Troutman Pepper Weekly Consumer Financial Services Newsletter

To keep you informed of recent activities, below are several of the most significant federal and state events that have influenced the Consumer Financial Services industry over the past week:

Federal Activities

State Activities

Federal Activities:

  • On December 7, the Office of the Comptroller of the Currency (OCC) issued a report on the key issues facing the federal banking system in its Semiannual Risk Perspective for Fall 2023. The OCC reported that the overall strength of the federal banking system remains sound, and expects banks to remain diligent and adhere to prudent risk management practices across all risk areas. Banks should continue to guard against complacency to ensure they maintain the ability to withstand potential future economic challenges. For more information, click here.
  • On December 7, U.S. Department of Housing and Urban Development (HUD) announced an extension of the public comment date for its Notice of Proposed Rulemaking that would remove criminal conviction restrictions for fair housing testers by nine days, to January 11, 2024. For more information, click here.
  • On December 6, the Biden-Harris administration announced the approval of an additional $4.8 billion in student loan debt relief for 80,300 borrowers. For more information, click here.
  • On December 6, Anatoly Legkodymov, the founder of cryptocurrency exchange Bitzlato Ltd., admitted that the China-based cryptocurrency exchange processed more than $700 million in illicit funds derived from criminal activities, including ransomware attacks and narcotics trafficking. Legkodymov, a Russian national who resided in Shenzhen, China, pled guilty to operating an unlicensed money transmitting business and agreed to forfeit around $23 million worth of cryptocurrency seized in connection to a related case brought by French authorities. He acknowledged that Bitzlato was used by some clients to transmit or receive crypto derived from criminal activity, despite improvements to their know-your-customer and anti-money laundering enforcement. The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) designated Bitzlato as a “primary money laundering concern” with substantial connections to illicit Russian finance and other risky sources. A sentencing date for Legkodymov has not been set. For more information, click here.
  • On December 6, a California federal judge ordered crypto company Crowd Machine Inc., its parent company Metavine Inc., and their Australian founder Craig Sproule to pay nearly $26 million in disgorgement and penalties for defrauding investors. The U.S. Securities and Exchange Commission (SEC) accused the defendants of secretly diverting investor funds to foreign gold mining operations. The companies were ordered to disgorge $19.6 million in proceeds raised from sales of a crypto token used in the fraud, with an additional $5 million to be disgorged by a related relief defendant. For more information, click here.
  • On December 6, the OCC issued guidance to national banks and federal savings associations to address the risks associated with “buy now, pay later” (BNPL) lending. The guidance focuses on the risk management of BNPL loans, which are payable in four or fewer installments and carry no finance charges. The guidance notes that banks should maintain underwriting, repayment terms, pricing, and safeguards that minimize adverse customer outcomes, and should ensure that marketing materials and disclosures are clear and conspicuous. For more information, click here.
  • On December 6, France’s third-largest bank, Societe Generale, debuted its stablecoin, EUR CoinVertible (EURCV), on Bitstamp. Developed by its crypto division, SG Forge, EURCV is the first euro-pegged stablecoin from a regulated European bank available on a crypto exchange. Issued on the Ethereum blockchain, the stablecoin allows the crypto ecosystem to diversify its positions and gain access to a robust, stable asset. The Bitstamp listing enables retail traders to access EURCV, joining Tether and Circle’s USDC in the stablecoin market. This development follows Societe Generale’s recent issuance of its first green bond on the Ethereum blockchain, amounting to 10 million euros. The bank’s crypto arm, FORGE, secured a license to operate as a digital asset service provider in France back in July. For more information, click here.
  • On December 5, the director of the Division of Supervision and Regulation of the Board of Governors of the Federal Reserve System testified before the House’s Subcommittee on Digital Assets, Financial Technology, and Inclusion. The director emphasized the Federal Reserve’s commitment to supporting responsible innovation in the financial system. However, the director also acknowledged that innovation could lead to risks, both familiar and novel, and stressed the importance of banks identifying and managing these risks. The director stated that the Federal Reserve recently announced the creation of a novel activities supervision program that focuses on the supervision of risks posed by novel, technology-driven activities at banks, including those involving crypto-assets, distributed ledger technology, and complex technology-driven bank partnerships with nonbank fintechs. For more information, click here.
  • On December 5, the Deputy Comptroller for Compliance Policy and Acting Deputy Comptroller for the Office of Financial Technology Donna Murphy testified on the activities and initiatives of the OCC’s Office of Financial Technology before the Subcommittee on Digital Assets, Financial Technology and Inclusion, Committee on Financial Services of the U.S. House of Representatives. In her testimony, Murphy discussed the OCC’s supervision and regulation related to banks’ use of new and emerging financial technologies. She also highlighted the OCC’s work to engage with banks as they navigate rapid financial technology developments to balance safety, soundness, and fairness with innovation and growth. For more information, click here.
  • On December 4, the OCC announced its 2024 schedule of free, virtual workshops for directors, senior management, and other key executives of national community banks and federal savings associations. For more information, click here.
  • On December 4, Freddie Mac announced new, standardized mortgage documents that increase clarity, consistency, and accessibility of down payment assistance (DPA) programs nationwide. These documents can be used by lenders working with housing finance agencies (HFAs) at the state, city, county, and local levels to eliminate confusion and misinterpretation of DPA programs. For more information, click here.
  • On December 1, the OCC published its assessment rates for the 2024 calendar year. The OCC is maintaining the 2023 rates in the general assessment, independent trust, and independent credit card fee schedules, and is not adjusting assessment rates for inflation. For more information, click here.
  • On November 29, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Sinbad.io, a virtual currency mixer used as a money-laundering tool by the Lazarus Group, a state-sponsored cyber hacking group from the Democratic People’s Republic of Korea (DPRK). Sinbad has allegedly processed millions of dollars from Lazarus Group heists, including the Horizon Bridge and Axie Infinity heists, and is allegedly used by cybercriminals for various illicit activities. The Lazarus Group, which was sanctioned by OFAC in 2019, has operated for more than 10 years and is believed to have stolen more than $2 billion worth of digital assets. As a result of this action, all property and interests in property of Sinbad in the U.S., or in the possession or control of U.S. persons must be blocked and reported to OFAC. For more information, click here.
  • On November 29, Esteban Cabrera Da Corte was sentenced to 63 months in prison by U.S. District Judge Katherine Polk Failla for organizing a scheme to steal millions of dollars’ worth of cryptocurrency and trick U.S. banks into refunding the millions used to purchase that cryptocurrency using false and stolen identities. From beginning of 2020 through March 2020, Cabrera Da Corte and his co-conspirators deceived U.S. banks and a leading cryptocurrency exchange platform by purchasing more than $4 million in cryptocurrency and then falsely claiming that the transactions were unauthorized. This led the banks and the exchange to reverse the transactions and redeposit the money into the defendants’ controlled bank accounts. The scheme resulted in U.S. banks processing more than $4 million in fraudulent reversals and the cryptocurrency exchange losing more than $3.5 million worth of cryptocurrency. Cabrera Da Corte was also ordered to pay restitution of $3,578,786.69 and forfeiture of $1.2 million For more information, click here.
  • On November 27, the Congressional Research Service released a report detailing policymakers’ debates over Hamas’ alleged use of cryptocurrency to finance its activities. The report noted that the scale and effectiveness of Hamas’ cryptocurrency fundraising efforts remain unclear, but that the group has nonetheless reportedly received significant amounts through this method. The report further states that enforcement actions have targeted several websites and cryptocurrency accounts linked to Hamas, and that the U.S. Department of the Treasury has taken multiple actions to deter terrorist fundraising through cryptocurrencies. For more information, click here.

State Activities:

  • On December 11, revisions to Maryland’s money transmitter regulations, adopted by the state’s commissioner of financial regulation, will take effect. Among other things, the new regulations provide an exemption (where certain conditions are met) for a person appointed as an agent of the payee, and establish certain requirements for corporate governance. For more information, click here.
  • On December 7, New York Attorney General (AG) Letitia James led a group of 20 Democrat AGs in imploring the OCC and the CFPB to ensure national banks’ cooperation with investigations into banks’ violations of state laws. The AGs note that national banks have, since the early 2000s, claimed immunity from state oversight, refusing to participate in or respond to document and testimony requests from state AGs. The AGs argue that banks have nevertheless persisted in their refusal to participate in state investigations, despite the Supreme Court and Congress repudiating OCC regulations that granted banks immunity. Among other things, the AGs ask the OCC to provide supervisory guidance to national banks regarding their cooperation in “legitimate State AG investigations.” The AGs also urge the CFPB to take necessary action to hold national banks accountable for violations of state consumer protection laws. For more information, click here.
  • The Illinois Department of Financial and Professional Regulation recently adopted revisions to the state’s Collection Agency Act that repealed as unnecessary certain rules previously promulgated by the state’s Division of Professional Regulation (DPR). This year’s enactment of Illinois Public Act 102-975 effectively transferred the oversight of collections agencies under the Collection Agency Act from DPR to the Division of Financial Institutions (DFI) as of November 20. Recognizing the DFI’s intention to propose new rules to update and build upon current rules for collection agencies to align industry regulation with DFI standard, the Department of Financial Professional Regulation repealed the provisions it believed would likely become “unnecessary.” For more information, click here.

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