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 February 16, the Securities and Exchange Commission (SEC) filed a civil enforcement action against Terraform Labs, the creator of the Terra USD (UST) algorithmic stablecoin, and its founder Do Kwon for allegedly offering and selling “crypto-asset securities” without registering the offers and sales with the SEC as required by the federal securities laws. Critically, in its complaint, the SEC described UST as a security — the first time the SEC concluded that a stablecoin meets the definition of an “investment contract” under the Howey Test. For more information, click here.
• On February 16, the Financial Stability Board (FSB) issued The Financial Stability Risks of Decentralised Finance whitepaper, which analyzes three considerations:

• Review the financial vulnerabilities of the decentralized finance (DeFi) ecosystem as part of the FSB’s regular monitoring of the wider crypto-asset markets and explore the growth of tokenization of real assets;
• Explore approaches to fill data gaps to measure and monitor interconnectedness of DeFi and traditional finance (TradFi) with the real economy and with the crypto-asset ecosystem; and
• Explore the extent to which its proposed policy recommendations for the international regulation of crypto-asset activities may need to be enhanced to acknowledge DeFi-specific risks (which include the use of oracles, smart contracts, and cross-chain bridges) and facilitate the application and enforcement of rules.

For more information, click here.

• On February 15, the Federal Deposit Insurance Corporation (FDIC) issued cease-and-desist letters to digital asset exchange CEX.IO Corp and nonbank financial service provider Zera Financial for allegedly making false and misleading statements, implying that FDIC deposit insurance protected their customers’ digital assets. Additionally, the FDIC directed two websites, Captaincoin.com and Banklesstimes.com, to remove similar false and misleading statements about CEX.IO’s FDIC-insured status. For more information, click here.
• On February 15, the SEC issued a proposed rule that broadens the application of SEC’s current custody rule (Rule 206(4)-2 under the Advisers Act) and redesignates that rule as new Rule 223-1 under the Advisers Act. Notably, if finalized, the proposed rule would, in the words of SEC Chair Gary Gensler, “expand the advisers’ custody rule to apply to all assets … including crypto assets … .” For more information, click here.
• On February 15, during an interview with The Block, Senator Thom Tillis (R-NC) disclosed that he is drafting legislation to require digital asset exchanges and custodians operating in the U.S. to provide an independently verified proof-of-reserves for their assets. For more information, click here.
• On February 15, Federal Reserve Board Governor Michelle W. Bowman delivered remarks at the Midwest Cyber Workshop. She spoke about the Federal Reserve’s role in supervising cybersecurity in the banking industry, including community banks: “Community banks have been the target of cyber and ransomware attacks, and they frequently name cybersecurity as one of the top risks facing the banking industry. In my conversations with bankers, some note the difficulty in attracting and retaining the staff needed to mitigate cyber risks.” For more information, click here.
• On February 14, the Consumer Financial Protection Bureau (CFPB) released a report, examining trends in credit reporting of debt in collections from 2018 to 2022. The report found the total number of collections tradelines on credit reports declined by 33% — from 261 million tradelines in 2018 to 175 million tradelines in 2022. The share of consumers with a collection tradeline on their credit report decreased by 20% in the same timeframe. The CFPB also released additional analysis, examining factors that increase the likelihood of inaccurate medical collections reporting and that may contribute to the decline in medical collections tradelines. For more information, click here.
• On February 14, Federal Trade Commission (FTC) Commissioner Christine Wilson announced plans to leave the agency. For more information, click here.
• On February 14, the Federal Housing Administration (FHA) published a request for information in the Federal Register, seeking public comments on ways it can enhance its Single Family 203(k) Rehabilitation Mortgage Insurance Program. The 203(k) program enables those purchasing or refinancing a home to obtain FHA insurance on a mortgage to cover the current value of the home plus rehabilitation costs. For more information, click here.
• On February 14, CFPB Fair Lending Director Patrice Ficklin joined senior leaders from other federal agencies in submitting a joint letter to The Appraisal Foundation (TAF), providing comments on the “Fourth Exposure Draft of Proposed Changes” for the 2023 Edition of the Uniform Standards of Professional Appraisal Practice. The letter expressed concern that the Fourth Exposure Draft eliminated the Third Exposure Draft’s summary of the FHA Act’s and Equal Credit Opportunity Act’s nondiscrimination standards, and instead, substituted a distinction between unethical discrimination and unlawful discrimination. For more information, click here.
• On February 10, while providing remarks at the Global Interdependence Center Conference: Digital Money, Decentralized Finance, and the Puzzle of Crypto, Federal Reserve Board of Governor Christopher J. Waller discussed “distributed ledger technology” and noted that “[a]lthough this technology is fundamental for the creation of crypto-assets, there is nothing in this technology that restricts it to being used solely in the crypto ecosystem … [and] the technology is being explored to potentially address a wide range of data management problems.” For more information, click here.
• On February 10, Office of the Comptroller of the Currency (OCC) Senior Deputy Comptroller and Chief Counsel Ben W. McDonough spoke before the OCC Banker Merger Symposium about the future of bank merger policy, including the need to update framework for analyzing bank mergers. For more information, click here.
• On February 7-8, EU and U.S. participants, including officials from the Treasury Department, Federal Reserve Board, Commodity Futures Trading Commission, FDIC, SEC, and OCC, participated in the U.S.-EU Joint Financial Regulatory Forum. The participants issued a joint statement on market developments and financial stability risks, sustainable finance and climate-related financial risks, regulatory developments in banking and insurance, operational resilience and digital finance, regulatory and supervisory cooperation in capital markets, anti-money laundering, and countering the financing of terrorism. For more information, click here.

State Activities:

• On February 16, the Department of Financial Protection and Innovation (DFPI) launched the DFPI Crypto Scam Tracker to help Californians spot and avoid crypto scams. For more information, click here.
• On February 15, the Wyoming Senate and House of Representatives voted to pass HB0086, a bill that effectively prohibits courts and other governmental bodies from compelling the disclosure of a private key that relates to a person’s digital asset, digital identity, or other interest, unless knowledge of the corresponding public key cannot disclose the sought-after information. For more information related to “public-key cryptography,” click here. For more information related to HB0086, click here.
• On February 14, California Attorney General Rob Bonta, along with two of the state’s senators, introduced SB 478, which intends to prohibit “the practice of hiding mandatory fees.” The proposed legislation seeks to prohibit an alleged advertising practice in the state of using “an artificially low headline price to attract consumers before revealing additional charges later in the buying process.” The press release claims a common practice among sellers in California is to hide these additional fees by (1) using small print, vague descriptions, or misleading wording, such as “service fees”; (2) combining them with legitimate charges like taxes; or (3) revealing them clearly to a consumer only after that consumer has already invested time in the transaction. The legislation would make it illegal to advertise a price for a good or service that does not include all required charges other than taxes and fees imposed by government. For more information, click here.
• On February 14, the Conference of State Bank Supervisors (CSBS) submitted a comment letter, arguing that the Financial Crimes Enforcement Network (FinCEN) should be more explicit in its inclusion of state regulators as agencies that can request access to its forthcoming beneficial ownership information database. The Corporate Transparency Act (CTA) requires several entities to report their beneficial owner membership to FinCEN. The CTA also makes FinCEN responsible for developing a repository for beneficial ownership information that other enforcement and regulatory agencies, including state regulators, can access for compliance, investigative, and enforcement purposes. In its letter, CSBS urges FinCEN to implement a final rule that explicitly defines state regulators to eliminate confusion about their ability to access beneficial ownership information when examining state-chartered banks and nondepository trust companies for compliance with customer due diligence requirements under the Bank Secrecy Act. For more information, click here.
• On February 13, California Attorney General Rob Bonta and the Massachusetts AG’s office led a multistate coalition in a comment letter, supporting the U.S. Department of Education’s (DOE) proposed changes to income-driven repayment (IDR) plans for federal student loan borrowers. IDR plans are designed to reduce the burden of high monthly student loan payments; however, the program has experienced persistent regulatory and servicing issues. The proposed changes would provide greater access for borrowers and more affordable payment terms. In the comment letter, the coalition supports DOE’s proposal to end negative amortization for borrowers whose IDR payments are too low to cover loan interest and increase the income exemption threshold to decrease borrower’s monthly payments. Under the proposed rules, more borrowers will qualify for $0 IDR payments, and DOE would waive unpaid interest for borrowers in IDR to prevent ballooning loan balances. The AGs also implore DOE to take further reformatory action, such as making the proposed changes available to borrowers with ParentPlus loans. For more information, click here.