Troutman Pepper Weekly Consumer Financial Services Newsletter - February 2024 # 4

Troutman Pepper

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 February 26, CoinSpeaker reported that in May, the U.S. Securities and Exchange Commission (SEC) and South Korea’s Financial Supervisory Service (FSS) will discuss the classification and regulation of nonfungible tokens (NFTs) and spot Bitcoin exchange-traded funds (ETFs). The conversation will center on whether NFTs should be legally considered virtual assets in South Korea, with potential implications for licensing and compliance. Another key issue will be the current ban on local financial institutions in South Korea offering spot Bitcoin ETFs. The outcome of these discussions could significantly impact South Korea’s digital asset regulations, potentially leading to stricter oversight for the NFT industry and expanded investment options for Korean retail investors in the crypto market. For more information, click here.
  • On February 23, the Consumer Financial Protection Bureau (CFPB) published an order establishing supervisory authority over installment lender World Acceptance. The procedures require the CFPB to issue a notice to an entity not currently subject to a supervisory examination. The entity can either consent to supervision or contest the notice. For more information, click here.
  • On February 23, the Federal Trade Commission (FTC) announced that it finalized an order with Global Tel*Link Corp. and two of its subsidiaries settling charges that they failed to secure sensitive data of hundreds of thousands of users and failed to alert all those affected by the incident. For more information, click here.
  • On February 21, the Biden-Harris administration announced that it will automatically discharge $1.2 billion in loans for nearly 153,000 borrowers who are eligible for the shortened time to forgiveness benefit under President Biden’s Saving on a Valuable Education (SAVE) Plan. The administration followed up on February 23 with a state-by-state breakdown of the borrowers who will be receiving forgiveness. For more information on the program, click here. For the state-by-state breakdown, click here.
  • On February 23, the Biden-Harris administration published a state-by-state breakdown of the nearly 153,000 borrowers who are receiving $1.2 billion in forgiveness under President Biden’s Saving on a Valuable Education (SAVE) Plan. Servicers started processing this forgiveness on February 23. For more information, click here.
  • On February 22, digital asset company Lejilex and the Crypto Freedom Alliance of Texas (CFAT), filed a lawsuit against the SEC, challenging its authority to regulate digital assets. The lawsuit argues that the SEC has overstepped its jurisdiction by treating most digital asset transactions as investment contracts under federal securities laws. Lejilex, planning to launch a new digital asset trading platform, and CFAT, an advocate for responsible crypto policy, claim the SEC’s approach hinders proper regulation of digital assets. The plaintiffs seek a court ruling to confirm that secondary-market sales of digital assets facilitated by Lejilex’s platform do not constitute securities sales. For more information, click here.
  • On February 22, the European Central Bank (ECB) expressed skepticism about recent Bitcoin price movement, attributing it to temporary and potentially unsustainable factors such as price manipulation, demand for illegal activities, and flawed regulations. The ECB warned of a potential renewed bubble, similar to previous boom-bust cycles experienced with Bitcoin, which could result in significant financial losses for investors. The bank also criticized Bitcoin’s lack of intrinsic value and vulnerability to manipulation, its role in facilitating criminal activities, and the inadequacy of existing regulations. The ECB has consistently voiced its skepticism toward Bitcoin, with officials recently stating that it is on the “road to irrelevance.” For more information, click here.
  • On February 21, Acting Comptroller of the Currency Michael J. Hsu discussed banking and commerce, regulatory effectiveness, and financial stability in remarks at Vanderbilt University. Hsu discussed the blurring of the lines between banking and commerce in payments and private credit/equity, and how this might lead to financial instability. He also offered thoughts on the potential for the Financial Stability Oversight Council’s recently adopted analytic framework to identify and address financial stability risks as they emerge. For more information, click here.
  • On February 15, the FTC issued a Supplemental Notice of Proposed Rulemaking, seeking public comment on its proposal to amend the Rule on Impersonation of Government and Businesses (Impersonation Rule or Rule), to add a prohibition on the impersonation of individuals. The amendment will also extend liability for violations of the Impersonation Rule to parties who provide goods and services with knowledge or reason to know that those goods or services will be used in illegal impersonations. The FTC stated the impetus for the amendment is the surging number of complaints it has received around impersonation fraud, including “deepfakes” generated using artificial intelligence (AI). For more information, click here.
  • On February 13, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) released a Financial Trend Analysis (FTA) showing a rise in Bank Secrecy Act (BSA) reporting linked to the use of convertible virtual currency (CVC) in online child sexual exploitation and human trafficking. The report underscores the importance of financial institutions’ vigilance and timely reporting in aiding law enforcement. The FTA revealed a significant increase in related BSA reports involving CVC, from 336 in 2020 to 1,975 in 2021, with Bitcoin identified as the primary CVC used. For more information, click here.

State Activities:

  • On February 22, California State Attorney General (AG) Rob Bonta (D) issued letters to small banks and credit unions warning that overdraft and returned deposited item fees may violate California’s Unfair Competition Law (UCL) and the federal Consumer Financial Protection Act (CFPA). In the letter, Bonta explains how overdraft and returned deposited item fees harm consumers and may violate the UCL and CFPA, which both prohibit unfair acts and practices against consumers. The letter also warns about the use of returned deposited item fees, which are charged to consumers when the consumer deposits a check that is returned due to a problem with the check originator. For more information, click here.
  • This month, New York Assembly Bill 2672 went into effect after being signed into law by the governor on December 13, 2023. The law requires sellers to clearly post the credit card price inclusive of any surcharge at the location a sale occurs and establishes a maximum civil penalty of $500 for each violation. The law does not, however, prohibit merchants from offering a two-tier pricing system (tagging or posting of two different prices in which the credit card price, inclusive of any surcharge, is posted alongside the cash price). For more information, click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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