Consumer Financial Services Watch

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

 

1
Trouble in Paradise: Florida Court Rules that Selling Bitcoin is Money Transmission
2
Revamped Relief: The CFPB’s Proposed Rule to Improve its No-Action Letter Program and to Establish a Regulatory Sandbox
3
Expounding on Arbitrability: The Seventh Circuit Joins the Growing Ranks of Circuit Courts Finding that Courts Presumptively Decide the Availability of Class Arbitration
4
Does “Any Defendant” Really Mean “Any Defendant”?
5
American Bankers Association Weighs In With a Comment on HUD’s Disparate Impact Rule
6
California Continues Its Role as a Privacy Vanguard: California Consumer Privacy Act Of 2018
7
Dodd-Frank Reform 2.0
8
Requirements for Massachusetts Homestead Exemption: Can Debtors Exempt Principal Residence Occasionally Rented as Short-Term Lodging?
9
CFPB Left with Rulemaking to Modify or Delay Payday Rule
10
No More Zombie Class Actions: Supreme Court Stops Class Members from Filing Successive Class Claims after Expiration of Limitations Period

Trouble in Paradise: Florida Court Rules that Selling Bitcoin is Money Transmission

Authors: Judith RinearsonDaniel S. CohenJeremy M. McLaughlin

The growing popularity of virtual currency over the last several years has raised a host of legislative and regulatory issues. A key question is whether and how a state’s money transmitter law applies to activities involving virtual currency. Many states have answered this – albeit in a non-uniform way – through legislation or regulation, including regulatory guidance documents. For instance, Georgia and Wyoming have amended their money transmitter statutes to include or exclude virtual currencies explicitly. In other states, such as Texas and Tennessee, the state’s primary financial regulator has issued formal guidance. In New York, the Department of Financial Services issued an entirely separate regulation for virtual currencies. Still, in others, neither the legislature nor the relevant regulator has provided any insight into how the state’s money transmitter law may apply.

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Revamped Relief: The CFPB’s Proposed Rule to Improve its No-Action Letter Program and to Establish a Regulatory Sandbox

By Andrew C. Glass, Gregory N. Blase, Daniel S. Cohen

INTRODUCTION
In December of 2018, the Senate confirmed Kathy Kraninger as the second Director of the Consumer Financial Protection Bureau (“CFPB”). The path Director Kraninger will chart is uncertain, but the CFPB has already begun initiating changes to which the financial services industry should pay attention. For instance, in mid-December 2018, the CFPB issued a proposed rule to modify its No-Action Letter Program (the “Program”) and to establish a regulatory “sandbox” (a formal process to temporarily exempt companies from certain statues and regulations so they can test new products with consumers). Below, we provide a brief history of the Program as well as a discussion of the key elements of the proposed rule.

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Expounding on Arbitrability: The Seventh Circuit Joins the Growing Ranks of Circuit Courts Finding that Courts Presumptively Decide the Availability of Class Arbitration

By Andrew C. GlassRobert W. Sparkes, IIIElma DelicRoger L. Smerage

The U.S. Supreme Court has issued numerous decisions over the past decade addressing arbitration agreements. [1] In one of the Roberts Court’s first forays into the arbitration arena, the Court held that class or collective arbitration is only available where the parties have affirmatively agreed to resolve their disputes through such procedures. [2] But who determines whether the parties have so agreed — a court or an arbitrator?

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Does “Any Defendant” Really Mean “Any Defendant”?

The U.S. Supreme Court to Address Whether Counterclaim Defendants Can Remove Class Action Claims Under CAFA

By Ryan M. TosiScott G. Ofrias

On September 27, 2018, the United States Supreme Court granted the petition for writ for certiorari in Home Depot U.S.A., Inc. v. Jackson, No. 17-1471 (“Home Depot”), to address two issues: (1) whether, under the federal Class Action Fairness Act (“CAFA”), a third-party defendant can remove to federal court class action claims that are brought as counterclaims by the defendant/third-party plaintiff; and (2) whether the Supreme Court’s holding in Shamrock Oil & Gas Co. v. Sheets [1] — that an original plaintiff may not remove a counterclaim against it — extends to third-party counterclaim defendants. [2] Resolution of these issues by the Supreme Court may have significant implications for any counterclaim or third-party defendant (and possibly any counterclaim defendant) seeking to remove a class action or a mass action from state to federal court.

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American Bankers Association Weighs In With a Comment on HUD’s Disparate Impact Rule

By Paul F. HancockOlivia Kelman

On behalf of the American Bankers Association and state bankers associations across the country, K&L Gates partner Paul F. Hancock and associate Olivia Kelman crafted a comment that was submitted to the U.S. Department of Housing and Urban Development (“HUD” or “Department”) on August 20, 2018, in support of reopening rulemaking regarding the Department’s implementation of the Fair Housing Act’s disparate impact standard. On June 20, 2018, HUD issued an advance notice of proposed rulemaking that sought public comment on possible amendments to the Department’s 2013 final disparate impact rule in light of the U.S. Supreme Court’s decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507 (2015). In that decision, the Supreme Court articulated the standards for, and the constitutional limitations on, disparate impact claims under the Fair Housing Act. The comment explains that the rule should be amended because it adopts standards that are inconsistent with Supreme Court precedent, fails to provide much needed guidance to entities seeking to comply with the law, and is therefore outdated and ineffective. A copy of the comment is available here.

California Continues Its Role as a Privacy Vanguard: California Consumer Privacy Act Of 2018

By Julia B. Jacobson, Jeffrey S. King, Alidad Vakili                   

On June 28, 2018, California Governor Jerry Brown signed into law the California Consumer Privacy Act of 2018 (“CCPA”).[2] CCPA grants new privacy rights to Californian residents and applies a notice and consent framework to most businesses operating in California that collect personal information from those residents.

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Dodd-Frank Reform 2.0

By: Daniel F. C. Crowley, Bruce J. Heiman, William A. Kirk, Karishma Shah Page, Dean A. Brazier, Eric A. Love, Eli M. Schooley

Recent activity in Congress suggests that the return from the July 4th recess will see a continued push to reform the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) before year’s end. This alert provides an overview of the current state of play and the most likely outcome.

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Requirements for Massachusetts Homestead Exemption: Can Debtors Exempt Principal Residence Occasionally Rented as Short-Term Lodging?

By: Sean R. Higgins and David A. Mawhinney

Should a Massachusetts homeowner be allowed to claim a homestead exemption in a principal residence that is also used for business or other commercial purposes?  Answering this question several years ago as a matter of first impression, the U.S. Bankruptcy Court for the District of Massachusetts adopted a fact-intensive, case-by-case inquiry into the “predominant use” of the property.[1]  The predominant use test was developed to address the point at which an owner forfeits homestead protection in the pursuit of commercial activity.  The inquiry recognizes the ubiquity of the home office or boarder in modern residences.  Bankruptcy Judge Elizabeth Katz’s recent opinion in In re Shove takes a fresh look at the Massachusetts Homestead Statute and rejects the predominant use inquiry as unnecessary and, in some cases, unduly burdensome on the homesteader.[2]

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CFPB Left with Rulemaking to Modify or Delay Payday Rule

By: Jennifer Janeira Nagle, Robert W. Sparkes, Scott B. Hefferman

On Tuesday, June 12, 2018, a Texas federal judge denied a joint request from the Consumer Financial Protection Bureau (“CFPB”) and two payday-lending trade groups to stay the August 2019 deadline for industry compliance with the Payday Loan Rule (the “Rule”). The decision was issued in Community Financial Services Association of America, Ltd., v. Consumer Financial Protection Bureau, No. 1:18-cv-295-LY, an action that was filed in April 2018 by the trade groups against the CFPB, seeking to invalidate the Rule as arbitrary and capricious in violation of the Administrative Procedures Act (“APA”), among other things.  (For more about the litigation, click here.)  In late May 2018, the plaintiff trade groups and the defendant CFPB jointly asked the Court to stay the Rule’s compliance deadline, but the Court’s decision Tuesday quickly and summarily rejected that request.  The Court stayed only the litigation, leaving August 2019 as the operative date for industry participants to comply with the Rule.

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No More Zombie Class Actions: Supreme Court Stops Class Members from Filing Successive Class Claims after Expiration of Limitations Period

By: Andrew C. Glass, Roger L. Smerage, Elma Delic                     

The U.S. Supreme Court has ruled that a plaintiff cannot file a class action outside the applicable statute of limitations merely because an unsuccessful prior class action tolled the limitations period for individual claims.[1]  In China Agritech v. Resh,[2] the Court held that its prior jurisprudence “does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.”[3]  Rather, that jurisprudence only tolls the statute of limitations for unnamed class members to intervene in the action “individually or file individual claims if the class fails.”[4]  In reaching this conclusion, the Court recognized that “[t]he Federal Rules [of Civil Procedure] provide a range of mechanisms to aid courts in” overseeing complex litigation, such as where individual claims are added on after a denial of class certification.[5]  But, critically, “[w]hat the Rules do not offer is a reason to permit plaintiffs to exhume failed class actions by filing new, untimely class claims.”[6]

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