In the waning days of the Trump Administration, the Consumer Financial Protection Bureau fulfilled its promise to address the holes left in its first set of rulemaking amending the federal debt collection rule known as Regulation F. The finalizing amendments are now complete, making it possible to gain some preliminary perspective on the 2020 revised regulation in its entirety.
The end of 2020 and start of 2021 have been marked by a new round of Paycheck Protection Program legislation and updated regulations, as well as a number of decisions from the courts concerning PPP issues—all of which hopefully provides additional clarity for a program in which clarity has often been sorely lacking.
Newly minted Supreme Court Justice Amy Coney Barrett authored a significant decision while serving as an appellate judge on the Seventh Circuit. The decision is directly relevant to the financial services industry and consumers. The holding of the case allowed federal standing requirements to close the gateway to federal jurisdiction in a class action lawsuit brought under a consumer protection statute.
Early in this millennium, the Sedona Conference earned a reputation for providing helpful, workable guidance for emerging and overlooked or underserved areas of the law, particularly e-discovery. Via a series of think-tank-style working groups focused on discrete legal issues, the Sedona Conference tries to create “practical solutions and recommendations” which are then “developed and enhanced through a substantive peer-review process” and ultimately “widely published in conjunction with educational programs for the bench and bar, so that it can swiftly drive the reasoned and just advancement of law and policy in the areas under study.” Many judicial decisions—especially from the district courts that must effectively, efficiently, and justly administer the law and civil rules—rely upon and even praise the principles developed by the Sedona Conference, whose mission “is to move the law forward in a reasoned and just way through the creation and publication of nonpartisan consensus commentaries and through advanced legal education for the bench and bar.”
The banking industry entered the coronavirus pandemic in a position of relative strength—far stronger than it was before the Great Recession. As a result, everyone from bank customers to the federal government has looked to banks to help them weather the COIVD-19 storm. In particular, the CARES Act and its Paycheck Protection Program (“PPP”) created a structure that used banks as conduits for quickly distributing hundreds of billions of dollars of loans to businesses in the hopes that those businesses could continue to pay employees, mortgages and leases, and utilities and thus remain in business.
A favorite guessing game before the Biden administration takes charge is prognostication. The fate of agency rulemaking promulgated by the Trump administration in the area of consumer protection is a hot topic. The Consumer Financial Protection Bureau (CFPB or Bureau) recently released the first of two final rules on debt collection practices (Final Rule). Under a new Bureau head chosen by the Biden team, there is a good chance the CFPB’s rulemaking on debt collection practices is going to be revisited.
After years of regulatory juggling, in July 2020 the Consumer Financial Protection Bureau (CFPB) released its so-called “Final Payday Lending Rule,” revoking the mandatory Underwriting Provisions of the 2017 Final Rule. The CFPB’s revocation of the Underwriting Provisions represents an enormous win for the small dollar lending industry. The latest iteration of the Final Rule leaves the Payment Provisions intact. Long overshadowed by the controversy over the Underwriting Provisions, the Payment Provisions are now the center of attention although the Underwriting Provisions may be resurrected when the new Biden Administration takes control of the CFPB.
Only in New York is the rule insulating a depositary bank from a direct conversion claim still good law. The rule is based on an old version of the UCC. A provision found in the Revised UCC, adopted by all the other states, completely overturns the old Code’s barrier. A recent ruling on a motion to dismiss by a New York federal district court illustrates the glaring anomaly.
Confusion continues to swirl around PPP loan forgiveness for lenders and borrowers. Lenders are holding back on processing loan forgiveness applications. Small businesses continue to be adversely affected by the pandemic. For small businesses, the need for economic assistance ostensibly coming from loan forgiveness is dire.
[NOTE: BARBARA CLARK, CO-AUTHOR OF THIS NEWSLETTER, SERVED AS A MEMBER OF THE FASTER PAYMENTS TASK FORCE.]
In a recent decision, a Massachusetts court ordered a law firm to reimburse its bank over $337,400 after falling victim to a check and wire fraud scam perpetrated by email. The decision highlights the importance of "knowing your client" before distributing funds from a client trust account.
There is a big difference between a so-called "linked" debit card issued by a bank to an account holder and a so-called "decoupled" debit card issued by a merchant to its retail customer. Many consumers carry both in their wallets and use the cards interchangeably.
Article 4A of the Uniform Commercial Code (UCC) does not always occupy the field of loss allocation for wire transfers. When the race to set off is in trouble, common law causes of action such as unjust enrichment, fraud, and conversion may come into play as well. A federal district court order dated March 20, 2020, denying a motion for a judgment on the pleadings, illustrates this point.
The first 100 days are over since Nacha's rule quadrupling the Same Day ACH per transaction entry limit from $25,000 to $100,000 became effective. In keeping with its role as overseer of the ACH network's operating rules and standards, on July 9, 2020, Nacha released "informal" guidance "interpreting" the large-dollar Same Day ACH entry limit. The guidance focuses on evasion.
Depositary banks are often caught between a rock and a hard place when faced with an adverse claim from a third-party fraud victim. Developments in litigation before the California federal court illustrate how adverse claim statutes afford depositary banks a first line of defense, but are often ignored.
Since the Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB) in 2008, a shadow has hung over the agency. Dodd-Frank implemented a unique structure for the CFPB consisting of a single director insulated from the executive power of the President because he or she is only removable "for cause." CFPB's critics attacked this single-director structure as unconstitutional. Under the separation of powers doctrine, they argued, the President must retain the unconditional power to remove the director as a matter of discretion, or "at will." For its detractors, disbanding the CFPB became their mission. Under that scenario, the unconstitutional for-cause removal rule for the agency's director would render the whole agency illegitimate.
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act introduced a consumer protection regime that broadly prohibits unfair, deceptive, and abusive acts by financial institutions and other covered entities or persons in connection with consumer transactions regarding financial products or services. While earlier UDAP statutes, such as Section 5(a) of the FTC Act, prohibit unfair and deceptive acts and practices, Dodd-Frank added the "abusive" piece. In the years since the enactment of Dodd-Frank, the Consumer Financial Protection Bureau, which administers Dodd-Frank UDAAP, has struggled to define what constitutes "abusive" behavior and to differentiate abusive acts from unfair or deceptive acts.
The Federal Deposit Insurance Corporation (FDIC) recently issued its Final Rule on the permissibility of interest rate transfers. The Final Rule is the companion rule to the Office of the Comptroller of the Currency's (OCC) rulemaking released a few days earlier. The FDIC's Final Rule is intended to clarify "the law that governs the interest rates State-charted banks and insured branches of foreign banks … may charge."
Due to the restrictions on social distancing created by the Coronavirus pandemic, the days when closings on big financial deals occurred in person around the board room table seem to be gone, at least until the spread of COVID-19 is arrested. The customary handshake and pat-on-the-back are no longer socially acceptable. E-signatures are becoming more common than wet ones.
As his first major policy initiative, on the day he assumed office, acting Comptroller of the Currency Brian Brooks spearheaded the release of the OCC’s final rulemaking on permissible interest rate transfers. The Final Rule is intended to offer comfort to national banks and federal savings associations relying on the “valid-when-made” common law principle, which protects the interest rate on a loan after the loan is transferred.