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The Enforcement Blog

OCC Permits National Banks and Federal Savings Associations to Use Independent Node Verification Networks and Stablecoins for Payment Activities

Posted in Regulatory Developments, Uncategorized

As part of the Office of the Comptroller of the Currency’s (OCC) declared effort to keep pace with a mounting demand for faster, cheaper, and more efficient payments, and the widespread adoption of new technologies, the agency’s Senior Deputy Comptroller & Chief Counsel issued an interpretive letter on January 4, 2021 (the “Interpretive Letter”) clarifying the permissibility of independent node verification networks (INVNs) and related stablecoins. Under the Interpretive Letter, national banks and federal savings associations (FSAs) may use such new technologies to conduct bank-permissible functions, as long as such activities are conducted in a safe and sound manner and in accordance with applicable law.

The Interpretive Letter comes shortly after the release of a December 23, 2020 statement from the President’s Working Group on Financial Markets (the “Working Group Statement”) on the regulatory and supervisory considerations for stablecoin arrangements. The Working Group Statement encourages responsible payments innovation, while highlighting the requirement to strictly comply with applicable law, including all relevant anti-money laundering (AML), countering the financing of terrorism (CFT), and economic sanctions obligations. The OCC shares the Working Group Statement’s emphasis on the importance of legal compliance in the development of INVN and stablecoin arrangements.

Read our client alert.

The Anti-Money Laundering Act of 2020

Posted in Regulatory Developments
On New Year’s Day, Congress overrode President Trump’s veto of the National Defense Authorization Act (NDAA) for the 2021 fiscal year, turning the bill into law without requiring the president’s signature. The NDAA includes the Anti-Money Laundering Act of 2020 (AMLA), the first major reform of the 50-year-old United States anti-money laundering (AML) framework since the 2001 USA PATRIOT Act was enacted after 9/11.

The AMLA is designed to modernize AML and counter-financing of terrorism (CFT) laws, improve coordination among government and industry stakeholders, and emphasize the importance of risk-based AML/CFT programs. The updates are numerous, and include enhanced whistleblower protections, a broadened purpose for the Bank Secrecy Act (BSA), new penalties for certain BSA violations, and the addition of two new committees to the BSA Advisory Group.

Read our client alert.

CFPB Task Force Releases Recommendations for Improving Financial Services Consumer Protection

Posted in CFPB, Regulatory Developments
On January 5, 2021, the Consumer Financial Protection Bureau (CFPB or Bureau) Taskforce on Federal Consumer Financial Law (Task Force) released a report (Report) recommending changes designed to contemporize and strengthen consumer financial protections, encourage competition and innovation, and improve inclusion and access. The Report is the product of months of study and public outreach by the Task Force, which was charged with evaluating the current legal and regulatory environment for both consumers and financial services providers and providing recommendations for improvement.

In October 2019, the CFPB established the Task Force of external experts as an independent body within the CFPB that reported to Director Kraninger. In April 2020, the CFPB published a request for public comments to help identify areas for Task Force focus. According to the Task Force’s charter, the charter will expire 90 days after completion of the Report, unless renewed. The Report was issued in two volumes. Volume I covers the context of consumer finance and its current regulation. Volume II contains the Task Force’s recommendations.

Read our client alert.

FDIC Finalizes Supervisory Regime for Industrial Banks and their Controlling Shareholders

Posted in Regulatory Developments

On December 15, 2020, the Federal Deposit Insurance Corporation (“FDIC”) issued a final rule (“Final Rule”) setting forth standards to apply to controlling shareholders of industrial banks that are not subject to consolidated supervision by the Board of Governors of the Federal Reserve System. The Final Rule is substantially similar to the FDIC’s proposal announced March 17, 2020, and will take effect on April 1, 2021.

Read our client alert.

FinCEN Seeks to Expand Scope of Information Collection and Recordkeeping Requirements for Money Transmitters and other Financial Institutions

Posted in Regulatory Developments

A new proposed rulemaking (the “NPRM”) would lower the current $3,000 threshold for the applicability of the Bank Secrecy Act (“BSA”) Recordkeeping Rule and Travel Rule to $250 for covered funds transfers that begin or end outside the United States. This proposed change would—among other things—require nonbank financial institutions, such as money transmitters, to obtain information, including Social Security number, from all consumers that initiate covered transfers in an amount of $250 or more. If finalized as proposed, the change would have a significant impact on financial services providers that offer cross-border funds transfer services. In addition, the NPRM would modify the definition of “money”—as the term is used in connection with the Recordkeeping and Travel Rules—to include convertible virtual currency (“CVC”) and to clarify that funds transfers involving CVC are also covered. This change would be the first recognition of virtual currency in the regulations implementing the BSA.


Comments on the NPRM are due on November 27, 2020.

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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.