Troutman Pepper Weekly Consumer Financial Services Newsletter

By Ethan G. Ostroff, Elizabeth Briones, Addison Morgan, Thailer Buari, Jed Komisin & Alan D. Wingfield on November 8, 2022

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 November 4, the Federal Reserve Board invited public comment of a proposed rule to publish a periodic list of depository institutions that have access to Federal Reserve accounts, also known as “master accounts.” For more information, click here.
On November 2, the Consumer Financial Protection Bureau (CFPB) released a blog post, exploring the potential impact of student loan payment reinstatement. The CFPB found that student loan borrowers are increasingly likely to struggle once their monthly student loan payments are reinstated. However, the CFPB also found that student debt cancellation may substantially reduce the number of borrowers at risk when the payment suspension ends. Overall, the CFPB found that “despite worsening credit outcomes … the cancellation of some student loan debt means that fewer student loan borrowers are likely to be at risk of payment difficulties when federal student loan payments resume in January 2023 than they otherwise would be.” For more information, click here.
On November 2, CFPB Director Rohit Chopra delivered remarks at the Consumer Advisory Board meeting, which included a discussion on the fast-growing buy now, pay later market. For more information, click here.
On November 1, Deputy Secretary of the Treasury Wally Adeyemo delivered remarks at the semi-annual joint session of the Financial and Banking Information Infrastructure Committee and Financial Services Sector Coordinating Council where he discussed Treasury’s efforts to bolster public-private relationships to protect the department and financial sector from cyber threats. These include modernizing Treasury’s IT systems with an elevated cybersecurity threat focus, as well as ramping up partnerships with the financial and regulatory sectors. For more information, click here.
On October 31, the Financial Crimes Enforcement Network (FinCEN) informed U.S. financial institutions that the Financial Action Task Force (FATF), an intergovernmental body that establishes international standards for anti-money laundering, countering the financing of terrorism, and countering the financing of proliferation of weapons of mass destruction (AML/CFT/CPF), issued public statements, updating its lists of jurisdictions with strategic AML/CFT/CPF deficiencies following its plenary meeting this month. U.S. financial institutions should consider the FATF’s stance toward these jurisdictions when reviewing their obligations and risk-based policies, procedures, and practices. For more information, click here.
On October 31, the U.S. Department of Education released final regulations that streamline and improve the rules for major targeted debt relief programs. The regulations expand eligibility, remove barriers to relief, and encourage automatic discharges for borrowers who are eligible for loan relief because their school closed, they have a total and permanent disability, or their loan was falsely certified. The rules also establish a fairer process for borrowers to raise a defense to repayment, while preserving the borrowers’ day in court by preventing institutions of higher education (institutions) from forcing students to sign away their legal rights using mandatory arbitration agreements and class-action waivers. For more information, click here.
On October 31, the CFPB announced that it will re-open the public comment period for 30 days and add additional questions for six large technology and peer-to-peer platforms that operate payment services to provide information about their business practices, including their data collection and use, their policies for removing individuals or businesses from their platforms, and their policies and practices for adhering to key consumer protections like addressing disputes and errors. For more information, click here.
On October 31, the Federal Trade Commission announced that it is taking action against an education technology provider for its lax data security practices that exposed sensitive information about millions of its customers and employees, including Social Security numbers, email addresses, and passwords. The provider allegedly failed to fix problems with its data security despite experiencing four security breaches since 2017. The FTC’s proposed order requires the company to bolster its data security, limit the data the company can collect and retain, offer users multifactor authentication to secure their accounts, and allow users to access and delete their data. For more information, click here.
On October 27, the American Bankers Association expressed concern regarding a proposal currently being considered by the CFPB that would shift liability from consumers to banks for scams involving peer-to-peer (P2P) payments. This would include requiring banks to reimburse consumers for P2P payments made but later identified by consumers as payments to a scammer. For more information, click here.
On October 27, the Office of the Comptroller of the Currency (OCC) announced it will establish an Office of Financial Technology early next year to bolster the agency’s expertise and ability to adapt to a rapidly changing banking landscape. The Office of Financial Technology will build on and incorporate the Office of Innovation, which the OCC established in 2016 to coordinate agency efforts to support responsible financial innovation. For more information, click here.
On October 27, the Federal Financial Institutions Examination Council announced an update to its 2018 Cybersecurity Resource Guide for Financial Institutions. The guide includes updated references and now includes ransomware-specific resources. The FDIC is amplifying this resource in recognition of Cybersecurity Awareness Month, which highlights the importance of safeguarding our nation’s critical infrastructure from malicious cyber activity and protecting citizens and businesses from ransomware and other cyberattacks. For more information, click here.
On October 26, FinCEN announced the renewal and expansion of its Geographic Targeting Orders (GTOs) that require U.S. title insurance companies to identify the natural persons behind shell companies used in non-financed purchases of residential real estate. FinCEN renewed the GTOs that cover certain counties within the following major U.S. metropolitan areas: Boston, Chicago, Dallas-Fort Worth, Las Vegas, Los Angeles, Miami, New York City, San Antonio, San Diego, San Francisco, Seattle, the District of Columbia, Northern Virginia, and Maryland (DMV) area, as well as the city and county of Baltimore, the county of Fairfield, CT, and the Hawaiian islands of Honolulu, Maui, Hawaii, and Kauai. For more information, click here.
On October 26, the Congressional Research Service issued a report, discussing the ongoing development of AML/CFT policy since the release of President Biden’s Executive Order 14067 (Ensuring Responsible Development of Digital Assets). The report mainly addressed the Biden administration’s next steps for addressing illicit finance concerns related to digital assets:
- Evaluating potential legislative proposals to amend the Bank Secrecy Act and laws related to unlicensed money transmitters;
- Authorizing the DOJ to prosecute digital asset crimes in any jurisdiction where a victim of those crimes is located;
- Conducting illicit finance risks assessment of decentralized finance (by the end of February 2023) and of non-fungible tokens (by July 2023);
- Increasing dialogue with private sector on the illicit financing risks associated with digital assets and compliance with AML/CFT obligations;
- Continuing to hold misusers of digital assets accountable for their actions through law enforcement action and node analysis.
  
  For more information, click here.
On October 25, Rep. Alma Adams introduced a bill in the U.S. House of Representatives, seeking to protect a greater portion of consumers’ disposable income from garnishment. If enacted, the Protecting Wages of Essential Workers Act of 2022 (H.R. 9224) would amend the Consumer Credit Protection Act to raise the amount of a consumer’s disposable income protected from garnishment to $1,000 or 75%, whichever is greater. The current limit is $217.50, which is tied to the federal minimum wage. The protected amount would also adjust annually based on the Consumer Price Index. For more information, click here.

State Activities:

On November 4, the Federal Reserve Bank of New York (New York Fed) issued a report on the Phase 1 results of Project Cedar, a multiphase research effort to develop a technical framework for a theoretical wholesale central bank digital currency (wCBDC) issued by the Federal Reserve. A wCBDC is designed primarily for the settlement of interbank payments and would be available only to those parties with master account access at a central bank. Phase 1 of Project Cedar involved cross-border settlement of FX spot trades, which generally take at least two days to settle. By leveraging a permissioned blockchain network, the New York Fed substantially reduced the historical settlement time of FX spot trades since the results of Phase 1 of Project Cedar revealed blockchain-enabled payments systems settle transactions in fewer than 10 seconds. For more information, click here.
On November 3, the Massachusetts Division of Banks issued a cease-and-desist order to a debt collector believed to have been operating within the state for more than six years without the requisite state licensure. The debt collector originally obtained licensing in 2010, but its license expired in 2012 and was terminated less than six months later. The order requires the collector to cease all collection activities within the state until properly licensed, provide a record of the funds it collected from consumers in the state from January 2019 through November 3, 2022, and provide an itemization of the accounts of consumers from whom it is currently attempting to collect. For more information, click here.
On November 3, Pennsylvania Attorney General Josh Shapiro announced that his office filed a lawsuit against New York-based Fluent, Inc. — a company that connects advertisers to potential new customers through the consumers’ personal data — for its and its subsidiaries’ role in allegedly causing hundreds of thousands of unwanted robocalls to be placed to Pennsylvania consumers. Fluent and its subsidiaries Fluent LLC, CAC, American Prize Center LLC, Deliver Technology LLC, Rewardzone USA LLC, and Samples & Savings USA LLC, collected personal information, including telephone numbers, then sold them to telemarketing companies. This included the personal information of thousands of consumers on Pennsylvania’s Do Not Call List. For more information, click here.
On October 31, Connecticut state regulators levied a $4.5 million fine against a utility company accused of trying to garnish customers’ wages during the COVID-19 pandemic without complying with state law. Specifically, the utility company failed to adhere to a pandemic-related plan implemented by the state’s Public Utilities Regulatory Authority, which required companies to offer a payment program option to customers seeking financial assistance or whenever a customer missed his or her first payment. The state regulators’ eight-month investigation unearthed evidence that the utility company filed more than 200 applications for wage garnishments against customers who did not pay their bills during the pandemic. Additionally, the utility company allegedly engaged a collection agency with knowledge that the agency reported customer information to consumer reporting agencies without first notifying the customers, as required by state law. State regulators are seeking the maximum fine of $10,000 per violation against the utility company. For more information, click here.
On October 27, the California Department of Financial Protection and Innovation (DFPI) announced that it intends to begin issuing conditional licenses to companies that have applied under the state’s debt collection licensing law. Additionally, the agency will end the safe harbor provision, which currently permits companies that have applied for a license to continue collecting debt within the state. These changes are being implemented as a means of offsetting anticipated delays in the licensing process as DFPI continues to develop a system for performing background checks and collecting fingerprints that meets the standards set forth by the Federal Bureau of Investigation. So far, the agency has received approximately 1300 applications. For more information, click here.