Troutman Pepper Weekly Consumer Financial Services Newsletter -November 2022 | Troutman Pepper

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 November 11, Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra delivered remarks before the FDIC Systemic Resolution Advisory Committee. Director Chopra discussed potential resolutions on the hypothetical failure of three categories of systemically important financial institutions: (1) domestic systemically important financial institutions; (2) nonbank systemically important financial institutions; and (3) global systemically important banks. For more information, click here.
• On November 11, prominent cryptocurrency exchange FTX abruptly filed for Chapter 11 bankruptcy and founder Sam Bankman-Fried resigned as CEO. John Ray III, a well-known bankruptcy attorney who administered now-defunct energy giant Enron’s 2001 Chapter 11 restructuring, will replace Bankman-Fried as CEO of FTX. Prior to FTX’s bankruptcy filing, Changpeng Zhao, CEO of Binance, the world’s largest cryptocurrency exchange by volume, signed a nonbinding letter of intent to acquire FTX, but quickly backed out of the deal after conducting corporate due diligence and uncovering that FTX’s liquidity issues were “beyond [Binance’s] ability to control or ability to help.” For more information, click here.
• On November 10, U.S. Senator John Boozman (R-AR) issued a statement, addressing the recent collapse of cryptocurrency exchange FTX. Senator Boozman noted that he and U.S. Senate Agriculture Committee Chair Debbie Stabenow (D-MI) remain committed to advancing the Digital Commodities Consumer Protection Act of 2022 to increase consumer protection and confidence in digital asset markets. For more information, click here.
• On November 10, the CFPB released its analysis of the crypto-related consumer complaints it received from October 2018 through September 2022. The CFPB reported it received “more than 8,300 complaints related to crypto-assets,” and a large percentage of those complaints related to “fraud or scams.” Alongside fraud, the CFPB noted that consumers also reported wide-ranging dispute resolution issues, including, but not limited to, the inability to access assets while a cryptocurrency platform undergoes bankruptcy. For more information, click here.
• On November 10, the CFPB issued a circular on its recent revelation that consumer reporting agencies and furnishers may be evading their obligation under the Fair Credit Reporting Act to conduct reasonable investigation of consumer disputes. According to the CFPB, a consumer reporting agency or furnisher that requires a consumer to submit documentation other than what the Fair Credit Reporting Act describes as a precondition to investigating the consumer’s dispute may be subject to enforcement. Notably, the CFPB specified that the Fair Credit Reporting Act requires consumer reporting agencies and furnishers to reasonably investigate all disputes that are neither frivolous nor irrelevant, even if the consumer submits a dispute that does not comport with the entity’s preferred dispute format. For more information, click here.
• On November 10, the Federal Trade Commission (FTC) issued a policy statement, asserting its intention to renew and broadly apply its Section 5 authority under the FTC Act to challenge the “full array of anticompetitive behavior in the market.” For more information, click here.
• On November 8, the U.S. Department of the Treasury’s Office of Foreign Assets Control delisted and redesignated cryptocurrency mixer Tornado Cash for allegedly assisting the Democratic People’s Republic of Korea in laundering over $100 million worth of cryptocurrency to support its weapons of mass destruction and ballistic missiles programs. For more information, click here.
• On November 7, a federal judge of the U.S. District Court for the District of New Hampshire granted the Securities and Exchange Commission’s (SEC) motion for summary judgment against blockchain-based, file-sharing platform LBRY. In its summary judgment motion, the SEC argued that LBRY’s public offering of its native token LBC constituted an unregistered sale of securities. Using the Howey test, the court determined that the parties solely disputed whether LBRY’s offering of LBC led investors to have a “reasonable expectation of profits” from the managerial efforts of LBRY. Here, the court concluded the evidence indicated that LBRY promoted LBC as an investment that would grow in value over time through the company’s development of the LBRY network, and therefore, LBC is a security under Howey. For more information, click here.
• On November 4, the SEC commenced an enforcement action against founder Douver Torres Braga and various U.S. promoters of Trade Coin Club, a corporation that purported to leverage a “crypto asset trading bot” to provide to investors minimum daily returns of 0.35%. The SEC alleged Trade Coin Club never actually used a crypto-asset trading bot of any kind, and investors were paid entirely from deposits made by other investors. The SEC further alleged Braga personally received “at least 8,396 bitcoin” (worth approximately $55 million) of the total amount of investor deposits. For more information, click here.

State Activities:

• On November 10, the California Department of Financial Protection and Innovation (DFPI) announced that it launched an investigation into crypto-asset platform FTX. The investigation comes after the platform apparently failed earlier in the week. DFPI’s press release did not disclose the details of the investigation’s exact scope and goal. For more information, click here.
• On November 8, Arizona voters approved a measure, limiting medical debt collection. Proposition 209, or the Predatory Debt Collection Act, lowers the interest rate cap on medical debt and also increases the value of assets shielded from certain creditors. The measure will not apply retroactively, so medical debt incurred before its passing are not subject to the cap. Prop 209 critics argue that its provisions are overly broad and will likely have a chilling effect on creditors’ willingness to issue loans to Arizona consumers in the future. Prop 209 is expected to become law in January 2023. For more information, click here.
• On November 8, the New York Department of Financial Services, through a special state law-established Private Student Loan Refinancing Task Force, issued a request for information (RFI), pertaining to student loan refinancing. The task force will study and analyze how to incentivize and encourage private lenders serving state college and university students to create student loan refinancing programs. The task force’s RFI consists of 20 questions, which include, among other things, an RFI about (1) the options available for both private and federal student loan borrowers to refinance their loans and details about the terms; (2) the volume of private and federal student loans refinanced and details about the terms of both the original and refinanced loans; (3) the demographic profile of the student loan borrowers; (4) the factors affecting a student’s decision to refinance; and (5) predatory lending practices typically directed at private student loan borrowers within and outside of the state. For more information, click here.
• On November 7, Massachusetts Attorney General Maura Healey announced a settlement with payment processing company Global Holdings LLC (Global). Global is accused of providing substantial assistance to debt settlement provider DMB Financial LLC (DMB), which allegedly violated the Telemarketing Sales Rule and Massachusetts Consumer Protection Act by “requesting or receiving fees for debt settlement services.” As a settlement condition, Global must implement meaningful changes to its business practices to ensure similar conduct will not occur in the future. Global must also certify compliance with the changes set forth in the settlement agreement within six months of the effective date. For more information, click here.
• On November 3, Pennsylvania Governor Tom Wolf signed House Bill 2667 into law, amending the definition of “remote location” as defined under the Pennsylvania Mortgage Licensing Act (PMLA). Under the PMLA, a mortgage originator, a person excepted from licensure, or any other employee of the licensee may engage in licensed activities on behalf of the licensee from a remote location, if certain criteria are met. The amendment, which took effect immediately, adds a prohibition against “in-person” consumer interaction occurring at the mortgage originator’s (or other person acting on behalf of the licensee, as contemplated by the PMLA) personal residence, and it disposes of a provision that previously required that physical records of the licensee’s mortgage loan business be maintained at the remote location. For more information, click here.
• On November 3, the California DFPI issued an opinion letter, pertaining to the state’s Money Transmission Act (MTA). The opinion was issued in response to a request from a company intending to offer the purchase, sale, and trading of various cryptocurrencies using a platform provided by its affiliate and in connection with another affiliate. Ultimately, the inquiring company sought guidance as to whether its issuance of tokenized versions of the U.S. dollar or securities, or its use to trade cryptocurrencies, qualified as “money transmission,” requiring the company to obtain licensing under the MTA. The DFPI noted in its opinion that it is not requiring the company to obtain licensing since it has not determined whether such activity constitutes money transmission. The opinion warns that the DFPI’s conclusions are subject to change, and the opinion does not address whether the company’s activities require licensing under other laws. For more information, click here.