KT Fintech Blog

The KT Fintech Blog provides insights into how the emergence of fintech is fundamentally changing virtually every aspect of the financial services landscape and how traditional businesses navigate this rapidly evolving industry.

Category: Regulatory

Posted on Wednesday, January 17 2018 at 12:03 pm by
CFPB Acting Director Mulvaney Announces Call for Public Input Regarding CFPB Functions

By Eamonn K. Moran

On January 17, the Consumer Financial Protection Bureau (CFPB or Bureau) announced that it is soliciting public input “to ensure the Bureau is fulfilling its proper and appropriate functions to best protect consumers.”  During the coming weeks, the CFPB will be publishing in the Federal Register a series of Requests for Information (RFIs) seeking comment on the Bureau’s enforcement, supervision, rulemaking, market monitoring, and education activities.  According to the CFPB, these RFIs “will provide an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities”

“In this New Year, and under new leadership, it is natural for the Bureau to critically examine its policies and practices to ensure they align with the Bureau’s statutory mandate. Moving forward, the Bureau will consistently seek out constructive feedback and welcome ideas for improvement,” stated CFPB Acting Director Mick Mulvaney. “Much can be done to facilitate greater consumer choice and efficient markets, while vigorously enforcing consumer financial law in a way that guarantees due process. I look forward to receiving public comments in response to this call for evidence and encourage all interested parties to participate.”

The CFPB states that its first RFI will seek public comment on Civil Investigative Demands (CIDs), which are issued during an enforcement investigation, and that comments received in response to this RFI will help the Bureau evaluate existing CID processes and procedures, and to determine whether any changes are warranted.

This announcement follows a series of actions taken by the CFPB in recent weeks that demonstrate the influence of the new leadership.  When Mulvaney assumed the role of acting director after Thanksgiving, he imposed a temporary hiring freeze and a freeze on all new regulations and guidance for 30 days, along with a separate freeze on civil penalty payments.  On January 16, the CFPB announced that it intends to engage in a rulemaking process for purposes of reconsideration of the Payday Rule, which was finalized in October 2017.  In a similar fashion, the CFPB announced last month that it intends to engage in a rulemaking to reconsider various aspects of the 2015 Home Mortgage Disclosure Act (HMDA) rule such as the institutional and transactional coverage tests and the rule’s discretionary data points.  We also expect the CFPB to issue a final rule amending certain aspects of its 2016 rule governing prepaid accounts soon.

Stay tuned for further updates and developments!

Posted on Tuesday, November 28 2017 at 9:00 am by
Showdown Over CFPB Leadership Continues

Written by Eamonn Moran

In an interesting turn of events over Thanksgiving weekend, outgoing Consumer Financial Protection Bureau (CFPB) Director Richard Cordray promoted CFPB Chief of Staff Leandra English to the position of CFPB deputy director on November 24, 2017. This move was intended to allow Ms. English to take advantage of a provision of the Dodd-Frank Act that allows the deputy director of the CFPB to “serve as acting Director in the absence or unavailability of the Director.” The deputy director is appointed by the director, and does not need Senate confirmation. Later on Friday, President Trump announced that he is designating Office of Management and Budget (OMB) Director Mick Mulvaney as acting director of the CFPB, a position he would serve in until a permanent director is nominated and confirmed.

Late Sunday evening, Deputy Director English filed a lawsuit in the U.S. District Court for the District of Columbia seeking to halt President Trump’s appointment of Mulvaney, who is also named in the lawsuit. The Justice Department was expecting to file an order last night responding to the lawsuit. Judge Timothy Kelly, a Trump-appointed judge who was confirmed by the Senate in September, said he would review the Justice Department’s filing and decide on the next steps in the case after that.

The core legal question is whether the President has the authority under the Federal Vacancies Reform Act (FVRA) to designate Mulvaney as the acting director of the CFPB following the resignation of Cordray as of midnight, Friday, November 24, 2017, even if the deputy director otherwise could act under 12 U.S.C. § 5491 (b)(5) [the Dodd-Frank Act]. Mary McLeod, the CFPB’s General Counsel, issued a written memo to CFPB staff on Saturday confirming her oral advice to the CFPB’s senior leadership team that the answer is “yes.” She advised all CFPB personnel “to act consistently with the understanding that Director Mulvaney is the Acting Director of the CFPB.” Her reasoning was based on statutory language, legislative history, precedent from the Office of Legal Counsel at the Justice Department, and case law, which in her view, “all point to the conclusion that the President may use the Vacancies Reform Act to designate an acting official, even when there is a succession statute under which another official may serve as acting.” As General Counsel for the CFPB, it is McLeod’s legal opinion “that the President possesses the authority to designate an Acting Director for the Bureau under the FVRA, notwithstanding § 5491(b)(5).” The Justice Department’s Office of Legal Counsel supports this position as well, noting that the President “may designate an Acting Director of the CFPB under 5 U.S.C. § 3345 (a)(2) or (3), because both the [Federal] Vacancies Reform Act and the office-specific statute are available to fill a vacancy in that office on an acting basis.”

Mulvaney addressed reporters yesterday afternoon, where he announced a 30-day hiring freeze effective immediately and a 30-day “immediate freeze on any new rules, regulations and guidance.” This could stall, at least temporarily, the CFPB’s debt collection rulemaking, among other projects.

Both Mulvaney and English were present at the CFPB yesterday morning. According to the White House, Mulvaney was given full access to the CFPB director’s office with “full cooperation” from its staff. However, both English and Mulvaney issued dueling emails to staff yesterday morning, and both emails were signed “acting director.” Mulvaney’s email asked CFPB staff to disregard English’s instructions and to inform the CFPB’s general counsel of any communications from her related to Bureau duties. A protest is planned at the CFPB today, and Senator Elizabeth Warren (D-MA) is expected to make remarks. In what appears to be somewhat of an internal resolution, the CFPB’s website currently has Mulvaney listed as Acting Director.

Stay tuned for further updates as additional developments occur!

Posted on Friday, October 20 2017 at 9:00 am by
Acting Comptroller Discusses Innovation and Financial Technology

Written By Eamonn Moran

Acting Comptroller of the Currency Keith A. Noreika recently discussed innovation and financial technology during a speech at Georgetown University Law Center’s Institute of International Economic Law’s Fintech Week. His remarks highlighted his optimism for innovation enhancing products and services for consumers and provided an update on activities related to the Office of the Comptroller of the Currency’s Office of Innovation, including the latest on the agency’s thinking regarding a charter for fintech companies that offer banking products and services.

According to Noreika, “we are at the beginning of a period in this country that is more open to rethinking our approach to regulation, so that we can promote economic opportunity while ensuring the financial system operates in a safe and sound manner and protects consumers from abuse.” He perceives bankers, industry members, regulators, and legislators to “appear ready and willing to have discussions today that would have been impossible six months or a year ago.” He views this change in tone as “very encouraging,” which “suggests that we are finally able to have a constructive, bipartisan conversation about how to approach our regulatory framework.” He stressed that in any steps we take, “we must carefully weigh the cumulative effects of our actions. That includes the impacts on markets, consumers, and banks, and on other companies, such as fintechs, that are innovating the way financial products and services are delivered based on the evolving needs of consumers, businesses, and communities nationwide.”

Noreika noted that his optimism is also based in part on how he views change, including the transformations occurring in the financial services marketplace today, as a part of the “natural evolution” of the banking industry toward “increasing convenience, speed, and control.” Pointing to some of the transformations in the banking sector, such as mobile banking, he stressed the importance of being “careful to avoid defining banking too narrowly or in a stagnant way that prevents the system from taking advantage of responsible advances in technology and commerce.”

In describing the work of the OCC’s Office of Innovation, Noreika noted that the office’s “primary purpose is to make certain that institutions with federal charters have a regulatory framework that is receptive to responsible innovation and the supervision needed to support it,” and that the office “serves as a clearinghouse for innovation-related matters and a central point of contact for OCC staff, banks, nonbank companies, and other industry stakeholders.” He noted that the OCC also is in the early phases of developing a framework for OCC participation in bank-run pilots that allow banks to develop and test products in a controlled environment. In his view, pilots “can accomplish the same goals as what others call ‘sandboxes,” and allow [the agency] to gain insight into a product and to become comfortable with a proposed product’s controls and risks early in the process.”

Building upon remarks he made in July, Noreika reiterated his views that companies that offer banking products and services “should be regulated in the same way that banks are and subject to the same type of ongoing supervision and examinations that banks face.” Consistent with his predecessor, Noreika also is of the mindset that companies that offer banking products and services should be allowed to apply for national bank charters in order to pursue their businesses on a national scale if they choose, so long as they meet the criteria and standards for doing so. He again emphasized that national charters should be just one choice for companies interested in banking, and should exist alongside other options that include becoming a state bank or state industrial loan company (ILC), or operating as a state-licensed financial service provider. Noreika highlighted how certain states, like Georgia, already offer limited purpose charters that even allow commercial companies to be the parent company of the state institution (merchant acquirer limited purpose banks). Furthermore, fintech companies could also pursue partnerships or business combinations with existing banks, or even consider purchasing a bank.

“If, and it is still an if, a fintech company has ambitions to engage in business on a national scale and meets the criteria for doing so, it should be free to seek a national bank charter,” Noreika stated. That includes pursuing a charter under the OCC’s authority to charter special purpose national banks or the OCC’s long-existing authority to charter full-service national banks and federal saving associations, as well as other long-established limited-purpose banks, such as trust banks, bankers’ banks, and other so-called CEBA credit card banks. According to Noreika, “[m]any fintech and online lending business models fit well into these categories of national bank charters, and there has been some interest in fintechs becoming full-service banks, trust banks, and credit card banks. Chartering innovative de novo institutions through these existing authorities enhances the federal banking system, increases choice, promotes economic opportunity, and can improve services to consumers, businesses, and communities.” He cautioned, however, that a national bank charter “is a special thing, and the OCC will not undermine its value by granting charters to companies that are not ready to meet [the agency’s] admittedly high expectations.”

Noreika also took the opportunity to correct some misperceptions that he has seen and heard about – especially the concerns about fintech charters leading toward the inappropriate mixing of banking and commerce. He pointed to the many examples where commercial companies are already allowed to own banks at the state and federal levels, including national credit card banks, state merchant processing banks, state-chartered ILCs. “The law allows commercial companies today to own these types of banks for good reason – they support legitimate business goals and deliver valued products and services to their customers,” he observed. He recognized that the Bank Holding Company Act defines what it means to be a bank for the purposes of that law, but if a particular chartered bank does not satisfy that definition, its parent company would not become a bank holding company solely by virtue of owning the bank. Accordingly, nonbank holding companies, commercial entities, or other banks could own such banks under the law. He did want to be crystal clear about one thing, however: “[t]he chartered entity, regulated by the OCC, would be a bank, engaged in at least one of the core activities of banking – taking deposits, paying checks, or making loans.”