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
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
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?
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
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?
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
July 13, 2018, marks the comment deadline for the federal bank agencies’ proposed capital rules amendments to grant all banks the option to elect a three-year phase-in of the “day 1” regulatory capital effects from adopting the new and burdensome FASB Current Expected Credit Losses (CECL) methodology under GAAP (scheduled to become effective for the first group of banking organizations in their first fiscal year beginning after December 15, 2019). Critically, the election to use the three-year phase-in approach would be required to be made by the end of the first regulatory reporting period in which the banking organization applies CECL, otherwise it is forfeited. The proposed three-year phase in period affords community banks with much-needed time to plan and test for CECL implementation thereby easing some of the CECL anxiety community bankers are experiencing.
Coauthored by Dykema Summer Associate Shaun Sullivan-Towler.
For financial institutions interested in banking state-legal marijuana businesses, 2018 has been a rollercoaster. In January, Attorney General Jeff Sessions rescinded the Obama-era policy of lenient federal enforcement, creating new confusion for banks and credit unions about the future of marijuana-related banking. Many feared that the Financial Crimes Enforcement Network (FinCEN) would withdraw or amend its guidance as well, thereby eliminating the only federal guidance directed to financial institutions on banking marijuana businesses. But FinCEN has since been clear that its guidance remains in place and announced that, as of March 31, 2018, a total of 411 banks and credit unions now provide services to marijuana-related businesses, up from 365 a year ago. Continue Reading The STATES Act, Rooted in Federalism, Would Address Systemic Risk in Cannabis-Related Banking
Not long ago, financial technology (FinTech) startups were all seeking to disrupt the market for financial services and compete directly with financial institutions (FIs) for customers. But as these startups have grown into more mature companies, cooperation with FIs has come to replace disruption for many FinTech firms. These companies have realized that FIs can help scale their technology to larger bases of potential users, and can also help FinTechs raise capital by showing strong partnerships and FI distribution channels.
In turn, FIs now recognize that FinTech firms offer more than competition, representing potentially valuable partnerships with better technology and an improved user experience. By collaborating with FinTechs, FIs can improve product offerings and increase efficiency, all without the FIs committing significant resources to create new solutions themselves. Continue Reading Access vs. Security: Takeaways For U.S. Financial Institutions from the European PSD2 Open API Framework
Amid the uncertainty over the future of the CFPB, another continuing question is whether state consumer protection authorities will act to fill gaps left by the CFPB’s inaction. State attorneys general have tools available to pursue financial services practices that they believe harm consumers, and some have announced intentions to do so. But to date, the states have not initiated a flurry of suits regarding consumer financial protection.
Under the leadership of purported Acting Director Mick Mulvaney, the CFPB has curtailed investigative and enforcement activities, which states could take as a cue to step in. In fact, Mulvaney seemingly exhorted states to do so, as in a speech to the National Association of Attorneys General where he said that the CFPB would look to states for “a lot more leadership when it comes to enforcement.” Continue Reading Cutback of CFPB Activities Invites State Authorities to Act — But Will They?