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 December 8, the Office of the Comptroller of Currency (OCC) released its Semiannual Risk Perspective for Fall 2022, which discusses major risk themes facing the federal banking system. In its report, the OCC categorized “crypto-assets” as an “emerging risk” for a variety of reasons, including “high volatility among crypto-assets, high-risk lending and leverage within crypto-asset markets, high interconnectedness and concentration within the crypto industry, and a lack of consistent or comprehensive regulation for certain crypto-asset entities.” The OCC noted that it is primarily concerned with whether banks are integrating cryptocurrencies into their business models in a “safe, sound, and fair manner.” For more information, click here.
• On December 7, Senators Elizabeth Warren (D-MA) and Senator Tina Smith (D-MN) issued a letter to several federal regulators — Federal Reserve Chairman Jerome Powell, Federal Deposit Insurance Corporation Acting Chair Martin J. Gruenberg, and OCC Acting Comptroller Michael J. Hsu — inquiring about the U.S. banking system’s exposure to the crypto industry. Among other things, the letter discusses Alameda Research, a defunct crypto trading firm and sister-company of bankrupt cryptocurrency exchange FTX, and its $11.5 million investment in Washington-based bank Moonstone Bank. Alameda’s investment in Moonstone constituted “more than double the bank’s worth” at the time the investment was consummated. The letter posits that cryptocurrency consumer deposits accounted for almost 90% of overall deposit base (a total of $11.9 billion) for a bank comparable in size to Moonstone. To better understand the full extent by which crypto has become integrated into the U.S. banking system, the letter requires the federal regulator addressees to submit responses to certain questions by December 21. Notably, one of the questions posed by Senator Warren and Senator Smith probes whether Alameda’s investment in Moonstone includes “FTX customer funds” or “assets received from sources that did not meet the Know Your Customer (KYC) guidelines.” For more information, click here.
• On December 7, the Consumer Financial Protection Bureau (CFPB) released research, revealing that Reserve and National Guard members called to active duty are paying an extra $9 million in interest every year because they are not always receiving the benefit of their right-to-rate reductions under the Servicemembers Civil Relief Act (SCRA). The SCRA gives active duty servicemembers the right to request interest rate reductions on outstanding loans during the time they are activated and for an additional year in the case of mortgages. For more information, click here.
• On December 7, the CFPB updated state laws on lending to businesses. Recently, a number of states have enacted laws to require improved disclosure of information in commercial financing transactions. This can include, for example, loans to small businesses. For more information, click here.
• On December 7, unknown sources close to Senator Elizabeth Warren (D-MA) revealed that she is working on a cryptocurrency bill that will empower the Securities and Exchange Commission (SEC) to exclusively govern the cryptocurrency industry. Still in its infancy, this bill appears to be primarily focused on addressing issues that have recently become amplified in the wake of the implosion of FTX: (1) capital requirements; (2) audited financial statements; and (3) commingling of customer funds. For more information, click here.
• On December 6, while delivering remarks at the ABA Financial Crimes Enforcement Conference, Financial Crimes Enforcement Network (FinCEN) Acting Director Himamauli Das disclosed that FinCEN is taking a close look at decentralized finance (DeFi) and “its potential to reduce or eliminate the role of financial intermediaries” who currently assist FinCEN with its AML/CTF efforts through suspicious activity reporting required by the Bank Secrecy Act. Considering DeFi’s capacity to disintermediate, FinCEN is reviewing its current money services business framework to determine whether additional regulations or guidance is needed to combat the erosion of financial surveillance. For more information, click here.
• On December 6, the Federal Reserve (Fed) announced its formation of an industry working group to establish voluntary principles for a consistent end-user experience for solutions leveraging the Fed’s request for payment (RFP) solution, which will enable financial institutions to build instant bill pay services to improve consumer and business cash flow management. The RFP industry working group is comprised of noteworthy U.S. financial institutions and corporations. For more information, click here.
• On December 6, the CFPB issued its Semi-Annual Report to Congress for the period beginning October 1, 2021 and ending March 31, 2022. For more information, click here.
• On December 6, Fannie Mae (FNMA/OTCQB) announced enhancements to its automated underwriting system designed to responsibly expand eligibility and further simplify the borrowing process for loans where homebuyers do not have a credit score. For more information, click here.
• On December 5, Senators Elizabeth Warren (D-MA), John Kennedy (R-LA), and Roger Marshall (R-KS) issued a letter to Silvergate Bank, inquiring into its relationship with FTX, especially since FTX’s sister-company Alameda Research maintained a bank account at Silvergate. FTX ex-CEO Sam Bankman-Fried recently conceded that FTX did not originally have a bank account of its own. Therefore, to facilitate consumer purchases of cryptocurrency on its exchange platform, FTX required consumers to wire money to Alameda’s bank account with Silvergate. The letter primarily takes issue with Silvergate’s role in the transfer of FTX consumer funds to Alameda, but it also criticizes Silvergate for failing to uphold its AML and SAR filing duties under the Bank Secrecy Act. Additionally, the letter requires Silvergate to provide responses to certain questions by December 19. Notably, one of the questions probes whether Silvergate’s AML compliance program has ever undergone an independent audit. For more information, click here.
• On December 2, the U.S. Department of Education issued a letter, informing guaranty agencies of their obligations regarding the Federal Family Education Loan (FFEL) Program for loans in default according to the Fresh Start Initiative. For more information, click here.
• On December 2, the Federal Reserve Board finalized clarifying and technical updates to its policy governing the provision of intraday credit to healthy depository institutions with accounts at the Federal Reserve Banks. The updates expand access to collateralized intraday credit under the Policy on Payment System Risk (known as PSR policy), while providing greater clarity to institutions that streamline administrative requirements and support the launch of the FedNow℠ The final updates are substantially similar to the proposal issued in May 2021. For more information, click here.
• On December 1, the Cato Institute released an article, discussing the launch of Project Hamilton, the Federal Reserve of Boston’s (Boston Fed) 12-week central bank digital currency (CBDC) pilot, and the Boston Fed’s decision to engage certain private financial institutions to research feasible CBDC implementation strategies. Numerous members of Congress believe a conflict of interest between the Boston Fed and the private sector exists since Project Hamilton, although touted as a collaborative research project, could potentially act as a CBDC incubator and provide an unfair competitive advantage to Project Hamilton’s private market participants. For more information, click here.

State Activities:

• On December 8, New York Governor Kathy Hochul announced a report from the Department of Financial Services (DFS), highlighting racial disparities in mortgage lending practices in certain parts of the state. This new report comes on the heels of another report released by DFS earlier this year that identified redlining and other forms of housing discrimination by mortgage lenders. In light of the findings noted in the report, two mortgage lenders in the state agreed to reform their lending practices and implement programs to ensure better access to underserved communities, even though DFS did not find that either lender violated any of the state’s fair lending laws. However, DFS continues to investigate the lending practices of other lenders in the state. For more information, click here.
• On December 7, New York Governor Kathy Hochul announced that DFS adopted a new regulation to address circumstances where consumers seek medical treatment with an out-of-network health care provider after relying on misinformation found in their insurer’s provider directory that indicates the provider is in-network. In such instances, the new regulation will limit consumer payment costs to their in-network costs. The regulation sets forth several instances where “misinformation” occurs, including when an insurer fails to provide network status information in writing to a consumer within a certain number of days of the consumer’s request for such information by phone or through electronic means. The new regulation squares with the state’s No Surprises Act and is a part of Hochul’s “commitment to ensuring consumers are treated fairly.” For more information, click here.
• On December 7, Texas Attorney General Ken Paxton joined a multistate comment letter championed by Massachusetts Attorney General Maura Healey, which urged the Federal Trade Commission (FTC) to implement stronger privacy protections related to commercial surveillance and data security. In the letter, Paxton underscores location data, biometric data, and medical data as areas of particular vulnerability requiring increased safeguards. The letter demands aggressive data minimization efforts be considered and adopted to address Americans’ fears around data aggregation. For more information, click here.
• On December 5, the California Department of Financial Protection and Innovation (DFPI) announced that it was investigating crypto-related lending company CONST LLC (doing business as “MyConstant”), which is not licensed to operate in California by DFPI. For more information, click here.