Arizona has become the first state in the United States to enact a law to create a “Fintech Sandbox” – a safe zone for fintech startups to test new applications and financial services otherwise subject to state money transmitter, banking, and similar licensing requirements without having to obtain a state license. Although other countries, such as the United Kingdom, Singapore, and Australia, have created similar fintech sandboxes, similar legislation or regulations thus far have not been adopted in the United States at the federal or state level.

The Fintech Sandbox idea was promoted by the Arizona attorney general and will be administered by the Arizona Office of the Attorney General (AZ OAG). However, the Fintech Sandbox does not mean that fintech companies will be unregulated in Arizona. There will be a substantive application and oversight process.

At a recent meeting of state attorneys general, Consumer Financial Protection Bureau (CFPB) Acting Director Mick Mulvaney reiterated his message, previously reported here that his bureau will no longer “push the envelope” on enforcement matters.

At the conclusion of his remarks, Pennsylvania Attorney General Josh Shapiro (D) asked Mulvaney whether this change in enforcement philosophy means that the CFPB will interfere in or otherwise impede the use of state attorney general authority to enforce certain Dodd-Frank provisions, specifically those penalizing conduct which is “unfair, deceptive, or abusive” (UDAAP) in federal court. Mulvaney responded unequivocally that it would not.

Targeted bipartisan financial regulatory reform legislation announced last month has been approved by the Senate Banking Committee after a markup session on December 5. The “Economic Growth, Regulatory Relief and Consumer Protection Act” (S. 2155) is sponsored by Senate Banking Committee Chair Mike Crapo (R-ID) and has 19 co-sponsors (nine Democrats, nine Republicans, and one Independent who caucuses with the Democrats), and makes some significant changes to parts of the Dodd-Frank Act. The markup session resulted in technical and other less significant, mutually agreed-upon changes to the bill.

S. 2155 would make targeted changes to Dodd-Frank Act requirements that are applicable to banks, mortgage companies, and other providers of consumer financial services, and that are primarily intended to ease regulatory burdens on regional and community banking organizations. Some of the more notable changes include the following:

October in Washington, DC is typically busy, marking the start of a new fiscal year for the federal government, a new term of the Supreme Court, and, this year, a lot of activity by financial regulators and Congress.

Just this week:

  • There were two hearings in the Senate Banking Committee on consumer protection.
  • The Senate confirmed Randal Quarles as the newest member of the Board of Governors of the Federal Reserve System (the Federal Reserve Board) by a 65–32 vote.
  • The CFPB released its long-awaited and much discussed, including by us at All Things FinReg, final rules regulating payday loans, vehicle title loans, and certain other high-cost loans (the Payday Lending Final Rule).
  • The OCC rescinded its 2013 Guidance on Supervisory Concerns and Expectations Regarding Deposit Advance Products in response to the Payday Lending Final Rule.

The Consumer Financial Protection Bureau (CFPB) has issued its first No-Action Letter under the final policy on No-Action Letters that it released in early 2016. The No-Action Letter was requested by and issued to Upstart Network, Inc., an online marketplace lending platform. Under the No-Action Letter, the CFPB states that it “has no present intention” to recommend an enforcement or supervisory action against Upstart with regard to its compliance with the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B. Like many marketplace and other new online lenders, Upstart uses alternative lending criteria in its underwriting process in order to expand access to credit for borrowers who might not otherwise qualify for loans or can only qualify for loans with higher interest rates.

The Consumer Financial Protection Bureau (CFPB) announced that it has filed suit against four online lenders owned by the federally recognized Habematolel Pomo of Upper Lake Indian Tribe based on alleged violations of state licensing and usury laws.

The factual allegations in this lawsuit, filed in the US District Court for the Northern District of Illinois, are unremarkable. The CFPB charges that the online lenders at issue make small-dollar loans at very high interest rates and that the entities’ tribal ownership is both legally irrelevant and factually dubious. The CFPB also alleges relatively modest violations of Regulation Z’s requirement to disclose the annual percentage rate in an oral response to a consumer inquiry about the cost of credit. The CFPB, however, alleges that the defendants engaged in unfair, deceptive, and abusive acts and practices (UDAAP) in violation of federal law through their efforts to collect on loans that were usurious under state law, or for which other state-law violations vitiated or limited the borrowers’ obligation to repay.

As we reported last fall, New York Department of Financial Services Superintendent Maria T. Vullo stated that she was “ardently opposed” to the Office of the Comptroller of the Currency’s (OCC’s) intention to process applications for a new financial technology (fintech) company charter. We now see just how much her counterparts in other states share that view, as the state bank regulators recently came together under the Conference of State Bank Supervisors (CSBS) banner to ask the federal courts to stop the OCC’s fintech charter initiative.

In its complaint in Conference of State Bank Supervisors v. Office of the Comptroller of the Currency  filed on April 26 in the US District Court for the District of Columbia (Complaint), the CSBS has asked the court to declare that the OCC’s creation of the fintech charter is unlawful and that the OCC be enjoined from pursuing this initiative—saying, in substance, that the OCC doesn’t have the statutory authority to grant nontraditional bank charters of this nature.

After signaling earlier this year that it was considering delaying the effective date of the Prepaid Accounts under the Electronic Funds Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z) final rule (Prepaid Accounts Rule), the Consumer Financial Protection Bureau (CFPB) has officially delayed the effective date of the Prepaid Accounts Rule for six months to April 1, 2018. This delay comes as the CFPB has been facing significant pressure from industry, the US Congress, and consumer groups to delay or (in the case of consumer groups) retain the original effective date of the rule.

Notwithstanding objections from both parties of the US Congress and state banking regulators, the Office of the Comptroller of the Currency (OCC) is moving forward with its proposal to accept applications from financial technology companies for a special purpose national bank charter (FinTech Charter) and has issued draft guidelines (FinTech Charter Guide) for its evaluation of FinTech Charter applications.

We have previously discussed the OCC’s FinTech Charter proposal and its somewhat rocky path (read our previous posts on the topic here and here). The OCC is inviting comments on the draft through April 14, 2017, although we do not expect the final version of the guide to deviate significantly from the current draft.

In the closely watched case of Madden v. Midland Funding, LLC, on which we have reported here and here, the US Second Circuit Court of Appeals ruled that federal preemption principles generally applicable to national banks under the National Bank Act did not extend to nonbank assignees of a bank loan where the bank no longer held an interest in the loan, and federal law therefore did not preempt New York state usury limitations. In turn, the Second Circuit declined to rehear the case, and the US Supreme Court declined to grant certiorari to review the case.

In its decision, the Second Circuit remanded the case to the US District Court for the Southern District of New York for the resolution of remaining state law questions, including whether Delaware law (which has no usury limitations) governed the account agreement. On February 27, 2017, the district court issued an opinion addressing these issues in response to the defendants’ motion for summary judgment and the plaintiff’s motion for class certification.