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Is California’s Agent of a Payee Exemption Shrinking?

Posted in Regulatory Developments

Earlier this year, the California Department of Business Oversight (DBO) issued a draft rulemaking relating to the scope of the agent of a payee exemption (the “Exemption”) under the Money Transmission Act, Cal. Fin. Code § 2000 et seq. (MTA). As we observed at the time, the rulemaking affirms a broader interpretation of the scope of the Exemption than has been historically applied. However, a new interpretive opinion from the DBO appears to potentially narrow how the Exemption applies to payment processors that facilitate payments on behalf of consumer-facing merchants. This interpretation, if more widely applied, could risk undermining well-established compliance approaches for companies that provide payment processing services.

Read our client alert.

CFPB California Style: The California Consumer Financial Protection Law Brings More Providers of Consumer Financial Products and Services Into the Regulatory Tent

Posted in Regulatory Developments

On August 31, 2020, the California legislature passed the California Consumer Financial Protection Law (CCFPL). The law reflects Governor Newsom’s vision of a much more powerful banking agency with new registration authority, UDAAP authority mirroring the authority of the CFPB, and expanded enforcement authority. But important amendments adopted by the legislature will exempt many regulated entities from the scope of the law and will impose limits on the new Department of Financial Protection and Innovation’s (DFPI) exercise of its authority.

We discuss the reorganization and expansion of the banking regulator that accompanies the name change to the DFPI in our companion client alert. We highlight the key provisions of the CCFPL here.

CFPB Issues RFI Seeking Information on the Impact of the CARD Act Regulations on Small Entities and on the Consumer Credit Card Market

Posted in Regulatory Developments

On August 28, 2020, the Consumer Financial Protection Bureau published a request for information to gather feedback on the economic impact on small entities of the rules that implement the Credit Card Accountability Responsibility and Disclosure Act of 2009, and a general review examining the consumer credit card market as a whole.

Read our client alert.

CFPB California Style: New Name Is Just the Start for a Much More Powerful Regulator

Posted in Regulatory Developments

California has become the latest state to create its own mini Consumer Financial Protection Bureau (CFPB). As part of the 2020-21 budget, Governor Gavin Newsom set in motion a reorganization and significant expansion of the authority of the California banking regulator, the Department of Business Oversight (DBO). This reorganization includes a new name (the “Department of Financial Protection and Innovation” or DFPI), greatly expanded examination and enforcement resources, new licensing and examination authority, and a new law (the “California Consumer Financial Protection Law” or CCFPL) that gives the regulator unfair, abusive, or deceptive acts or practices (UDAAP) and other authority mirroring the CFPB’s authority under Dodd-Frank Act Title X.
In this Client Alert, we outline the governor’s justification for and reorganization of the DBO into the DFPI. In a companion Client Alert, we highlight the key provisions in the CCFPL.

Take Two: State AGs Target the FDIC’s Final Rule Reaffirming Valid-When-Made Doctrine

Posted in Regulatory Developments

Last week, the state attorneys general of seven states and the District of Columbia filed suit against the Federal Deposit Insurance Corporation (FDIC) challenging the FDIC’s final rule reaffirming the valid-when-made doctrine for loans originated by state-chartered federally insured banks.  The lawsuit was expected after three state attorneys general filed suit against the OCC challenging its final valid-when-made rule.  (For analysis of the OCC challenge, see our Client Alert.)

The complaint challenging the FDIC’s final rule repeats almost verbatim most of the allegations in the complaint challenging the OCC’s final rule.  As with the OCC’s final rule, the state AGs seek to set aside the FDIC’s final rule on both substantive and procedural grounds, including that:

  • the FDIC impermissibly attempts to expand preemption under the FDIA to non-banks;
  • the FDIC lacks authority to overturn Madden;
  • the Madden decision did not significantly interfere with lending; and
  • the final rule conflicts with long-standing federal agency interpretation of federal law.

The challenge to the FDIC’s final rule does not include the argument regarding the alleged failure to comply with Dodd-Frank’s preemption standard that was in the challenge to the OCC’s final rule because that standard applies only to the OCC.  As in the OCC complaint, though, the state AGs do allege that the FDIC’s final rule is procedurally improper because the FDIC’s explanation for its decision is contrary to the evidence.

As was the case with the OCC, the FDIC addressed these arguments in the Supplementary Information accompanying its final rule.

The state AGs filed the complaint in the Northern District of California and specifically sought an assignment to the Oakland division as they did with the challenge to the OCC final rule.  The case originally was assigned for all purposes to a magistrate judge.  As they did in the challenge to the OCC’s final rule, the state AGs filed a declination to the assignment, and the case was re‑assigned to Senior Judge Charles Breyer, who was nominated by President Clinton and confirmed by the Senate in 1997.

The Northern District of California requires the parties to file a related-case motion with the judge presiding over the first-filed action when the actions “concern substantially the same parties, property, transaction or event” and “[i]t appears likely that there will be an unduly burdensome duplication of labor and expense or conflicting results if the cases are conducted before different Judges.”  (N.D. Cal. Local Rule 3-12(a).)  Although the two actions challenge different rules promulgated by different agencies, the overlap in allegations and legal theories may implicate these related case rules.  Neither party has yet filed an Administrative Motion to Consider Whether Cases Should Be Related.  If either party does so, Judge White, who is assigned to hear the challenge to the OCC final rule, will decide whether to hear both cases.

Dropping Anchor in the (Safe) Harbor: Colorado “True Lender” Litigation Settles

Posted in Regulatory Developments

Ending years of litigation, the Colorado Attorney General and the Administrator of the Colorado Uniform Consumer Credit Code (“Administrator”) announced a settlement with marketplace lenders Avant of Colorado, LLC and Marlette Funding, LLC (together, the “Non-Bank Partners”), and their bank partners WebBank and Cross River Bank (together, the “Banks”). Under the terms of the settlement, the marketplace lending programs will be permissible under Colorado law, provided that the programs satisfy certain safe harbor conditions laid out in the settlement and the Non-Bank Partners obtain or maintain a Colorado license to make supervised loans.

Read our client alert.

Bitcoin Is “Money” for Purposes of D.C. Money Transmission Law, Says Federal Court

Posted in Regulatory Developments

A recent federal district court ruling in a criminal anti-money laundering case suggests that the transmission of virtual currency on behalf of another person requires a state money transmission license — even if the state’s money transmission law does not expressly address the regulation of virtual currency. This interpretation has the potential to significantly disrupt current compliance approaches taken by some organizations engaging in virtual currency activity, and could make a challenging regulatory landscape even tougher to navigate.

Read our client alert.

CFPB Seeks Input on Improving Access to Credit

Posted in Regulatory Developments

On August 3, 2020, the Consumer Financial Protection Bureau (CFPB) published a Request for Information (RFI) that seeks comment on ways to clarify the Equal Credit Opportunity Act’s (ECOA) implementing regulation, Regulation B, to expand access to credit and improve protections against credit discrimination. According to the CFPB, comments provided in response to the RFI will help the agency “continue to explore ways to address regulatory compliance challenges” associated with Regulation B. Comments on the RFI are due by October 2, 2020.

Read our client alert.

Not So Fast—State Attorneys General Seek to Enjoin OCC’s Final Rule Reaffirming “Valid When Made” Doctrine

Posted in Regulatory Developments

On July 29, 2020, the state attorneys general of California, Illinois, and New York filed suit against the Office of the Comptroller of the Currency (OCC) challenging the OCC’s Final Rule reaffirming the “valid when made” doctrine for loans originated by national banks.  The challenge extends the uncertainty created by the Second Circuit’s Madden decision until the litigation is resolved.

Read our client alert.

New York Passes Bill to Increase Transparency in Lending

Posted in Regulatory Developments

On July 23, 2020, in an effort to increase transparency in commercial financings so borrowers may make more informed decisions, the New York State legislature passed a bill, S5470B, which currently awaits the Governor’s signature. The bill requires certain commercial financing providers to disclose to recipients critical information about the amount, pricing, and terms of specific commercial financings, upon making the offers. This information must be disclosed in uniform formatting, to be determined by the New York State Department of Financial Services (NYDFS), which is tasked with issuing regulations to implement the bill.

Read our client alert.