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 February 10, while delivering remarks on CNBC‘s Squawk Box and discussing the Securities and Exchange Commission’s (SEC) recent $30 million-dollar settlement with cryptocurrency exchange Kraken for its offering of a crypto staking program, SEC Chair Gary Gensler suggested that crypto-related firms currently offering either lending or staking services need to assess the SEC’s action against Kraken and “come into compliance as “whether you call it lend, whether you call it earn, [or] whether you call it yield, the offering likely constitutes the sale of an investment contract in the form of a security subject to federal securities law. For more information, click here.
• On February 10, the Federal Trade Commission (FTC) announced it will send more than $115 million in refunds to consumers nationwide as a result of a 2018 action the FTC and the U.S. Department of Justice (DOJ) brought against MoneyGram for failing to crack down on scammers using their payment system. The 2018 action charged that MoneyGram violated an FTC settlement from 2009, along with a 2012 DOJ agreement in which the company agreed to take proactive steps to reduce scammers’ ability to use their payment system to receive money from consumers. For more information, click here.
• On February 9, the FTC’s Consumer Sentinel Network shared data, revealing the top lies used by romance scammers. Topping the list were scammers, telling consumers that they needed money because a friend or relative was sick, hurt, or in jail — a lie consumers reported hearing in nearly a quarter of the reports. The next most commonly reported lie said that the scammer had great investment advice to share with their newfound romantic interest, followed closely by the lie that the scammer served in the military, or they needed help making some sort of important delivery. For more information, click here.
• On February 9, the SEC filed a civil enforcement action against Payward Ventures, Inc. and Payward Trading Ltd. (collectively “Kraken) for its offering of a “staking-as-a-service program, which the SEC alleged was “an investment contract and therefore a security whose offers and sales were subject to the registration requirements of the federal securities laws. According to the SEC, Kraken’s failure to register “means that investors have lacked material information about the Kraken Staking Program, including but not limited to “the business and financial condition of [Kraken] and “how [Kraken] determine to stake investor tokens or purportedly hold them in reserve and the extent of these purported liquidity reserves[.] Mechanistically, Kraken’s crypto staking program involved a three-step process: (1) retail investors would transfer crypto eligible for Kraken’s staking program to Kraken’s platform; (2) Kraken would then retain control of the transferred crypto and aggregate such crypto in a pooled omnibus account; and (3) Kraken would “stake crypto contained in the pooled omnibus account on various proof-of-stake (POS) blockchains, supposedly in exchange for protocol awards associated with transaction validations. On POS blockchains, the block transactions are verified by nodes that have delegated to the blockchain the minimum amount of crypto necessary for the node to be selected as a validator. Here, the SEC alleged that Kraken’s pooling of tokens from retail investors enabled it to increase “the probability that the blockchain protocol [would] select [Kraken] to validate transactions and earn rewards … . Kraken agreed to immediately cease offering its staking-as-a-service program and to pay the SEC $30 million in disgorgement, prejudgment interest, and civil penalties. For more information, click here.
• On February 9, the FTC announced that it provided the Consumer Financial Protection Bureau (CFPB) with an annual summary of its activities, enforcing the Equal Credit Opportunity Act. The summary also outlines the FTC’s business and consumer education efforts on fair lending issues. For more information, click here.
• On February 7, the CFPB issued an advisory opinion to protect Americans from double dealing on digital mortgage comparison-shopping platforms. Companies operating these digital platforms appear to shoppers as if they provide objective lender comparisons, but may illegally refer people to only those lenders paying referral fees. When shoppers use a lender that is not the best option for their needs, they may end up with a lower quality lender or paying thousands more in closing costs or interest. The advisory opinion outlines how companies violate the Real Estate Settlement Procedures Act when they steer shoppers to lenders by using pay-to-play tactics rather than providing shoppers with comprehensive and objective information. For more information, click here.
• On February 7, CFPB Director Rohit Chopra issued a statement on mortgage comparison shopping during a time of higher interest rates. The statement warned consumers about comparison shopping platforms that may lead to higher interest rates. For more information, click here.
• On February 7, the Federal Reserve (Fed) issued a final rule, interpreting Section 9(13) of the Federal Reserve Act as providing the Fed with discretion to rebuttably presume that a state member bank cannot engage in any impermissible activity for a national bank, unless permissible via federal statute or applicable regulations promulgated by the Federal Deposit Insurance Corporation (FDIC). The statement discussed the permissibility of certain crypto-asset-related activities for state member banks and how the Fed would apply the rebuttable presumption to those activities. For more information, click here.
• On February 7, the SEC’s Office of Investor Education and Advocacy issued an investor alert to warn investors of the potential risks associated with self-directed IRAs and crypto-assets, which “may be securities may be securities that are offered without SEC registration or a valid exemption from registration, and may not be accompanied by complete or accurate information to aid investors in making informed decisions. For more information, click here.

State Activities:

• On February 13, Paxos Trust Company (Paxos), announced the termination of its relationship with Binance, the largest cryptocurrency exchange by volume. Paxos was the issuer of Binance’s stablecoin, BUSD. Paxos’ announcement seems to be precipitated by the New York Department of Financial Services’ (NYDFS) recent order that required Paxos to cease minting BUSD “as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD. For more information relating to Paxos’ announcement, click here. For more information relating to the NYDFS’ order, click here.
• On February 10, the California Privacy Protection Agency (CPPA) Board issued an invitation for preliminary comments from the public regarding cybersecurity audits, risk assessments, and automated decision-making. California voters approved Proposition 24, the California Privacy Rights Act (CPRA), in November 2020, which created the CPPA to implement and enforce the law. The CPRA amendments to the CPPA direct the agency to issue regulations, requiring certain businesses to perform cybersecurity audits annually and submit a risk assessment to the CPPA regularly regarding its processing of personal information. The CPRA amendments also require the CPPA to issue regulations governing access and opt-out rights with respect to certain businesses’ use of automated decision-making technology. The preliminary rulemaking comment period will end on March 27. For more information, click here.
• On February 10, a New York state court judge rejected an attempt by iFinex and related companies, which include cryptocurrency exchange Bitfinex and USDT stablecoin issuer Tether, to block Coindesk’s Freedom of Information Law (FOIL) request for documents concerning asset reserve composition details related to Tether’s USDT stablecoin. From its inception until late February 2019, Tether publicly affirmed that all USDT stablecoins in existence were 100% backed by U.S. dollars. However, an investigation by the New York attorney general’s office uncovered that Tether’s USDT stablecoin was not sufficiently backed by reserves from at least mid-2019 to early 2021. For more information, click here.
• On February 8, New York Department of Financial Services (DFS) Superintendent Adrienne A. Harris announced the adoption of the updated Community Reinvestment Act (CRA) regulation. The regulation makes changes to the state’s Banking Law Section 28-b, which was enacted in 2019 and allows DFS to aggregate data to evaluate how well the state’s regulated banking institutions are serving minority- and women-owned businesses. The findings will then be integrated into those institutions’ CRA ratings. Among other things, the final regulation details how institutions must collect and submit the required data, while still complying with fair lending laws. The regulation requires the subject banks to report details of the applications it receives, such as (1) whether the applicant is a minority-owned business, a women-owned business, or both; (2) the application date; (3) type and amount of credit sought; (4) whether the application was approved or denied; and (5) the size and location of the business. For more information, click here.
• On February 3, the CPPA Board voted unanimously to adopt and approve the CPPA’s rulemaking package to further implement the California Consumer Privacy Act (CCPA). However, the proposed regulations will not take effect until first approved by the Office of Administrative Law, which has 30 business days from the date of submission to review the proposed regulations. On July 8, 2022, the CPPA began the formal rulemaking process to adopt proposed regulations to further implement CPPA pursuant to the CPRA. The proposed regulations (1) update existing CCPA regulations to sync them with amendments to the CCPA; (2) provide clarity and specificity with respect to new rights and concepts introduced by the CPRA; and (3) reorganize and consolidate requirements set forth by law to make the regulations easier to understand and follow. For more information, click here.
• On February 1, New York Governor Kathy Hochul announced the fiscal year 2024 executive budget, which reflects Hochul’s agenda to make the state more affordable, more livable, and safer by investing in mental health care, public safety, housing, education, climate initiatives, and more. The budget includes measures targeted at ending certain practices related to the imposition of bank overdraft and insufficient funds fees. One specific measure amends Section 9-y of the state’s banking law to grant the DFS superintendent the power to issue regulation to address (1) the manner in which banking organizations process debit and credit transactions for consumer accounts maintained at such organization; (2) charges that may be imposed in connection with transactions involving insufficient funds or uncollected balances in a consumer account; (3) charges that may be imposed in connection with a returned check; (4) the disclosures that must be provided to consumers regarding the processing of transactions in a consumer account and the associated fees; and (5) the alerts, notices, and other disclosures relating to the imposition or possible imposition of overdraft or insufficient funds fees. For more information, click here.