Consumer Financial Services Watch

News and developments related to consumer financial services, litigation, and enforcement.

 

1
Future of Fintech Regulations in the US
2
Take Notice of This Change: Supreme Court Adopts Recommended Amendments to Bankruptcy Notice of Payment Change Rule
3
CFPB Takes Aim at Marketplace Lenders
4
Supreme Court Vacates and Remands Ninth Circuit Decision on Article III Injury-in-Fact in Spokeo
5
The OCC’s Request for Comments and Discussion on the Future of Fintech Regulation
6
Treasury releases white paper on marketplace lending
7
CFPB’s Proposed Rule Would Put the Brakes on Pre-Dispute Arbitration Clauses in Consumer Financial Contracts
8
“Take Me Out to the Ballgame?” Asked the Inspector: Saying “Yes” May Now Be a Federal Crime
9
The New Jersey Truth-In-Consumer Contract Warranty and Notice Act: What You Need to Know About “TCCWNA” and the Rise in Consumer Class Actions
10
More To Know About “Know Before You Owe”: CFPB Acknowledges TRID Challenges and Announces July 2016 Notice of Proposed Rulemaking

Future of Fintech Regulations in the US

By Charles Carter and Anthony (Tony) Yerry (ed. Cameron Abbott and Giles Whittaker)

Investment in financial technology (fintech) companies has surpassed US$24 billion worldwide since 2010, which consequently emphasises the importance of the relationship between fintech companies and regulators as they attempt to establish a culture of compliance while not stifling innovation.

As suggested by the industry experts according to The Wall Street Journal, the Office of the Comptroller of the Currency (OCC) may be the best federal agency to regulate fintech companies in the US. On March 31 the OCC during a speech at Harvard University on the innovation of the fintech industry released a white paper which attempts to launch formal discussions between regulators and the industry.

For more information and analysis of the OCC white paper please see K&L Gates’ e-alert here.

Take Notice of This Change: Supreme Court Adopts Recommended Amendments to Bankruptcy Notice of Payment Change Rule

By Phoebe S. Winder, Ryan M. Tosi and David A. Mawhinney

Come December, the requirements surrounding notices of payment change (“PCNs”) for certain mortgage loans in bankruptcy will change. The Supreme Court, on April 28, 2016, adopted various proposed amendments to the Federal Rules of Bankruptcy Procedure, including amendments to the language of Rule 3002.1 aimed at clarifying when a secured creditor must file a payment change notice (“PCN”) in a Chapter 13 bankruptcy. Amended Rule 3002.1 will require secured creditors to file PCNs on all claims secured by the Chapter 13 debtor’s primary residence for which the debtor or Chapter 13 Trustee is making post-petition payments during the bankruptcy, without regard to whether the debtor is curing a pre-petition arrearage. The amendments to Rule 3002.1 further clarify that, absent a court order indicating otherwise, the obligation to file PCNs generally ceases once the creditor obtains relief from the automatic stay. The amendments take effect on December 1, 2016.

To read the full alert, click here.

CFPB Takes Aim at Marketplace Lenders

By David Christensen

Last Fall, in its 2015 Rulemaking Agenda, the Consumer Financial Protection Bureau (“CFPB”) signaled its intent to “to develop rules to define larger participants in markets for consumer installment loans.”[1] Under the Dodd-Frank Act, the CFPB is authorized to issue “larger participant” rules to define entities in a particular market for consumer financial products or services. The issuance of such rules opens the door for supervisory and examination authority over such entities. Fast forward to Spring 2016, when the CFPB announced that it is accepting complaints from consumers regarding alleged problems with online marketplace loans, and it appears that the CFPB has marketplace lenders squarely in its sights.[2]

Read More

Supreme Court Vacates and Remands Ninth Circuit Decision on Article III Injury-in-Fact in Spokeo

By Andrew C. Glass, Brian M. Forbes, Gregory N. Blase, Robert W. Sparkes III, and Roger L. Smerage

On Monday, the United States Supreme Court issued its long-awaited decision in Spokeo, Inc. v. Robins, — U.S. — (No. 13-1339). In rendering its decision, the Court reiterated that to establish Article III standing, a plaintiff must plead an injury-in-fact that is both particular to the plaintiff and concrete. The Court explained that whether a plaintiff has pleaded sufficient facts to allege a concrete injury requires more than just examining whether the plaintiff has pleaded that the defendant violated a federal statute. In particular, the Court held that “a bare procedural violation, divorced from any concrete harm,” does not suffice to “satisfy the injury-in-fact requirement of Article III.” Slip op. at 9-10. As such, the Spokeo plaintiff’s allegation that the defendant’s actions had violated the Fair Credit Reporting Act, 15 U.S.C. §§ 1681, et seq., would not, by itself, demonstrate a plausible injury-in-fact. Rather, “Article III standing requires a concrete injury even in the context of a statutory violation.” Slip op. at 9.

Read More

The OCC’s Request for Comments and Discussion on the Future of Fintech Regulation

By Charles P. Carter and Anthony (Tony) Yerry

U.S.-based digital banking startups have raised more than $10 billion since 2010, and investment in financial technology (“fintech”) companies has surpassed $24 billion worldwide. These firms are attempting to disrupt the banking value chain by providing services such as lending, bill payment, wealth management, and mobile banking. The significant federal and state regulation of these services create an obstacle for these fintech companies that technology companies in other vertical markets, such as social, internet infrastructure, and enterprise technology, do not face. It is critical for these companies, at the earliest stages of development, to understand how and when to engage with regulators and to build a culture of compliance, and it is critical for regulators to listen and adapt to the complaint from traditional banks and startups that the current regulatory framework stifles innovation and is unable to provide oversight for new forms of finance and banking.

To read the full alert, click here.

Treasury releases white paper on marketplace lending

By Sean P. Mahoney

On May 10, 2016, the US Treasury issued its much anticipated white paper on marketplace lending. The whitepaper follows Treasury’s July 2015 request for information. The white paper highlighted some keys risks and made six concrete recommendations for future action.

More specifically, the white paper noted that the use of sophisticated data-driven algorithms may result in unexpected correlations that could result in disparate impacts and give rise to fair lending violations. The use of data outside of regulated credit reports also creates the risk that borrowers may have no redress if information used as a basis for an underwriting decision proves inaccurate. Treasury made it a point to note, however, that marketplace lenders that partner with banks may be subject to regulation and examination by prudential bank regulators under the US Bank Service Company Act.

The recommendations to address the risks associated with marketplace lending while still realizing many of the potential benefits were:

  • More effective oversight over lenders and more protections for small business borrowers, which could require additional legislation
  • Better integration of regular servicing and special servicing of loans in default
  • Standardization of products and data to promote a more transparent market place
  • Expand borrower access to marketplace loans through partnerships with community development financial institutions
  • Better access to government data, such as social security data and tax data, to assist marketplace lenders in verification of information
  • Creation of a standing interagency working group of financial services regulators to support responsible innovation

This, of course, is just the starting point of financial regulators’ efforts to support innovation while ensuring comprehensive oversight. The white paper is available here.

CFPB’s Proposed Rule Would Put the Brakes on Pre-Dispute Arbitration Clauses in Consumer Financial Contracts

By Andrew C. Glass, Robert W. Sparkes, III, Roger L. Smerage, Joshua Butera

Congress enacted the Federal Arbitration Act (“FAA”) in the 1920s to deter hostility toward arbitration. Despite numerous Supreme Court rulings over the decades upholding that goal, arbitration continues to face hostility. The Consumer Financial Protection Bureau (“CFPB”), for example, recently issued a proposed rule that would significantly expand the scope of the Dodd-Frank Act’s restrictions on arbitration agreements. The rule would severely restrict the use of pre-dispute arbitration clauses by providers of consumer products and services, primarily by prohibiting the use of class action waivers. And under the proposed rule, the CFPB would exercise close scrutiny over arbitration proceedings by requiring consumer financial services providers to report certain information about arbitrations to the CFPB.

To read the full alert, click here.

“Take Me Out to the Ballgame?” Asked the Inspector: Saying “Yes” May Now Be a Federal Crime

By Barry M. Hartman, Michael D. Ricciuti, Jasmine S. McGhee, Brian J. Smith

Imagine this hypothetical: A local fire marshal says to Mary Jones, who runs the residence halls at a major university, “It must be nice having seats at the Saturday football games.” Mary gets the message and thinks that if she agrees to offer the fire marshal tickets, he will be less likely to “nitpick” during his inspections of the residence halls. Could the government claim that this is a bribe by Mary within the meaning of the Hobbs Act’s proscription against “extortion” by public officials?

On May 2, in Ocasio v. United States, the U.S. Supreme Court broadened the reach of federal corruption law to cover private individuals who are involved in extortion conspiracies with government officials and held that anyone — even the bribe payor — who has conspired to engage in extortion can be charged for violation of the Hobbs Act, the federal statute that federal prosecutors use to indict state officials who solicit and take bribes, and can be convicted of conspiracy. In doing so, the Supreme Court has given federal prosecutors a new, and potent, weapon.

To read the full alert, click here.

The New Jersey Truth-In-Consumer Contract Warranty and Notice Act: What You Need to Know About “TCCWNA” and the Rise in Consumer Class Actions

By Loly Garcia Tor, Patrick J. Perrone

Businesses with consumer products should be aware of the rise in class action filings based on the New Jersey Truth-In-Consumer Contract Warranty and Notice Act (“TCCWNA”). Although the statute has been in place since 1981, it was relatively dormant for decades and only recently became a favorite of plaintiffs’ attorneys. In the past five months, more than a dozen putative class actions have been filed based on alleged TCCWNA violations in the District of New Jersey alone. [1] This alert provides an overview of key points of which businesses should be aware.

To read the full alert, click here.

More To Know About “Know Before You Owe”: CFPB Acknowledges TRID Challenges and Announces July 2016 Notice of Proposed Rulemaking

By Jennifer Janeira Nagle and Hollee Watson

The TILA-RESPA Integrated Disclosure rule (“TRID”) went into effect on October 3, 2015, and has posed significant implementation challenges industry-wide. Those challenges have been articulated to the Consumer Financial Protection Bureau (“CFPB”) by industry participants, trade groups, and congressional leaders alike. In response, the CFPB has issued guidance in the form of letters, webinars, educational videos, guides, and factsheets. Notwithstanding this informal guidance, and despite the CFPB’s assurances that its initial compliance examinations would be “diagnostic and corrective, not punitive,” see December 29, 2015 Letter from CFPB Director Richard Cordray to the Mortgage Bankers Association, the mortgage industry continues to experience uncertainty and risk in its efforts to implement TRID’s sweeping changes to TILA and RESPA. See January 29, 2016 Mortgage Industry Trade Group Letter to CFPB; March 11, 2016 Sen. Bob Corker Letter to CFPB.

In the wake of pressure for more formal guidance, the CFPB recently announced that it will issue a Notice of Proposed Rulemaking (“NPRM”) on TRID in late July. In an April 28, 2016 letter to mortgage industry trade groups, Director Richard Cordray acknowledged that “the implementation of the Know Before You Owe rule poses many operational challenges” and that “there are places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity.”

Read More

Copyright © 2016, K&L Gates LLP. All Rights Reserved.