To keep you informed of recent activities, below are several of the most significant federal and state events that have influenced the Consumer Finance Services industry over the past week:

Federal Activities

State Activities

Federal Activities:

• On September 11, the Consumer Financial Protection Bureau (CFPB) took action against Tempoe, LLC, for tricking consumers into expensive leasing agreements by concealing the contract terms and costs, and failing to provide legally required disclosures. Forty-one states and the District of Columbia are entering into a parallel multistate settlement addressing the same conduct. Tempoe offered financing at the point of sale to customers at major retailers such as Sears and Kmart. Tempoe is paying a $2 million penalty, with $1 million deposited into CFPB’s victims’ relief fund and $1 million paid to the states entered into the settlement. For more information, click here.
• On September 8, the Financial Crimes Enforcement Network (FinCEN) issued an alert on identifying several red flags that banks and financial institutions should be on the lookout for concerning cryptocurrency investment scams. FinCEN stated these scams are largely perpetrated by criminal enterprises based in Southeast Asia who use victims of labor trafficking to conduct outreach to millions of unsuspecting individuals around the world. FinCEN’s alert explains the scam’s methodology; provides behavioral, financial, and technical red flags to help financial institutions identify and report related suspicious activity; and reminds financial institutions of their reporting requirements under the Bank Secrecy Act. For more information, click here.
• On September 8, the Securities and Exchange Commission (SEC) reached a settlement with Linus Financial Inc. over its alleged failure to register its crypto lending product, but said it chose not to impose a civil penalty based on the firm’s cooperation with the investigation. Linus Financial agreed to suspend penalties for the unregistered offering in return for a cease-and-desist order. In a related press release, the SEC stated it “will continue to hold companies accountable for failing to comply with federal securities laws,” and that it encourages “companies to cooperate and take prompt corrective action when problems arise.” The press release further stated that the “settlement provides a valuable message to other market participants about the importance of cooperation and remediation.” For more information, click here.
• On September 7, the Commodity Futures Trading Commission’s (CFTC) Commissioner Caroline D. Pham spoke (pre-recorded message) about crypto regulation at a Cato Institute event. Specifically, Pham stated that she planned to propose a pilot program for digital asset markets, suggesting that the program would resemble regulatory sandboxes previously introduced at the state level. She further stated that “pilot program can create a framework for emerging technologies and market structures under our existing laws and regulations,” and that was her “hope that a pilot to test, gather data, and develop a pragmatic approach to tokenization can ensure we continue to uphold our mandate to fostering open, transparent, competitive and financially sound markets.” Phan further stated that the pilot program will consist of three main steps: (1) the CFTC should “call for a roundtable to engage all stakeholders”; the CFTC should “propose and adopt rules establishing a pilot program for a specific period of time that incorporates many of the components drawn from past pilot programs, including: registration and eligibility requirements, financial resources and other conditions, risk management, products and contract terms, and other requirements including disclosures and reporting”; and (3) at the conclusion of the pilot program, the CFTC “should examine the data gathered from the pilot and consider whether there should be a permanent change to our rules.” For more information, click here.
• On September 8, Michael S. Barr, vice chair for supervision at the Federal Reserve, spoke about stablecoins, among other topics, at the Federal Reserve Bank of Philadelphia’s Seventh Annual Fintech Conference. During his speech, Barr emphasized that “he was deeply concerned about stablecoin issuance without strong federal oversight.” Barr explained that “stablecoins are a form of money, and the ultimate source of credibility in money is the central bank”, and if “non-federally regulated stablecoins were to become a widespread means of payment and store of value, they could pose significant risks to financial stability, monetary policy, and the U.S. payments system.” Barr further stated that it “is important to get the legislative and regulatory framework right before significant risks emerge,” and that he looks forward to further engagement with Congress “to ensure that there is a robust federal framework for all stablecoins.” For more information, click here.
• On September 7, the International Monetary Fund (IMF) and the Financial Stability Board (FSB) published a joint paper (the paper) containing policy recommendations at the request of the Indian G20 presidency. In the paper, the IMF and the FSB synthesized the IMF’s and the FSB’s policy recommendations and standards, and provided comprehensive guidance to help authorities address the macroeconomic and financial stability risks posed by crypto-asset activities and markets, including those associated with stablecoins and those conducted through decentralized finance. The paper also describes how the policy and regulatory frameworks developed by the IMF and the FSB ties with each other, but it does not establish new policies, recommendations, or expectations for relevant member authorities. The paper concludes with an implementation roadmap. For more information, click here.
• On September 7, the CFTC released a statement (the press release) that it has been presented with a package of three proposed, and unusual, enforcement actions involving decentralized finance (DeFi). The press release provides that although “each case presents different facts, they have been lumped together for Commission consideration and vote (presumably for messaging purposes) as ‘DeFi’ cases”. In these cases, the CFTC was faced with determining liability and imposing sanctions “based on a novel technology that was decentralized in conception and operation — an area that has not previously been the subject of a CFTC enforcement action.” In the press release, the CFTC stated it is concerned that these cases are “taking another step down the path of bringing enforcement actions when we should be engaging with the public.” The CFTC further stated that it is important to emphasize that “enforcement first” has not always been the CFTC’s default position, and that “these cases are especially concerning in that they represent a significant shift in position on the merits of engagement with DeFi market participants.” For more information, click here.
• On September 7, the CFPB published a new issue spotlight highlighting the impacts of Big Tech companies’ policies and practices that govern tap-to-pay on mobile devices like smartphones and watches. For more information, click here.
• On September 5, the Office of the Comptroller of the Currency (OCC) announced it will host two workshops in Syracuse on October 17-18 for directors, senior management, and other key executives of national community banks and federal savings associations. For more information, click here.
• On September 5, the CFPB filed an opposition to a motion for a preliminary injunction made by a group of Kentucky banks (Monticello Banking Co.) in the U.S. District Court for the Eastern District of Kentucky. The banks filed their motion for a preliminary injunction seeking an order to enjoin the CFPB from enforcing the Small Business Lending Rule against them for the same reasons that a Texas district court enjoined enforcement of the rule. The CFPB argues that the plaintiff banks have not satisfied any of the factors necessary for preliminary relief, including that they have not shown that their claim is likely to succeed on the merits, and they have not shown that they face imminent irreparable harm. For more information, click here.
• On September 5, the Fed announced a cease and desist order against a Kansas bank holding company (GARDNER BANCSHARES, INC.) for having significant operational deficiencies. The order directs the bank to (i) strengthen board oversight; (ii) engage a third party to conduct an assessment of the bank’s corporate governance and staffing; (iii) improve lending and credit administration policies and procedures; (iv) correct the identified information technology and information security deficiencies; (v) revise its allowance for credit losses methodology to comply with supervisory guidance; (vi) enhance interest rate risk management practices; (vii) improve internal controls; (viii) submit a written plan to maintain sufficient capital; (ix) enhance liquidity risk management; and (x) improve the bank’s earnings and overall condition. The order also directs the bank to improve its BSA/AML compliance program and internal audit program, and to take all necessary steps to correct all violations of law or regulation and to ensure future compliance. For more information, click here.
• On September 5, the Federal Deposit Insurance Corporation (FDIC) announced that it is launching a new Banker Engagement Site (BES) through FDICconnect. BES provides a secure and efficient portal to exchange documents, information, and communications for consumer compliance and Community Reinvestment Act (CRA) examinations. Specifically, BES provides a financial institution’s authorized staff the ability to communicate with FDIC examination staff and to respond to the information and document requests made throughout the supervisory process. For more information, click here.
• On September 5, the FDIC issued its list of state nonmember banks recently evaluated for compliance with the CRA. The list covers evaluation ratings that the FDIC assigned to institutions in June 2023. For more information, click here.

State Activities:

• On September 7, the California Department of Financial Protection and Innovation (DFPI) announced the launch of the Student Loan Empowerment (SLE) Project, a new $7.25 million grant program that will support nonprofit organizations delivering education, counseling, and legal assistance programs for Californians with student loans. The SLE Project will award $7.25 million to nonprofit organizations that submit the best proposals for how they will support the development and execution of at least one of two grant streams: Network Coordination grants will fund organizations providing coordination and support for the SLE Project network, and Service Partner grants will fund community-based, individualized education and counseling or legal services to help borrowers manage their student loans. For more information, click here.
• On September 6, California Governor Gavin Newsom signed Executive Order N-12-23 (order), relating to generative artificial intelligence (GenAI). The order requires various government agencies to collaborate to draft a report regarding the “most significant, potentially beneficial use cases for deployment of GenAI tools by the State” within 60 days of issuance of the order. Additionally, the report must also provide an explanation of the “potential risks to individuals, communities, and government and state government workers, with a focus on high-risk use cases, such as where GenAI is used to make a consequential decision affecting access to essential goods and services.” Additionally, the order requires the report to address risks stemming from bad actors, risks stemming from improperly guarded government systems, the unintended or emergent effects of GenAI, and the potential risks toward democratic and legal processes, public health and safety, and the economy. The order also requires the state’s Cybersecurity Integration Center and Threat Assessment center to “perform a joint risk analysis of potential threats to vulnerabilities of California’s critical energy infrastructure by use of GenAI.” The Order also contains several other directives for other state agencies. For more information, click here.
• On September 1, California Attorney General Rob Bonta announced a settlement with The Money Source, Inc. (TMS), resolving allegations that the company failed to properly process, and timely grant, mortgage deferment requests made by California military reservists called to active duty. Under the California Military and Veterans Code, including the California Military Families Financial Relief Act (CMFFRA), reservists called to active duty can defer payments on certain financial obligations — including their mortgage, credit cards, property taxes, car loans, utility bills, and student loans — if they submit a written request and a copy of their military orders to the lender or other appropriate entity. Last year, the California Department of Justice (DOJ) received a credible complaint alleging that TMS mishandled a reservist’s mortgage deferment request. Subsequently, DOJ launched an investigation into TMS’s processes for handling mortgage deferment requests. As part of the settlement, TMS will pay $58,000 in penalties, fully reimburse the affected reservists, and be subject to injunctive terms. For more information, click here.