Banking and Consumer Finance Law

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Banking & Finance Law Daily
  • April 24, 2017

    Soon after President Trump enacted two Presidential Memoranda on April 21, 2017, members of Congress and industry associations have responded, discussing the effect these orders may have on the banking industry. The memoranda affect the ability of the Financial Stability Oversight Council to  designate nonbanks  as systemically important financial institutions, and the bank regulators to exercise the  orderly liquidation authority...

  • April 20, 2017

    The Consumer Financial Protection Bureau has filed suit in federal district court for the Southern District of Florida against Ocwen Financial Corporation, one of the nation’s largest nonbank mortgage servicers, and its subsidiaries, for "failing borrowers at every stage of the mortgage servicing process."  According to the CFPB , Ocwen "botched" servicing basics such as sending accurate monthly statements, made...

  • April 19, 2017

    The Consumer Financial Protection Bureau has denied a petition to set aside a civil investigative demand (CID) by Seila Law. According to the bureau, none of the objections raised by the law firm warrant setting aside or modifying the CID. The CID was issued for the purpose of determining whether debt relief providers or lead generators "were engaging in unlawful...

  • April 18, 2017

    Is a company that regularly buys defaulted consumer debts and then attempts to collect the debts in its own name a debt collector? One part of 15 U.S.C. §1692a(6) defines "debt collector" for the Fair Debt Collection Practices Act, while another part offers an exclusion from that definition. The interaction between the definition and the exclusion was the focus of...

Dodd-Frank News
  • April 27, 2017

    This story appeared in Bank Digest. The House Financial Services Committee held a full committee hearing entitled "A Legislative Proposal to Create Hope and Opportunity for Investors, Consumers, and Entrepreneurs" on April 26, 2017. The committee examined a discussion draft of the Financial CHOICE Act of 2017, which is a...

  • April 27, 2017

    This story appeared in Bank Digest. Representative Blaine Luetkemeyer (R-Mo) has introduced the Community Lending Enhancement and Regulatory Relief (CLEARR) Act, which seeks to ease the burdens facing local financial institutions by providing them with targeted relief from federal regulations. According to Luetkemeyer's press release, the bill would provide relief...

  • April 26, 2017

    This story appeared in Bank Digest. Representative Scott Tipton (R-Colo) has written a column posted on his website entitled "The Financial CHOICE Act Is Needed to Create Jobs and Opportunities for Americans." According to Tipton, the Dodd-Frank Act "and its associated financial regulations made an already complex regulatory environment even...

Banking and Finance Law Blog
  • April 27, 2017

    By Richard A. Roth, J.D.

     
    The Conference of State Bank Supervisors has sued the Office of the Comptroller of the Currency in an effort to block the agency from creating a new special purpose fintech charter. Calling the OCC’s plan "an unprecedented, unlawful expansion of the chartering authority given to it by Congress for national banks," CSBS says that the OCC only can charter financial institutions that engage in the business of banking. At a minimum, such an institution must accept deposits, but the OCC intends that companies holding the special purpose charters might not accept deposits, meaning they will not be engaged in the business of banking, CSBS charges (Conference of State Bank Supervisors v. OCC ).
     
    According to CSBS President and CEO John W. Ryan, state authorities already supervise tens of thousands of bank and nonbank financial services companies, including more than 75 percent of U.S. banks. This has created "a robust platform for innovation." The OCC’s plan will preempt state consumer protection laws, he added.
     
    CSBS objections. The complaint alleges that the OCC claims the authority to create charters for a broad variety of nonbank financial services providers, regardless of whether they might be thought of as fintech companies. This exceeds the agency’s authority under the National Bank Act.
     
    CSBS complains that the OCC has decided to act simply by publishing a white paper and then asking for public comments on a supplement to its Licensing Manual. The agency should have proposed regulations. In fact, while the white paper sought comments on how the OCC should issue nonbank charters, it did not seek comments on whether the agency had the authority to issue nonbank charters.
     
    The complaint alleges that the OCC intends, as part of the chartering process, to negotiate a secret agreement with each company about which federal banking laws will be applied to it. Also, by virtue of their federal special purpose charters, the companies will be exempt from state banking laws and regulations. This will create significant preemption issues.
     
    OCC chartering authority. According to the CSBS complaint, the OCC has the authority to issue charters to companies to engage in the business of banking and to issue limited special purpose charters. While the NBA does not explicitly define what constitutes the business of banking, law and practice make clear that it must include taking deposits, CSBS asserts.
     
    Previous OCC efforts to issue charters to companies that do not take deposits have been rejected by the courts, according to the complaint. There are three exceptions—Congress has explicitly authorized the agency to charter trust banks, banker’s banks, and credit card banks. The special purpose nonbanks contemplated by the OCC would not fit into any of those categories. Congress has rejected efforts to create other special purpose charters, CSBS notes.
     
    Comptroller of the Currency Thomas J. Curry has said the OCC will issue special purpose charters to companies that engage in at least one of three activities—taking deposits, handling funds transfers such as paying checks, or making loans. While an OCC regulation might permit that broader definition of the business of banking (12 CFR 5.20(e)), the law does not, CSBS argues. In fact, the OCC has pointed only to that regulation, and not to any statute, as its authority.
     
    Moreover, the OCC appears to contemplate allowing special purpose nonbanks to engage in activities that have never been determined to be part of or incidental to banking.
     
    Specific claims for relief. CSBS wants a declaratory judgment preventing the issuance of nonbank special purpose charters for several reasons:
    1.  The OCC does not have the statutory authority to issue special purpose charters to nonbanks.
    2. To the extent that 12 CFR 5.20(e) defines the business of banking in a manner that does not require deposit-taking, its adoption exceeded the OCC’s authority.
    3. To the extent that 12 CFR 5.20(e) defines the business of banking in a manner that does not require deposit-taking, its adoption exceeded the OCC’s authority.
    4. The OCC has not considered the effects of its actions on state regulatory powers, has not carried out a cost-benefit analysis, and has not provided a reasoned explanation, making its actions arbitrary and capricious.
    5. Since Congress has not authorized the OCC to preempt state law in this area, issuing special purpose charters to nonbanks would violate the states’ Tenth Amendment right to regulate the companies.  
    The case is No. 1:17-cv-00763.
     



    For more information about the OCC and fintech charters, subscribe to the Banking and Finance Law Daily.

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