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Co-Authored by Erin Fonte

Cryptocurrencies have captured the imaginations of individuals and emerging businesses drawn to their potential to serve as alternative stores of value, to reduce transaction costs by eliminating intermediaries, and―most notably in popular culture and media―to provide eye-catching opportunities for speculative investing. Coin valuations for well-established players Bitcoin and Ethereum have fallen sharply since late 2017/early 2018, and new players continue to enter and leave the marketplace. As noted previously in this blog, regulators are taking interest.

Much less appreciated and often overlooked is the business potential for the distributed-ledger, or blockchain, architecture that makes cryptocurrencies possible. Distributed-ledger systems present enormous opportunities for businesses to operate more efficiently and mitigate risks. The financial-services industry in particular stands to gain from the adoption of blockchain technology due to the significant variation and complexity of products, business processes, and relationships among industry participants. We have seen great interest in blockchain technology in the banking and securities industries in particular.  Continue Reading Brave New Wheels? Potential Uses for Blockchain Technology in Auto Finance

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After a highly publicized and controversial confirmation process, the senate voted to approve Brett Kavanaugh’s nomination to the Supreme Court this past Saturday, October 6, 2018. Kavanaugh was sworn in later that day and began hearing cases on Tuesday, October 9, 2018.

It goes without saying that Justice Kavanaugh is a conservative judge and is expected to lean to the right. It also goes without saying that Justice Kavanaugh’s appointment pushes the Supreme Court to the right with a 5-4 ratio. But what does Justice Kavanaugh’s appointment mean for the financial services industry?  Continue Reading What Can the Financial Services Industry Expect Following Justice Kavanaugh’s Confirmation to the Supreme Court?

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There has been a growing trend among individuals and even estate planners to avoid having to go to the probate court. Even for those people who need wills, a large percentage of their assets will be transferred pursuant to beneficiary designations in account agreements at banks and credit unions, in IRA’s and other qualified retirement plans, and through life insurance policies. Add a trust, and an even wider range of assets can be transferred outside the probate courts. What this non-probate disposition of assets means, of course, is that financial institutions are called upon to help a customer determine what type of account to use and, after death of the customer, review legal documents and carry out the transfer instructions.

In addition, more people are using simplified probate tools to avoid a formal probate. In Texas, small estates affidavit can be used when a person dies without a will and has $75,000 or less in personal assets, not including the homestead. If there is a will and there are no unpaid debts or a need for administration, the will can be admitted to probate under a unique Texas proceeding known as a “muniment of title.” Under these procedures, no representative of the estate is appointed. Banks may be presented with a court certified copy of an affidavit for small estates or an order admitting a will to probate as a muniment of title. The financial institution may be called upon to review the documents and pay the funds in an account. These procedures are currently authorized by statute, but may become more widely used. A task force formed by the Supreme Court of Texas is considering promulgating forms for use by non-lawyers to make it easier for them to take advantage of these simplified procedures. Continue Reading Avoid Probate Court: Head to Your Bank Instead

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In an important joint statement issued on September 11, 2018, the federal financial regulatory agencies (the FDIC, the OCC, the Federal Reserve, the NCUA, and the CFPB) clarified the role of supervisory guidance, stating that supervisory guidance “does not have the force and effect of law.” Community and regional banks and other regulated financial institutions are applauding this effort by regulators to ensure that both the regulated and their regulators have a clear understanding of the appropriate role of guidance in supervision. Financial institutions over the years have raised numerous concerns about the application of guidance in the examination process, and will likely view this as a positive step towards providing greater clarity.

The agencies said guidance can provide examples of practices that the agencies generally consider consistent with safety-and-soundness standards or other applicable laws and regulations, including those designed to protect consumers. “Supervised institutions at times request supervisory guidance, and such guidance is important to provide insight to industry, as well as supervisory staff, in a transparent way that helps to ensure consistency in the supervisory approach,” the agencies point out in the joint statement.   Continue Reading Federal Financial Regulators Clarify Supervisory Guidance Not “Force of Law”

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Co-Authored by Erin Fonte

On July 31, 2018, the U.S. Department of the Treasury (“Treasury”) released a report on “Nonbank Financials, Fintech, and Innovation,” its fourth and final report on the U.S. financial system pursuant to Executive Order 13772 (the “Report”). At over 200 pages long, with 80 separate recommendations, the Report addresses products and services ranging from payments and marketplace lending to debt collection and wealth management. While many of Treasury’s recommendations would have a positive impact on creating a national and state regulatory environment to foster innovation in financial services, the Report is ambitious, and implementing many of its recommendations will be a massive effort in legislation, policy-making and regulatory oversight.  Continue Reading Fintech-Forward: U.S. Treasury Department’s Report on Nonbank Financials, Fintech, and Innovation

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Anyone interested in charters from the Office of the Comptroller of the Currency should be following Lusnak vs. Bank of America, 883 F.3d 1185 (9th Cir. 2018), which is being appealed from the Ninth Circuit to the United States Supreme Court. OCC charters are of course a hot topic—now that the OCC is accepting applications from FinTech companies for national bank charters, the power of federal regulators to excuse federally chartered entities from compliance with state regulations may be more important than ever. After all, the key benefit offered by a national bank charter for many FinTech companies is exemption from state-level money transmission licensing and regulation… in theory.

In reality, many state-vs-federal constitutional questions remain unanswered. Federal courts are still defining the extent of the power of federal financial regulators to exempt federally regulated institutions from state laws. The Supreme Court could help clarify these important issues in the next year or two if it grants the recent request to consider Lusnak.  Continue Reading Supreme Court Asked to Clarify Applicability of State Laws to OCC-Chartered Entities in Lusnak v. Bank of America

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We work with many regional financial institution clients on a daily basis, and they regularly send us out-of-state garnishments, liens, levies, and other legal processes with one question—“Do I have to answer this?” The first question we ask is whether the foreign state can exercise jurisdiction over the regional financial institution—in other words, whether the financial institution is doing business in that state. Our clients are often quick to respond that they don’t have any branches or employees in other states, and so do not believe that they are doing business in those states.

But for the most part, the days of only “brick and mortar” banking are long gone. With the competition of internet banks and increase of technology, financial institutions are trying to become more appealing and accessible to their customers. To do that, they have increased their presence on the Internet. One result of this increased presence has been increased opportunity to market other products (such as CDs, car loans, or mortgage loans) outside of their home state.  Continue Reading Online Banking: Are Financial Institutions Subjecting Themselves to Other Jurisdictions Without Knowing?

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Three years ago, the Illinois Supreme Court shook up foreclosure professionals when it affirmed the appellate court in 1010 Lakeshore Ass’n v. Deutsche Bank Nat’l Trust Co., 2015 IL 119372, 398 Ill. Dec. 95, 43 N.E.3d 1005 (“1010 Lakeshore”), to find that a homeowners’ association’s lien for past due assessments owed by the previous owner is not extinguished after a foreclosure sale if the new owner fails to pay foreclosure assessments accruing after foreclosure. The court reasoned that section 9(g)(3) of the Condominium Property Act (which requires a new owner to pay assessments “from and after the day of the month after the date of the judicial foreclosure” and provides that such payment confirms extinguishment of the lien), provided an incentive for “prompt payment” of post-foreclosure assessments. Continue Reading Confusion Still Looms in Illinois Over Past-Due Association Assessments After Foreclosure

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While speculation about the leadership, mandate, and future path of the Consumer Finance Protection Bureau remains at the forefront of financial news, the CFPB’s regulatory functionality has to some extent avoided the spotlight since the appointment of Mick Mulvaney as its acting director in November 2017. Still, as emphasized by intermittent flurries of news activity, the administration of President Donald Trump has significantly accelerated the pace of reform. Before prognosticating about the future course of the Bureau, we will review its recent trajectory for indications of what might lie ahead. Continue Reading CFPB—Is More Reform on the Horizon?

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Co-Authored by Erin Fonte

The recent flurry of activity and press coverage, over the past 18 months in particular, concerning “initial coin offerings” (also referred to as a “digital token sale”) has created confusion regarding their relationship to cryptocurrencies. While certainly connected in both concept and actuation, those with an interest in this burgeoning marketplace will be wise to note that both the risk and the regulatory landscape for existing cryptocurrencies (also referred to as “virtual currencies”) differ from ICOs/tokens. Those who forge ahead, uninformed, stand to learn an expensive lesson. We hope to illuminate certain fundamental concepts here. Continue Reading Cryptocurrency vs. Initial Coin Offerings (ICO): Different Animals, Different Regulatory Concerns