report include that DFPI (i) ordered more than $250,000 in penalties; (ii) ordered over $300,000 in restitution to consumers; (iii) brought its first two civil actions using CCFPL authority; (iv) had 105,000 people attend its outreach and education events; (v) published a notice of proposed rulemaking requiring providers of certain financial services and products to register with the DFPI; and (vi) chaptered two pieces of legislation adding to the laws that DFPI may enforce under the CCFPL.
New Jersey says realty company misled consumers about homeowner program
On June 6, the New Jersey attorney general and the New Jersey Division of Consumer Affairs filed an action against a realty company and its principals (collectively, “defendants”) for allegedly violating the state’s Consumer Fraud Act by making deceptive misrepresentations about its “Homeowner Benefit Program” (HBP). Concurrently, the New Jersey Real Estate Commission in the Department of Banking and Insurance filed an order to show cause alleging similar misconduct and taking action against the real estate licenses belonging to the company and certain related individuals.
According to the complaint, the defendants’ HBP was marketed to consumers as a low-risk opportunity to obtain quick, upfront cash between $300 and $5000 in exchange for giving defendants the right to act as their real estate agents if they sold their homes in the future. The HBP was not marketed as a loan and consumers were told they were not obligated to repay the defendants or to ever sell their home in the future. However, the press release alleged that the HBP functions as a high-interest mortgage loan giving the defendants the right to list the property for 40 years, and that the loan survives the homeowner’s death and levies a high early termination fee against the homeowners. The complaint further charged the defendants with failing to disclose the true nature of the HBP and failing to present the terms upfront. Moreover, in order to sell the HBP, the defendants allegedly placed unsolicited telephone calls to consumers despite not being licensed as a telemarketer in New Jersey. The complaint seeks an order requiring defendants to discharge all liens against homeowners, pay restitution and disgorgement, and pay civil penalties and attorneys’ fees and costs.
The order to show cause alleges violations of the state’s Real Estate License Act and requires defendants to show why their real estate licenses should not be suspended or revoked, as well as why fines or other sanctions, such as restitution, should not be imposed. Defendants have agreed to cease any attempt to engage New Jersey consumers in an HBP agreement pending resolution of the order to show cause.
Minnesota further regulates payday loans
On May 24, Minnesota enacted SF 2744 (the “Act”) to amend several sections of the state statutes relating to payday loans. Among other things, Section 47.603 has been added to create barriers for payday lenders charging annual interest rates of more than 36 percent and to require payday lenders to assess the borrower’s ability to repay a payday loan or payday advance.
The provisions specify an ability to repay analysis, which requires a payday lender to first determine whether a borrower has the ability to make the loan payment at the end of the loan period. The Act further explains that a “payday lender’s ability to repay determination is reasonable if, based on the calculated debt-to-income ratio for the loan period, the borrower can make payments for all major financial obligations, make all payments under the loan, and meet basic living expenses during the period ending 30 days after repayment of the loan.” Additionally, amendments replace past provisions for charges in lieu of interest, with an umbrella policy for any consumer small loan with an annual percentage rate of up to 50 percent that bans lenders from adding any additional charges or payments in connection with the loan.
The amendments will apply to “consumer small loans” and “consumer short-term loans,” as defined by the Act, originated on or after January 1, 2024.
Florida enacts privacy legislation; requirements focus on digital industry
On June 6, the Florida governor approved SB 262 to create the Florida Digital Bill of Rights (FDBR) and establish a framework for controlling and processing consumer personal data in the state, applicable only to companies that meet certain criteria and bring in global gross annual revenues of more than $1 billion. Specifically, the FDBR applies to “controllers,” or any person that conducts business in Florida, collects personal data about consumers (or is an entity on behalf of which this information is collected), determines the purposes and means of processing consumers’ personal data (alone or jointly with other entities), meets the revenue minimum, and satisfies at least one of the following criteria: (i) derives at least 50 percent of global gross revenue from the sale of online advertisements (including targeted advertising); (ii) operates a consumer smart speaker and voice command component service; or (iii) operates an app store or a digital distribution platform offering a minimum of 250,000 unique software applications available for download. The FDBR outlines exemptions, including exemptions for financial institutions and data subject to the Gramm-Leach-Bliley Act, as well as certain covered entities governed by the Health Insurance Portability and Accountability Act.
- Consumer rights. Under the FDBR, Florida consumers will have the right to, among other things, (i) confirm whether their personal data is being processed and to access their data; (ii) correct inaccuracies; (iii) delete their data; (iv) obtain a copy of personal data processed by a controller; and (v) opt out of the processing of their data for targeted advertising, the sale of their data, or certain profiling. The FDBR also adds biometric data and geolocation information to the definition of personal information.
- Controllers’ responsibilities. Data controllers under the FDBR will be responsible for, among other things, (i) responding to consumers’ requests within 45 days unless extenuating circumstances arise and providing requested information free of charge, up to twice annually for each consumer; (ii) establishing an appeals process to allow consumer appeals within a reasonable time period after a controller’s refusal to take action on a consumer’s request; (iii) limiting the collection of data to what is required and reasonably necessary for a specified purpose; (iv) securing personal data and implementing appropriate data security protection practices; (v) not processing data in violation of state or federal anti-discrimination laws; (vi) obtaining consumer consent in order to process sensitive data (consent may be revoked at any time); (vii) ensuring contracts and agreements do not waive or limit consumers’ data rights; and (viii) providing clear privacy notices. The FDBR also sets forth obligations relating to contracts between a controller and a processor.
- No private cause of action but enforcement by the Florida Department of Legal Affairs. The FDBR explicitly prohibits a private cause of action. Instead, it grants the department exclusive authority to bring actions under the Florida Deceptive and Unfair Trade Practices Act and seek penalties of up to $50,000 per violation, which may be tripled for any violation involving a child under the age of 18 for which the online platform has actual knowledge. The department is also granted authority to adopt rules to implement the FDBR.
- Right to cure. Upon discovering a potential violation of the FDBR, the department must give the controller written notice. The controller then has 45 days to cure the alleged violation before the department can file suit.
Minor children are also afforded specific protections under the FDBR, including prohibiting online platforms that provide services or features to children from processing children’s personal information or from collecting, selling, sharing, or retaining any personal information that is not necessary to provide an online service, product, or feature. Additionally, the FDBR includes provisions addressing political ideology and government-led censorship.
The FDBR takes effect July 1, 2024.
Florida now joins nine other states in enacting comprehensive consumer privacy measures, following California, Colorado, Connecticut, Virginia, Utah, Iowa, Indiana, Tennessee, and Montana.
More states targeting commercial financing disclosures
Several states are moving forward on legislation relating to commercial financing disclosures. While Georgia is the most recent state to require disclosures in connection with commercial financing transactions of $500,000 or less (covered by InfoBytes here), additional states, including Connecticut and Florida, are moving bills through the legislature that would also impose several requirements on commercial financing lenders and providers.
Awaiting the governor’s signature, Connecticut SB 1032 would require certain providers of commercial financing to make various disclosures, with violators being subject to civil penalties. The requirements are applicable to sales-based financing in amounts of $250,000 or less. A “provider” is defined by the bill as “a person who extends a specific offer of commercial financing to a recipient” and includes, unless otherwise exempt, a “commercial financing broker,” but does not include “a bank, out-of-state bank, bank holding company, Connecticut credit union, federal credit union, out-of-state credit union or any subsidiary or affiliate of the foregoing.” The bill establishes parameters for qualifying commercial transactions and outlines numerous additional exemptions. Providers may also be able to rely on a statement of intended purpose made by the “recipient” – which is defined as “a person, or the authorized representative of a person, who applies for commercial financing and is made a specific offer of commercial financing by a provider” – to determine whether the financing is commercial financing. Additionally, when extending a specific offer for sales-based financing, the provider must disclose the terms of the transaction as specified within the bill. As a condition of obtaining commercial financing, should the provider require a recipient to pay off the balance of existing commercial financing from the same provider, the provider would be required to include additional disclosures. The bill also discusses conditions and criteria for when using another state’s commercial financing disclosure requirements that meet or exceed Connecticut’s provisions may be permitted.
The bill further provides that a commercial financing contract entered into on or after July 1, 2024, may not contain any provisions waiving a recipient’s right to notice, judicial hearing, or prior court order in connection with the provider obtaining any prejudgment remedy. Additionally, a provider may not revoke, withdraw, or modify a specific offer until midnight of the third calendar day after the date of the offer. Finally, the banking commissioner also is authorized to adopt regulations to carry out the bill’s provisions. Notably and unique to Connecticut is a requirement that providers and brokers of commercial financing be registered with the state banking commissioner in addition to adhering to the prescribed disclosure requirements. No later than October 1, 2024, providers and brokers must abide by certain application requirements and pay registration fees. If enacted, Connecticut’s requirements would take effect July 1, 2024.
Similarly, Florida also moved legislation during the 2023 session related to commercial financing that would have created the Florida Commercial Financing Disclosure Law. Among other things, HB 1353 would have required covered providers to provide specified disclosures for commercial financing transactions in amounts of $500,000 or less and would have established unique broker requirements. Florida’s session ended May 5.