Financial Services Regulatory

On May 4, 2022, California Governor Gavin Newsom signed an executive order aimed at creating a framework for both regulating and developing the quickly growing blockchain and cryptocurrency industry. The Order follows President Biden’s March 9, 2022, Executive Order on Ensuring responsible Development of digital Assets. In a press release announcing the Order, the Governor’s office cited the rapid growth of the crypto asset and blockchain technology business—from $14 billion five years ago to $3 trillion last November—as the impetus for issuing the Order.
Continue Reading California Governor Newsom Signs Blockchain and Crypto Assets Executive Order: Familiar Agencies To Lead Efforts To Regulate New Technology

If Mark Zuckerberg is to be believed, the Metaverse is the next step in our digital evolution, a  virtual reality space where users can interact with a computer-generated environment and socialize among user-created avatars.

And it’s already here.

The Metaverse is a new virtual frontier that combines many aspects of the virtual world we already know: social media, Zoom, online gaming, augmented reality, virtual reality, blockchain, and cryptocurrencies. The Metaverse allows its users to interact with each other in ways that mimics real-world interaction. Users can virtually surf, race, go to a bar, or engage in combat – the possibilities are endless.

Now, you can even buy land in this virtual frontier.

Just as in the real world, you can finance your virtual property with a virtual mortgage. In this virtual world, can virtual mortgages be foreclosed and how can loans be enforced? This new paradigm implicates both loan enforcement and bankruptcy.

Let us break down a few of the basics.

Continue Reading Mining the Metaverse: Prospecting the Virtual Real Estate Boom and Implications For Lenders

On February 7, 2022, Acting Chairman Martin J. Gruenberg released a statement outlining the FDIC’s 2022 priorities. He also recognized the contributions of former Chairman Jelena McWilliams, who resigned on February 4, 2022.

The FDIC has been the recent subject of uncommon public infighting, as the FDIC board faces internal and external turmoil related to political and intra-agency pressures brought into focus due to the change in presidential administrations. Many on the board support a more pro-active and progressive approach, while Ms. McWilliams favored a more conservative style of oversight. With her resignation, as well as the recent FDIC, Department of Justice (DOJ), and Financial Crimes Enforcement Network actions related to bank oversight, it appears the activist wing has succeeded for now.

Entities operating in the financial services industry should pay close attention to the agenda, and specifically to two of these priorities in particular:

Continue Reading FDIC Announces 2022 Priorities in the Wake of Chairman Jelena McWilliams Resignation; Financial Services Entities Should Take Note of FDIC Focus on Bank Mergers and Crypto

In a much anticipated decision, the U.S. Supreme Court yesterday provided clarity on the definition of an automatic telephone dialing system (“ATDS”) under the Telephone Consumer Protection Act (“TCPA”) of 1991, 47 U.S.C. § 227. Those in the Financial Services industry have been eagerly awaiting the guidance that the Court’s ruling would provide. And provide guidance it did.

In a rare unanimous opinion, the Court rejected a broad definition of an ATDS previously applied by the Second, Sixth and Ninth Circuits in favor of a much more narrow one. Indeed, the Court found that, in order to qualify as an ATDS under the TCPA, a device must “have the capacity either to store a telephone number using a random or sequential generator or to produce a telephone number using a random or sequential number generator.” Facebook, Inc. v. Duguid, No. 19-511, April 1, 2021, slip op. at 1.
Continue Reading Phonelines Are Buzzing: The Supreme Court Has Finally Provided Clarity Regarding the TCPA’s Definition of Automatic Telephone Dialing Systems

Enforcement and litigation directed at the consumer financial services industry is expected to increase under the Biden administration. While increased enforcement is likely to occur with respect to all federal agencies, the most significant increases are being forecast in the areas of fair lending enforcement, which was relatively subdued under the Trump administration.

On Jan. 20, 2021, his first day in office, President Biden announced CFPB veteran David Uejio as the Acting Director of the Bureau, who made it clear that he intended to immediately ramp up enforcement activity. Shortly after being appointed, Acting Director Uejio spoke in a blog post of intensifying the efforts to protect the “economically vulnerable”, promised more aggressive supervision, and indicated he intends to focus on fair lending and COVID-19 relief.
Continue Reading CFPB Enforcement Expected to Increase Under the Biden Administration

Cannabis companies nationwide are facing yet another statutory obstacle that can have serious (and potential ruinous) consequences for the emerging industry if not appropriately addressed—the Telephone Consumer Protection Act (“TCPA”). There is a recent uptick in class-action lawsuits filed against cannabis companies across the country premised on alleged violations of the TCPA including lawsuits in Michigan and California. These complaints allege cannabis companies sent unsolicited marketing text messages or placed automated phone calls to individuals without their consent. Cannabis dispensaries and other cannabis-related businesses should add TCPA compliance protocols to their checklist of regulatory requirements to be satisfied in this quickly emerging industry.

The TCPA

Enacted in 1991, the TCPA heavily regulates the ability to send phone, text, or facsimile messages through automatic telephone dialing systems. Non-compliance with the statute can be costly, as companies found to have violated the TCPA can be liable for $500 per call or text sent in violation of the Act, and up to $1,500 for willful or knowing violations. Damages are also not capped under the TCPA, so even a small number of texts or calls sent to a large number of recipients can lead to hefty damage awards. The ability to recover significant damages results in most TCPA claims being brought as class-actions. As a result, it is imperative that cannabis businesses that communicate with customers via text or by phone understand the rules governing the TCPA to avoid or at least minimize their liability exposure.
Continue Reading Why Cannabis Companies Need to Care About the TCPA

On June 22, 2020, the Consumer Financial Protection Bureau (“CFPB”) launched its advisory opinion pilot program and its proposed final advisory opinion program. The pilot program is effective immediately, and the CFPB is accepting comments on the final program until August 21, 2020. Dykema is submitting comments on the proposed permanent advisory opinion program on behalf of clients.

Under both the pilot and permanent advisory opinion programs, institutions may request an advisory opinion from the CFPB in order to clarify compliance with regulations and address areas of uncertainty. These advisory opinions will be published in the Federal Register and will be considered binding interpretive rules upon which institutions may rely, offering a safe harbor from regulatory scrutiny.
Continue Reading Consumer Financial Protection Bureau Requests Comment on Imminent Advisory Opinion Program

In a closely monitored case, the U.S. Supreme Court today upheld the restriction on robocalls under the Telephone Consumer Protection Act (“TCPA”) of 1991 but struck the Act’s government debt-collection exclusion. Many followed this case, anticipating it would result in a fatal blow to the TCPA. But today’s opinion extinguished these hopes.

In response to consumer complaints, Congress passed the TCPA to prohibit robocalls to cell phones, among other things. 47 U.S.C. 227(b)(1)(A)(iii). In 2015, Congress amended the robocall restriction, carving out a new government-debt exception that allows robocalls made solely to collect a debt owed to or guaranteed by the United States. 129 Stat. 588.

In 2016, the plaintiffs, political and nonprofit organizations, filed a declaratory judgment action in the United States District Court for the Eastern District of North Carolina, claiming that the TCPA (§227(b)(1)(A)(iii)) violated the First Amendment. Plaintiffs sought the ability to make political robocalls to cell phones. Invoking the First Amendment, plaintiffs argued that the 2015 government-debt exception unconstitutionally favored debt-collection speech over political and other speech, and asked the Court to invalidate the TCPA’s entire restriction on robocalls. The District Court held that the government-debt carve-out was content-based but withstood strict scrutiny. The Fourth Circuit disagreed, invalidating the 2015 exception and holding that the content-based restriction did not survive strict scrutiny.
Continue Reading TCPA Protection Against Robocalls Upheld. Did the Supreme Court Sacrifice the Right of Free Speech For the Sake of Rescuing a Bad Statute?

From the inception of the Consumer Financial Protection Bureau (“CFPB”), opponents have argued that its single-director structure is unconstitutional. The arguments focused on the executive power that the Constitution vests in the President, positing that limiting the President’s power to remove the CFPB director only for cause infringes upon the President’s executive power and therefore violates the Constitution’s separation of powers.

As Dykema previously blogged, the constitutionality of the CFPB has been litigated in the lower courts, with lower courts siding with CFPB opponents. Notably, Justice Brett Kavanaugh, a D.C. Circuit Court judge at the time, delivered an opinion finding the CFPB unconstitutional, explaining “[t]he CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency.” Justice Kavanaugh was confirmed to the Supreme Court on October 6, 2018 and has proved favorable for those opposing the CFPB.
Continue Reading The Battle Over the Constitutionality of the CFPB Is Finally Settled… So What Now?

As all lenders know by now, the Coronavirus Aid, Relief, and Economic Security Act’s (“CARES Act”) guaranteed Paycheck Protection Program (“PPP”) loans are the key piece of economic relief for small businesses during the COVID-19 crisis. Yet, in the rush to get those loans flowing into the economy, the Small Business Administration (“SBA”) issued an interim regulation that raises substantial unanswered questions about participating lenders’ compliance policies. Business Loan Program Temporary Changes; Paycheck Protection Program (proposed Apr. 2, 2010) (to be codified at 13 C.F.R. pt. 120). Those questions are starkly different yet similarly important for banks and other traditional lending institutions accustomed to operating under the Bank Secrecy Act (“BSA”) and those nonbank lenders who have never been under the BSA’s purview.

Banks and other traditional lending institutions already have AML (Anti-Money Laundering) and KYC (Know Your Customer) policies in place. For them, the SBA’s interim regulation seems, at first glance, like nothing earthshattering; it simply requires these lenders “to follow their existing BSA protocols.” In this crisis, though, nothing is as it always was. The urgency of getting these loans approved plus the importance of social distancing makes verifying the applicant’s information no easy task. Although the SBA’s regulation says that “PPP loans for existing customers will not require re-verification under applicable BSA requirements, unless otherwise indicated by the institution’s risk-based approach to BSA compliance,” the question arises whether a PPP loan application for an existing customer is considered a new account for FinCEN Customer Due Diligence (“CDD”) Rule purposes. Fortunately, the SBA and the Treasury Department issued revised FAQs addressing that question and explaining that, for PPP loans to existing customers, lenders do not have to re-verify information that had been previously provided and verified and do not even have to collect and verify missing information in the first instance “unless otherwise indicated by the lender’s risk-based approach to BSA compliance.” Paycheck Protection Program Loans Frequently Asked Questions (FAQs) (Apr. 8, 2010). We expect the final SBA regulation to be updated to reflect this important clarification.
Continue Reading Compliance for PPP Loans: Different Questions for Different Lenders