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Troutman Pepper Weekly Consumer Financial Services Newsletter – October 2022 # 5 | Troutman Pepper

To help you keep abreast of relevant activities, below find a breakdown of some of the biggest events at the federal and state levels to impact the Consumer Finance Services industry this past week:

Federal Activities

State Activities

Federal Activities:

  • On October 21, the Federal Trade Commission (FTC) issued “Protecting Older Consumers, 2021-2022, A Report of the Federal Trade Commission” to Congress on protecting older adults. The report highlights key trends based on fraud reports by older adults, as well as the FTC’s efforts to combat the problem through law enforcement actions, rulemaking, and outreach and education programs. For more information, click here.
  • On October 21, the Eighth Circuit temporarily blocked President Joe Biden’s student loan forgiveness program. For more information, click here.
  • On October 20, while at the Brookings Institute’s The Prudential Regulation of Crypto-Assets event, Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg discussed policy considerations for stablecoins and the FDIC’s likely role in regulating bank-related, crypto-asset activity. Notably, Chairman Gruenberg believes stablecoins should be (1) issued through a bank subsidiary; (2) backed in a 1:1 ratio by short-dated U.S. Treasury assets; and (3) transacted on permissioned distributed ledger technology where authorization is a prerequisite to validate network transactions. For more information, click here.
  • On October 20, Supreme Court Justice Amy Coney Barrett, who oversees Seventh Circuit emergency matters, rejected an emergency request to stop President Biden’s student loan forgiveness program. For more information, click here.
  • On October 20, the Consumer Financial Protection Bureau (CFPB) issued guidance to consumer reporting agencies about their obligation to screen for and eliminate what the CFPB describes as “obviously false ‘junk data’” from consumers’ credit reports. The guidance states that consumer reporting agencies need to take steps to reliably detect and remove inconsistent or impossible information from consumers’ credit profiles. For more information, click here.
  • On October 19, the U.S. Department of Justice (DOJ), on behalf of the U.S. Department of Treasury and the Financial Crimes Enforcement Network (FinCEN), filed a lawsuit in the District of Columbia against Larry Dean Harmon, the founder of digital currency mixers Helix and Coin Ninja. In 2020, FinCEN assessed a civil money penalty of $60 million against Harmon for failing to implement an effective anti-money laundering program and report suspicious activity while operating Helix and Coin Ninja, which constitute money transmitters under the Bank Secrecy Act. Between 2014 and 2017, FinCEN alleged Helix conducted over 1,225,000 mixing transactions, and Harmon received commissions totaling approximately 356,000 bitcoins. In 2021, Harmon pled guilty to DOJ’s charges, and as part of his plea, he must forfeit more than 4,400 bitcoin valued at more than $200 million at the time. Harmon has not yet been sentenced. The DOJ’s 2022 lawsuit seeks to recover the $60 million civil penalty FinCEN imposed on Harmon in 2020. For more information, click here.
  • On October 19, two Massachusetts men were sentenced for an extensive scheme to take over victims’ social media accounts and steal their cryptocurrency using techniques, such as “SIM swapping,” computer hacking, and other methods. For more information, click here.
  • On October 19, the Fifth Circuit ruled that the CFPB’s funding structure is unconstitutional, finding that the CFPB funding structure created by Congress violated the Constitution’s appropriations clause, which provides that “no money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” For more information, click here.
  • On October 19, the Department of Housing and Urban Development published a proposed rule in the Federal Register, seeking public comment on transitioning existing FHA-insured forward and home equity conversion mortgage adjustable rate mortgages from LIBOR to a spread-adjusted Secured Overnight Financing Rate index after the one-year and one-month LIBOR indices cease to be published on June 30, 2023. The proposed rule includes removing LIBOR and adding SOFR as an approved index for newly originated forward ARMs. Comments are due by November 18. For more information, click here.
  • On October 19, the CFPB released its issue brief, “Overdraft Fees and Economically Insecure Older Adults,” which examines the economic effects of overdraft fees on economically insecure older adults. For more information, click here.
  • On October 18, the FTC reached a $3.38 million settlement with Passport Automotive Group (Passport) and two of its officers over allegations that the automotive group violated the Equal Credit Opportunity Act and the FTC Act by adding “junk fees” onto the cost of its vehicles and discriminating against Black and Latino consumers by charging them higher financing costs and fees than non-Latino white consumers. In addition to the fine, the proposed settlement order includes a remediation plan, changing how Passport, which operates nine car dealerships in the Washington, D.C. metropolitan area, will operate going forward. For more information, click here.
  • On October 18, the FDIC issued a final rule to incorporate updated accounting standards in the risk-based deposit insurance assessment system applicable to all large and highly complex insured depository institutions. The final rule amends the assessment regulations to include a new term, “modifications to borrowers experiencing financial difficulty,” in two financial measures — the underperforming assets ratio and the higher-risk assets ratio — used to determine deposit insurance assessments for large and highly complex insured depository institutions. For more information, click here.
  • On October 18, the FDIC’s board of directors approved the publication of an Advance Notice of Proposed Rulemaking (ANPR) concerning potential new resolution-related resource requirements for large banking organizations to improve the prospects for the orderly resolution of large banks in the U.S. should they fail. The ANPR is proposed jointly by the FDIC and the Federal Reserve System Board of Governors. For more information, click here.
  • On October 18, the FDIC adopted a final rule to increase initial base deposit insurance assessment rate schedules uniformly by two basis points, beginning in the first quarterly assessment period of 2023. After consideration of comments received and updated analysis and projections, the FDIC adopted as final and without change, the increase in assessment rates as proposed on June 21. For more information, click here.
  • On October 18, the FDIC announced its solicitation for further comment on proposed amendments to its “Guidelines for Appeals of Material Supervisory Determinations.” In response to comments received, the proposed amendments would expand and clarify the role of the agency’s ombudsman in the supervisory appeals process; require that materials considered by the Supervision Appeals Review Committee be shared with both parties to the appeal, subject to applicable legal limitations on disclosure; and allow insured depository institutions to request a stay of a material supervisory determination while an appeal is pending. For more information, click here.
  • On October 18, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a finding of violation to an international financial entity located in Puerto Rico for violating the Venezuelan Sanctions Regulations (VSR) and the Reporting, Penalties, and Procedures Regulations (RPPR). VSR violations concern the entity’s voluntary self-disclosure of three unlicensed transactions in which an individual on OFAC’s List of Specially Designated Nationals and Blocked Persons had an interest. RPPR violations reflect its failure to maintain full and accurate records regarding the handling of blocked property and its inaccurate reporting of the blocked property to OFAC. For more information, click here.
  • On October 18, the CFPB filed a complaint against a payment processing service platform for allegedly violating the Consumer Financial Protection Act and the Electronic Funds Transfer Act by engaging in deceptive and abusive acts and practices. For more information, click here.
  • On October 17, Freddie Mac announced that it will increase homeownership opportunities by including a review of a borrower’s bank account data to identify a history of positive monthly cash flow activity as part of its technology’s loan purchase eligibility assessments. Mortgage lenders nationwide can access this tool through Freddie Mac’s automated underwriting system, Loan Product Advisor, beginning November 6. For more information, click here.
  • On October 17, the Department of Veterans Affairs (VA) published a proposed rule in the Federal Register related to the Loan Guaranty Service. The proposed rule concerns the expansion of the VA’s incentivized loss mitigation options currently available to servicers assisting veterans whose VA-guaranteed loans are in default. Comments are due by January 17, 2023. For more information, click here.
  • On October 4, the Brown County Taxpayers Association filed a lawsuit against President Biden in the U.S. District Court for the Eastern District of Wisconsin, alleging that the student loan forgiveness program is unconstitutional. For more information, click here.

State Activities:

  • On October 20, Texas, Alabama, New Jersey, and Kentucky securities regulators filed coordinated enforcement actions against Slotie, a virtual metaverse-styled non-fungible token (NFT) casino, for allegedly offering unregistered securities in the form of NFTs. The NFTs called “Slotie NFTs” and “Slotie Junior NFTs” purportedly provide investors the right to passively share revenues generated by an online slots game offered on Slotie’s platform, as well as ownership interests in online casinos located on Slotie’s platform. For a copy of the cease-and-desist order issued by the Alabama Securities Commission, click here.
  • On October 19, Virginia Attorney General Jason Miyares announced that members of a multistate coalition, including 19 attorneys general, have served six major American banks with civil investigative demands “asking for documents relating to the companies’ involvement with the United Nations’ (UN) Net-Zero Banking Alliance (NZBA).” NZBA-member banks must set emissions reduction targets in their lending and investment portfolios to reach net zero by 2050. According to Attorney General Miyares, the NZBA “punishes Virginia farmers and Virginia companies that deal with fossil fuel-related activities” that “are not subject to UN business standards.” The AGs are investigating why financial are “ceding authority to a foreign body.” For more information, click here.
  • On October 19, the DOJ unsealed a 12-count indictment in federal court in Brooklyn, NY, charging five Russian nationals — Yury Orekhov, Artem Uss, Svetlana Kuzurgasheva (aka “Lana Neumann), Timofey Telegin, and Sergey Tulyakov — with various charges related to a global procurement, smuggling, and money laundering network. Also charged were Juan Fernando Serrano Ponce (aka “Juanfe Serrano) and Juan Carlos Soto who brokered illicit oil deals for Venezuelan state-owned oil company Petroleos de Venezuela S.A. (PDVSA) as part of the scheme. For more information, click here.
  • On October 18, California Attorney General Rob Bonta joined a coalition of 35 attorneys general in filing an amicus brief in the U.S. Court of Appeals for the Tenth Circuit to support Oklahoma’s authority to regulate pharmacy benefit managers (PBMs). According to the press release, “PBMs act as a middleman between pharmacies, drug manufacturers, health insurance plans, and consumers,” and “[t]his position allows them to have a significant impact on consumers’ access to affordable prescription drugs.” Attorney General Bonta stated: “The expanded power of PBMs in the pharmaceutical industry has had an outsized, negative impact on drug pricing and the availability of pharmacies in vulnerable communities. States have a responsibility to regulate PBMs to curb the rising cost of lifesaving prescription drugs.” For more information, click here.
  • On October 18, the New York Department of Financial Services (DFS) Superintendent Adrienne Harris announced that a licensed health insurance company will pay a $4.5 million penalty to New York state for violating DFS’s Cybersecurity Regulation (23 NYCRR Part 500) that contributed to the exposure of hundreds of thousands of consumers’ sensitive, nonpublic, personal health data, including data concerning minors. For more information, click here.
  • On October 14, the Pennsylvania Attorney General Josh Shapiro announced a settlement with the owners of Dominion Management of Delaware, which operated as CashPoint, a now defunct auto title loan business. CashPoint made thousands of unlawful loans to Pennsylvania borrowers at annual interest rates exceeding 200%. As a result of this settlement, the owners will refund more than $1.5 million in unlawful interest charges to consumers who fell victim to their scheme. These refunds are in addition to the $3.2 million in debt cancellation victims already received as a result of an October 2021 court order. For more information, click here.
  • California Governor Gavin Newsom recently signed Senate Bill 1311, the Military and Veteran Consumer Protection Act of 2022, into law. This law goes into effect on January 1, 2023 and takes direct aim at, among other things, the Military Lending Act’s exceptions for loans obtained to purchase motor vehicles and other forms of personal property. For more information, click here.