REGULATORY DEVELOPMENTS

CFPB Issues No-Action Letter for Small-Dollar Loans

On November 5, in accordance with its updated NAL Policy, the CFPB granted a no-action letter (NAL) to Bank of America, N.A. regarding its proposed small-dollar credit product, “Balance Assist”, which will provide the Bank’s checking account customers access to credit in increments of $100, up to $500, to be repaid in fixed minimum payments over three months, with an APR of 36% or less plus a $5 “Product Fee” but no late payment or prepayment penalties. Balance Assist will also have an optional auto-pay feature from deposit accounts and a number of “guard rails” built into the product to make it more consumer-friendly. The NAL issued to Bank of America provides increased regulatory certainty that the CFPB will not bring a supervisory or enforcement action against the Bank or any other company that provides a product or service under the facts and circumstances provided for in Bank of America’s NAL Application.

CFPB Announces Study of Payday Loan Disclosures to Design Template Disclosure

On November 5, the CFPB submitted a Paperwork Reduction Act (PRA) notice to the Federal Register, seeking comment on the CFPB’s plan to study how consumers locate, comprehend and use information in payday loan disclosures. The CFPB intends to use the data it obtains from its study to evaluate and refine potential options for a CFPB-designed payday loan disclosure that presents key information clearly and effectively to consumers.

OCC Releases Semiannual Risk Perspective Report

On November 9, the OCC released its Semiannual Risk Perspective for Fall 2020, which summarizes the key issues facing the federal banking system and the effects of the COVID-19 pandemic on the federal banking industry. According to the report:

• Banks remain in strong financial condition but profitability is stressed due to low interest rates and increasing levels of provisions for problem loans. 
• Credit risk is increasing as the economic downturn impacts customer ability to service debts.
• Strategic risk is an emerging issue due to the historically low rate environment, potential credit stress and their effect on bank profitability.
• Operational risk is elevated as financial institutions respond to altered work environments and an evolving and complex operating environment. Cybersecurity threats contribute as a key driver of the heightened operational risk environment.
• Compliance risk is elevated due to a combination of altered work environments, and the requirement to quickly operationalize federal, state and proprietary programs designed to support businesses and consumers. 

The report also highlights emerging trends in payment products and services as relevant topics to potential risks.

OCC Updates Director’s Toolkit

On November 5, the OCC announced updates to its Director’s Toolkit, which includes a revised publication, the Director’s Book: Role of Directors for National Banks and Federal Savings Associations (Book), and a new publication, the Director’s Reference Guide to Board Reports and Information (Guide). The revised Book, which describes directors’ responsibilities and basic aspects of safe and sound banking operations, supersedes the 2016 version of the publication. Additionally, the new Guide is intended to help directors navigate and understand the sources of and types of information and reports necessary for their oversight of a national bank or federal savings association. The Guide supersedes the following three OCC publications: Detecting Red Flags in Board Reports—A Guide for Directors, Pocket Guide to Detecting Red Flags in Board Reports, and Internal Controls—A Guide for Directors.

Financial Agencies Issue Joint Statement on Reference Rates for Loans

On November 6, the Board of Governors of the Federal Reserve System, OCC and Federal Deposit Insurance Corporation (collectively, the Agencies) issued a joint statement to reiterate that the Agencies would not endorse a specific replacement rate for LIBOR loans. Instead, the Agencies are encouraging each bank to determine the most appropriate replacement rate for its funding model and customer needs. The Federal Financial Institutions Examination Council recently issued a statement providing that new contracts should either utilize a reference rate other than LIBOR or include robust fallback language that provides a clearly defined alternative reference rate after LIBOR’s discontinuation. The Agencies are now urging banks to include both the alternative reference rate as well as the additional fallback language in case the initial alternative reference rate is discontinued. Finally, the Agencies are encouraging banks to determine the appropriate reference rates without delay and to begin outreach to lending customers in order to ensure that they are aware of, and prepared for, the transition from LIBOR and to be ready for necessary technical updates to internal systems. 

FinCEN Reissues Real Estate Geographic Targeting Orders

On November 5, FinCEN announced the renewal of its Geographic Targeting Orders (GTOs) that require U.S. title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real estate. The renewed GTOs are identical to the May 2020 GTOs. The purchase amount threshold remains $300,000 for each covered metropolitan area, including Boston, Chicago, Dallas-Fort Worth, Honolulu, Las Vegas, Los Angeles, Miami, New York City, San Antonio, San Diego, San Francisco, and Seattle. Frequently asked questions regarding the GTOs are available here.

Talking the Talk Versus Walking the Walk: Shareholder Suits Aim to Push Board Diversity and Make Meaningful Change

In response to widespread criticism of public company boards lacking diversity, California enacted AB-979, which expanded upon California’s earlier gender diversity law and requires boards to make strides in other types of diversity, including racial and ethnic minorities. This law comes after multiple lawsuits have been filed against California companies, particularly in the tech sector, with complaints that characterize companies as “Old Boy’s Club[s]” engaging in “tokenism” who merely pay “lip service” to create a “veneer” of commitment to diversity.

Last month, the NYSE and corporate governance company Diligent Corp. published data suggesting that nearly half of public company boards do not have actionable plans to diversify their ranks in the near term. Now, more and more lawsuits are being filed to push board diversity and penalize companies that have misled shareholders into believing they are taking bold action but have done little to meet their stated diversity and inclusion objectives. Read the client alert to learn more about the suits and how this trend may impact your company.   

PayPal Brings Crypto Further into Mainstream with Wallet Update 

PayPal has announced that its U.S. customers will be able to buy, sell and hold a selection of cryptocurrencies via its digital wallet in the near future. Read the Digital Currency + Blockchain Perspectives blog to learn more about this offering and plans for future expansion, along with the Fintech Future article covering this news in greater detail.

Villanova University is Sending Blockchain into Space 

Villanova’s engineering school is sending a private Ethereum blockchain into space on a Firefly Aerospace rocket, slated to launch on November 20, to test whether distributed leger technology can help satellites exchange data. Read the Digital Currency + Blockchain Perspectives blog to learn more about Villanova’s blockchain initiative and the Coindesk article covering this news in greater detail.

CFPB Issues New Final Rule Modernizing the Fair Debt Collection Practices Act 

On October 30, the CFPB issued a new final rule implementing the Fair Debt Collection Practices Act (FDCPA), highlighted in a previous edition of the Roundup, that is designed to strengthen protections to consumers who communicate with debt collectors and clarifies the application of the FDCPA to newer communication technologies that have developed in the four decades since the FDCPA first passed in 1977. Read the LenderLaw Watch blog for an analysis of the rule as Goodwin monitors how it is applied and litigated for its clients involved in FDCPA litigation.  

ENFORCEMENT & LITIGATION

CFPB Files Complaint Against Florida-Based Payday Lender

On November 5, the CFPB announced that it had filed a complaint against a Florida-based payday lender and its CEO in the Southern District of Florida. The complaint alleges that the company violated the Consumer Financial Protection Act (CFPA) by engaging in deceptive acts and practices in connection with short-term, high-interest loans it offered its consumers. Read the Consumer Finance Enforcement Watch blog to learn more about the complaint. 

CFPB Files Complaint Against Student Loan Debt Settlement Company

On November 5, the CFPB announced that it had filed a complaint against a California student loan debt settlement company and the company’s CEO in the U.S. District Court for the Central District of California. The complaint alleges that the company violated the Telemarketing Sales Rule, and the CFPA by charging illegal upfront fees, failing to make required disclosures and engaging in deceptive sales practices. Read the Consumer Finance Enforcement Watch blog to learn more about the complaint.