Troutman Pepper Weekly Consumer Financial Services Newsletter - January 2024 # 3

To keep you informed of recent activities, below are several of the most significant federal and state events that have influenced the Consumer Financial Services industry over the past week:

Federal Activities

State Activities

Federal Activities:

• On January 16, the Federal Trade Commission (FTC) reported that 2 million new telephone numbers have been added to the National Do Not Call Registry for the 12-month period ending September 30, 2023. For more information, click here.
• On January 15, Epiq AACER reported that U.S. bankruptcy filings surged by 18% in 2023, reaching a total of 445,186 cases, up from 378,390 in 2022. For more information, click here.
• On January 11, the Consumer Financial Protection Bureau (CFPB) issued guidance to consumer reporting companies to address inaccurate background check reports, as well as “sloppy” credit file sharing practices. The two advisory opinions seek to ensure that the consumer reporting system produces accurate and reliable information and does not keep people from accessing their personal data.
  • Background Check Reports: This advisory opinion highlights that background check reports must be complete, accurate, and free of information that is duplicative, outdated, expunged, sealed, or otherwise legally restricted from public access.
  • Credit File Disclosure: This advisory opinion highlights that people are entitled to receive all information contained in their consumer file at the time they request it, along with the source or sources of the information contained within, including both the original and any intermediary or vendor source.
  For more information, click here.
• On January 10, the Securities and Exchange Commission (SEC) approved each pending spot-Bitcoin exchange traded fund (ETF) application on an accelerated basis. To substantiate this accelerated approval, the SEC relied on the amended filings of the ETF applicants, which generally established that there is a strong correlation between the prices of spot Bitcoin and of futures Bitcoin traded on the Chicago Mercantile Exchange (CME). Therefore, any manipulation that occurs in the spot Bitcoin market would affect the futures Bitcoin market, but an adequate surveillance of the CME would help detect any potential manipulation. For more information about the SEC’s approval order, click here. For more information about “surveillance agreements” and the “significant market test,” click here.
• On January 9, the Financial Industry Regulatory Authority (FINRA) updated its annual oversight report to include digital asset considerations for firms. The self-regulatory organization, which is empowered by the SEC to oversee broker-dealers, has directed firms to establish clear controls and increase their due diligence for activities involving digital assets. The report instructs firms applying for crypto licensure to ensure their business plans comply with existing SEC rules around custody and settlement. It also emphasizes the need for firms to enhance written policies for due diligence processes related to crypto asset sales and trading. This includes determining whether an asset is a security and if its risks have been adequately disclosed to consumers. FINRA’s report also urges firms to bolster their surveillance practices due to the rise of market manipulation schemes in crypto markets. The report notes that bad actors are exploiting investor interest in crypto assets and blockchain technology by engaging in manipulative schemes. The report also highlights the importance of conducting due diligence before recommending digital asset securities to customers. Firms should understand where the assets are maintained, who has access to them, how the proceeds will be used, and the technical mechanics underpinning the digital asset, among other information. Existing compliance measures like anti-money laundering programs and cybersecurity operations should specifically incorporate crypto asset activity as well, according to the report. In addition to the crypto-focused additions, the report addressed rules aimed at ensuring firms’ honesty when reporting transaction volumes. It also detailed expectations for disclosures of environmental, social, and governance (ESG) factors. For more information, click here.
• On January 9, while delivering remarks at an event hosted by Women in Housing and Finance, Inc., Federal Reserve Vice Chair for Supervision Michael Barr suggested that the Federal Reserve is unlikely to extend its Bank Term Funding Program, which was an emergency lending facility established during 2023. For more information, click here.
• On January 9, the FTC announced it has entered a consent order with data broker, X-Mode Social (X-Mode), and its successor, Outlogic. In its complaint, the FTC alleged that X-Mode sold precise location data that could be used to track consumers’ visits to sensitive locations such as medical and reproductive health clinics, places of religious worship, and domestic abuse shelters. Under the FTC’s consent order, X-Mode/Outlogic is required to create a program to ensure it develops and maintains a comprehensive list of sensitive locations, and ensure it is not sharing, selling, or transferring location data about such locations. For more information, click here.
• On January 8, while delivering remarks at the South Carolina Bankers Association 2024 Community Bankers Conference, Federal Reserve Governor Michelle W. Bowman discussed key developments in bank regulation and supervision that occurred during 2023. For more information, click here.
• On January 8, the Office of the Comptroller of Currency (OCC) issued responses to frequently asked questions (FAQ) about the State Small Business Credit Initiative 2.0 (SSBCI). The FAQ address the following topics: (1) reporting on loans to businesses owned by socially and economically disadvantaged individuals; (2) regulatory treatment for loans using certain SSBCI-supported credit enhancements; (3) considerations for loans in Indian Country; and (4) Community Reinvestment Act considerations. For more information, click here.
• On January 5, the Biden administration announced that it is withholding payments to three student loan servicers as part of the U.S. Department of Education’s continued efforts to strengthen protections for student loan borrowers and hold servicers accountable. For more information, click here.
• On January 5, the CFPB issued a release that highlights the challenges borrowers have faced during the resumption of student loan payments. The release highlights several concerns: (1) long hold times and abandoned calls; (2) significant delays in processing income-driven repayment plan applications; and (3) inaccurate and untimely billing statements. For more information, click here.
• On January 4, the FTC and the State of Connecticut filed a joint complaint against auto dealer Manchester City Nissan (MCN) for allegedly deceiving consumers, regularly charging them junk fees for certification, add-on products, and government charges without the consumers’ consent. For more information, click here.
• On January 2, the FTC filed a complaint against FloatMe Corp. (FloatMe), for allegedly violating the FTC Act, the Restore Online Shoppers’ Confidence Act, and the Equal Credit Opportunity Act through misrepresentations used to induce consumers to enroll in a subscription plan for FloatMe’s product: instant cash advances through a mobile application. For more information, click here.

State Activities:

• On January 15, Massachusetts Attorney General (AG) Andrea Joy Campbell announced a $1.8 million settlement with one of the nation’s largest student loan servicers, resolving claims that the servicer did not communicate with borrowers appropriately about renewing their income-driven repayment plans (IDR). Under an IDR plan, a borrower’s monthly payments are based on the borrower’s income and family size rather than loan balance to make repayment more affordable. According to the AG’s investigation, several of the servicer’s communications with borrowers between 2013 and 2017 did not comply with federal regulations, in violation of consumer protection law. In additional to paying $1.8 million, the settlement requires the company to comply with federal notice regulations and implement business practices to make it easier for borrowers to continue making more affordable payments. For more information, click here.
• On January 12, New York Department of Financial Services (NYDFS) Superintendent Adrienne A. Harris announced that Genesis Global Trading, Inc. will pay a $8 million penalty to New York for compliance failures that violated the NYDFS’ virtual currency and cybersecurity regulations and left the company vulnerable to illicit activity. Following examinations and a subsequent enforcement action, the NYDFS concluded that Genesis failed to meet required standards for Bank Secrecy Act/Anti-Money Laundering compliance, suspicious activity report filings, and sanctions screening, among other things. For more information, click here.
• On January 9, the California Department of Financial Protection and Innovation (DFPI) announced that it issued a consent order against an internet-based platform that allows merchants to offer installment contracts to its consumers. The order asserts that, although the company was aware of potential hidden fees charged by its third-party servicer for all installment contracts originated on its platform, the company failed to disclose the potential convenience fees to consumers before consumers entered into contracts. The commissioner determined that such conduct was deceptive and violative of the state’s consumer financial protection law. The order requires the company to pay a $50,000 penalty and disclose potential third-party convenience fees to customers in the future. For more information, click here.
• On January 8, A3892 was signed by New Jersey Governor Phil Murphy. The legislation requires an online cancellation option for subscriptions and gym memberships that are entered into online. Under the bill, a subscription service provider selling subscription services online must provide consumers with an online option to cancel the subscription. For more information, click here.
• The Idaho Department of Finance recently published a bulletin providing notice that the agency has initiated proposed rulemaking procedures for rules designed to interpret the state’s Residential Mortgage Practices Act. According to the bulletin, the proposed changes are intended to “reduce regulatory burden by removing outdated requirements.” For more information, click here.
• The State of New York enacted SB 5941B, which amends the state’s general business law requiring businesses to notify consumer of an upcoming automatic renewal or continuous service charge 45 days prior to such charge. The revision provides that in cases where a business offers an automatic renewal or continuous service charge to a consumer for an initial paid term of one year or longer, and the automatic renewal will renew the subscription for a period of six months or longer, the company must notify the consumer at least 15, but no more than 45, days before the cancellation deadline for such automatic renewal. The act also requires the notice to include instructions for canceling the subscription. The act does not, however, apply to any business (or subsidiary or affiliate thereof) regulated by the public service commission or the Federal Communications Commission. For more information, click here.