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

Federal Activities

State Activities

Federal Activities:

• On November 2, the Federal Trade Commission (FTC) announced that it is taking action against a personal finance app provider, alleging that its promises of “instant” cash advances were deceptive and that the company “locked” consumers into a monthly membership they could not cancel. The FTC’s complaint alleges that consumers were “rarely able to get an advance for the promised” amount, and in many cases, consumers were not able to receive a cash advance at all. The complaint also alleges that the company began charging consumers a fee for an instant transfer. Consumers who did not pay the fee had to wait up to three business days for their advances. In addition, the complaint alleges that while the company claimed to offer “non-recourse” advances with no fees or interest, the company prevented consumers who had an open advance, from canceling their subscription, and continued to withdraw $9.99 monthly from their bank account until the advance was paid off. Such monthly charges “created significant additional hardship” for consumers. For more information, click here.
• On November 1, the Consumer Financial Protection Bureau (CFPB) published a blog focused on the financial challenges that servicemembers face. The blog details three major protections that the CFPB is working to secure for all servicemember consumers, including reduced interest rates, protection from military allotment system abuses, and protection from military identity theft. Affecting privacy and data security specifically, the CFPB details how it is working to protect servicemembers from identity theft, including requiring credit monitoring companies to work proactively to identify servicemembers who might be eligible for free credit monitoring services, and ensuring that they receive the free services they are entitled to under the law. For more information, click here.
• On November 1, the UK Financial Conduct Authority (FCA) finalized guidance on the communication and promotion of cryptoassets. The guidance, which follows a consultation period that ended on August 10, clarifies the application of the financial promotion oversight regime to “qualifying cryptoassets.” It stipulates that all cryptoasset financial promotions must be fair, clear, and not misleading. The guidance does not introduce new obligations for firms, but relates to existing regulatory obligations. Firms and individuals that comply with the guidance will be considered as having complied with the rule or requirement to which the guidance pertains. For more information, click here.
• On November 1, the Securities and Exchange Commission (SEC) filed charges against a cryptocurrency firm and its executive team for allegedly committing fraud through the unregistered sale of crypto asset securities. The complaint states that the defendants falsely claimed, in their marketing materials, website, social media posts, and other public communications, that a certain percentage of funds from each transaction would be held and inaccessible by any party for four years as a safeguard against asset misappropriation. However, the complaint alleges that the defendants accessed and misused tens of millions of dollars for various purposes, including market manipulation of the crypto asset, business expenses, investments in unrelated companies, and personal use. The defendants are charged with violating the registration and anti-fraud provisions of the Securities Act of 1933 and the anti-fraud provisions of the Securities Exchange Act of 1934. For more information, click here.
• On November 1, the Office of the Comptroller of the Currency (OCC) published its revised interagency examination procedures for the Telephone Consumer Protection Act (TCPA). For more information, click here.
• On November 1, the OCC issued a bulletin to inform banks about policy guidance that applies to commercial loans to early, expansion, and late-stage companies. The OCC expects banks engaging in venture lending to do so in a safe and sound manner, in compliance with applicable laws and regulations, and with support from sound risk management systems. Before making any loan, bank management should identify the purpose of the loan and the source of repayment. In addition, bank management should assess the ability of the borrower to repay the loan in a timely manner. Documentation maintained by the bank should support the decision to grant the credit and allow for follow-up monitoring, as the bank would perform with any loan. OCC examiners will scrutinize loan commitments that are underwritten without an adequate assessment of the borrower’s capacity to repay and will determine whether such loans should be subject to supervisory criticism. Examiners will ask banks to determine the impact that any weak venture loan underwriting standards may have on the assumptions used in calculating loan loss reserves. For more information, click here.
• On November 1, the U.S. Small Business Administration (SBA) announced that it has granted three new Small Business Lending Company (SBLC) licenses to lenders focused on historically underserved markets — the first expansion of the SBLC program in more than 40 years. The lending companies — Arkansas Capital Corporation, Alaska Growth Capital BIDCO, Inc., and Funding Circle — will help support SBA’s ongoing efforts to increase access to affordable capital for business owners in underserved markets across the U.S., expanding on the Biden-Harris administration’s agenda to advance equity and build an inclusive economy. For more information, click here.
• On November 1, the Federal Housing Administration (FHA) announced that it has posted a set of proposed policy updates to its Home Equity Conversion Mortgage (HECM) program designed to improve program stability and to respond to changing market conditions, for industry feedback. FHA is seeking feedback on the policy updates contained in its draft Mortgagee Letter through November 7. For more information, click here.
• On October 31, the FHA announced the publication of consolidated and comprehensive policies for its HECM program, and the inclusion of these policies in the Single-Family Housing Policy Handbook 4000.1. For the first time, all HECM program requirements will be available in a single place. For more information, click here.
• On October 30, the FTC announced that it had banned the owner of a small business funding company from both the merchant cash advance and debt collection industries. The FTC’s lawsuit alleged that the owner and his company deceived small businesses and other organizations by misrepresenting the terms of merchant cash advances the business provided, and then used unfair collection practices, including sometimes threatening physical violence, to compel consumers to pay. The permanent injunction includes a provision requiring the owner to contact credit reporting agencies within 30 days to remove any negative information that was filed on consumer or business credit reports as a result of the owner’s actions. For more information, click here.
• On October 30, a Delaware judge approved the Chapter 11 restructuring plan of bankrupt cryptocurrency exchange Bittrex. The company expects to have sufficient funds to fully repay unsecured creditors. The approval comes despite opposition from four Iranian claimants who had their accounts frozen by the Office of Foreign Assets Control and voted against the plan. Bittrex had previously paid more than $29 million in fines for alleged U.S. sanctions violations. The next hearing is scheduled for December 13. For more information, click here.
• On October 30, a U.S. federal judge in Florida upheld the U.S. Treasury Department’s decision to sanction cryptocurrency mixer Tornado Cash, dismissing a challenge from crypto advocacy group Coin Center. The Treasury had placed Tornado Cash on the sanctions list in August 2022 after U.S. officials claimed a North Korean hacking group used the service to launder more than $455 million in stolen funds. Judge T. Kent Wetherell II ruled that the Treasury did not exceed its authority when it issued the sanctions. He further ruled that the Treasury’s Office of Foreign Assets Control (OFAC) has the power to sanction Tornado Cash under the International Emergency Economic Powers Act because the mixer’s members, including founders, developers, and token holders, have an interest in the service. Coin Center plans to appeal the ruling. For more information, click here.
• On October 30, the Treasury issued a joint statement on behalf of the U.S.-UK Financial Innovation Partnership (FIP), outlining discussions from recent meetings on financial innovation. The recent discussions focused on four areas: cryptoassets, payment system modernization, distributed ledger technology, and artificial intelligence (AI). Participants acknowledged the importance of their partnership on financial innovation as a crucial part of U.S.-UK financial services cooperation and expressed a desire to continue discussing these topics ahead of the next meeting in 2024. The FIP was established in 2019 to foster collaborative efforts in financial services, study emerging fintech trends, and share regulatory expertise. For more information, click here.
• On October 30, the UK’s HM Treasury released a report titled, “Future Financial Services Regulatory Regime for Cryptoassets,” outlining its plans for stricter regulation of digital assets. The proposed regulatory framework includes requirements for the admission of digital assets to a trading venue and disclosure documents. The Treasury also expanded the definition of “specified instruments” to include digital currencies, allowing them to fall under the Financial Conduct Authority’s (FCA) rulemaking powers. The report, based on stakeholder feedback from an extensive survey, outlines the UK government’s intent to attract more crypto businesses while protecting consumer interests. It confirms that the proposed regime will not regulate activities related to already regulated cryptoassets. The report also discusses the future FCA authorization process for cryptoasset activities, supports the use of publicly available information for disclosure and admission documents, and acknowledges the potential need for staggered implementation for cross-venue data sharing obligations. Any legislative changes in response to this report will occur in 2024. For more information, click here.
• On October 30, President Biden issued an Executive Order regarding the risks of AI. The Executive Order, in addition to other requirements, mandates that developers of the AI systems share the safety test results and develop standards, tools, and tests to ensure that AI systems are safe and secure. For more information, click here.
• On October 19, U.S. Senator Jeff Merkley (D-OR) and three other Senate Democrats introduced S3103, the Medical Debt Relief Act. The bill would ban all medical debt from appearing on credit reports and prohibit creditors from considering medical debt in their decisions on whether to extend them credit. A similar bill, HR6003, was introduced by U.S. Representative Katie Porter (D-CA) and 23 other House Democrats on the same day. For more information, click here.
• On October 17, a new Occasional Paper from the European Central Bank (ECB) suggested that decentralized autonomous organizations (DAOs) require a comprehensive regulatory framework to secure their place in the future of the financial sector. The paper, authored by Ellen Naudts, a market infrastructure expert at the ECB, argues that technology has outpaced regulation in relation to DAOs, negatively impacting the safety and sustainable growth of the ecosystem. The paper concludes that until DAOs are adequately regulated globally, their place in the financial sector will remain limited. This comes as ECB Executive Board Member Fabio Panetta recently expressed support for the digital euro, stating it could put Europe at the forefront of advanced economies. For more information, click here.

State Activities:

• On November 1, Iowa Attorney General (AG) Brenna Bird (R) announced a settlement with a company and its owner for their alleged deceptive business practices. The AG’s office alleged that the company used “deceptive methods” to solicit homeowners facing foreclosure and failed to provide the services they promised. Per the settlement agreement, the company allegedly sent mailers that offered foreclosure prevention services and access to “housing counselors,” but failed to deliver on its services. The agreement also alleges that the mailers “hid the company’s identity” and gave the false impression that the company was affiliated with the government. The settlement stops the alleged illegal and deceptive business practices, blocks the company and the owner from doing any future mortgage foreclosure business in Iowa, and requires the company to fully reimburse all affected consumers. For more information, click here.

• On November 1, the New York Department of Financial Services (NYDFS) revised its cybersecurity regulations, implementing additional safeguards and updating the notification protocols for ransomware attacks. Specifically, the NYDFS bolstered the following areas: (1) governance requirements; (2) measures to block unauthorized initial access to information systems and to prevent or mitigate the impact of an attack; (3) mandates for more frequent risk and vulnerability assessments and enhanced incident response, business continuity, and disaster recovery planning; (4) revised notification requirements, including a requirement to report ransomware payments; and (5) updated guidelines for companies to commit to training and awareness programs. The NYDFS also plans to host a series of webinars to provide more information about the revised regulations. For more information, click here.
• On October 31, New York AG Letitia James released a report highlighting racial disparities in home ownership and access to home financing throughout the state. Some of the top findings noted in the report include a notable racial gap in homeownership rates in every region of the state, with white households owning their homes at almost twice the rate of households of color. Additionally, the report also revealed that applicants of color are denied mortgages at higher rates than white applicants, regardless of credit score, income, size of the loan, and other factors. According to the report, even amongst borrowers with the highest credit scores, nonwhite applicants are denied at a rate that is nearly twice the rate at which white applicants receive denials. The report also notes that nonwhite borrowers are more likely to face higher costs in the form of higher interest rates, reliance on more expense FHA loans, and/or an inability to obtain refinancing at lower interest rates. The report provides several state-level policy solutions to address the disparities, which include, but are not limited to (a) subsidizing down payments and interest rates for first-generation homebuyers; (b) increasing state funding to nonprofit financial institutions that are better able to support communities of color that are underserved by traditional financial institutions; and (c) increasing resources for govern agencies’ fair lending investigations and strengthening the states human rights law to expressly prohibit lending practices that tend to have a disparate impact on communities of color. For more information, click here.
• On October 31, Ohio AG Dave Yost (R) announced that the state is suing a Florida debt collector who employed “harassing and abusive tactics” to try to collect debts from Ohio consumers. Yost’s lawsuit alleges that the debt collector violated the Consumer Sales Practices by:
  • Using abusive or harassing conduct to collect debts;
  • Making false, misleading, or deceptive representations in connection with debt collection;
  • Misrepresenting an affiliation with attorneys or a law firm;
  • Contacting consumers repeatedly by phone to collect the alleged debts after being advised by consumers that they did not owe the debts;
  • Threatening legal actions against consumers, such as arrest or wage garnishment, that the debt collector had no legal authority to follow up on, or intention of doing;
  • Representing or implying that nonpayment of debts would result in the filing of civil actions when such actions were unlawful;
  • Changing business names often to prevent consumers from obtaining reliable information about his business practices; and
  • Failing to honor consumers’ written requests to verify the debts the debt collector was attempting to collect.

Yost’s lawsuit seeks to recover consumer damages, civil penalties of $25,000 for each violation of the Consumer Sales Protection Act, and a permanent injunction to prevent the debt collector from violating the statute, regardless of the business name used. For more information, click here.

• On October 30, D.C. Mayor Muriel Bowser (D) signed B25-0118. The bill requires consumer reporting agencies to accept a personal statement from a consumer, indicating the consumer experienced financial hardship resulting from a public health emergency. It prohibits users of credit reports from taking into consideration adverse information in a report that was the result of the consumer’s action or inaction that occurred during the public health emergency. It requires credit reporting agencies to notify residents of the right to request a personal statement. The bill provides for a civil action for violations under the bill. For more information, click here.