Today's Headlines

    South Dakota Division of Banking Responds to AFSA Request for Clarification on Initiated Measure 21

    AFSA Staff

    The South Dakota Division of Banking responded to AFSA’s November 16 comment requesting clarification on issues related to the application of Initiated Measure 21. AFSA’s comment asked that the Division confirm whether the measure’s rate cap would apply to retail installment contracts and asked that the state clarify what ancillary products and other fees or charges must be included, as well as the method of calculation of the 36 percent all-in rate cap. In its response, the Division stated that the rate cap does apply to retail installment contracts because financial institutions that service, acquire, or purchase retail installment contracts are required to hold a money lender license. Additionally, the Division provided a series of fees and ancillary products that would be required to be included in the finance charge under certain circumstances. The Division did not provide further clarification on the method of calculation for the annual rate.

    Initiated Measure 21 was approved by South Dakota voters on November 8 and became effective November 16, following the Secretary of State’s official canvas. AFSA will keep members apprised of any response from the state clarifying the impact of the Measure.

    Trump vs. Cordray: The Battle Ahead

    American Banker, Kate Berry (December 6, 2016)

    American Banker is examining what may be the start of conflicting business philosophies between the incoming Trump Administration and the Consumer Financial Protection Bureau (CFPB).

    Since the CFPB was formed as a result of the Dodd-Frank Act and Director Richard Cordray was installed in July of 2013, the CFPB has been at odds with the consumer finance industry and members of Congress on both sides of the aisle, but especially Republicans.

    But until a recent ruling by a federal appeals court in DC, Cordray was thought to be on solid ground until his term is up in July of 2018. Now, that ruling, the new Administration and a Republican majority in both houses puts Cordray’s future in question.

    This week the trade publication introduced the first installment in a series of articles looking at how the results of the election will affect the CFPB and its rulemakings and enforcement actions.

    Read the full article here.

    FTC Holds Workshop on Changing Consumer Demographics

    AFSA Staff

    On Dec. 6, AFSA staff covered a Federal Trade Commission (FTC) workshop that brought together demographers, researchers, marketers, consumer groups, with federal, state, and local law enforcement to discuss the evolving diversity of consumers and the impact these changes will have on the marketplace.

    The workshop was part of the FTC’s “Every Community Initiative,” which recognizes that the demographics of the country will continue to change, evolve and impact consumer protection as the population grows older and more racially and ethnically diverse.

    The presentations and panel discussions examined how the population is changing, how advertising and marketing are shifting to reach consumers, and the potential for fraud and what the FTC and others should do to combat fraud.

    During a session on the demographics of consumer complaints, an FTC economist observed that more highly-educated people complain more often, which may be due to their greater likelihood to be aware of consumer protection agencies and their complaint portals.

    According to his research, minorities complain less even though minorities suffer higher rates of fraud. Reporting may be low due to mistrust of the government, fear of immigrant status, or the belief that complaining will not make a difference. Consumers with limited English proficiency (LEP) are less likely to complain because of language barriers.

    OCC moves toward charters for Fintech

    AFSA Staff

    Thomas Curry, the head of the Office of the Comptroller of the Currency (OCC), announced last week that the agency is moving forward with plans to extend special purpose national bank charters for financial technology – fintech – companies.

    In addition to Curry’s announcement, the OCC released a paper outlining why it is considering special purpose national bank charters for the fintech industry.

    The OCC has sharply focused on fintech, releasing several white papers and speaking at various events.

    Earlier this year, the OCC released a white paper outlining their idea of “responsible innovation,” and how best to cater to changing technology in the financial marketspace. The OCC also announced that it is establishing an Office of Innovation, with offices major technology cities.

    The agency’s recent report explains why it may be in the public’s best interest to allow for special purpose charters for fintech companies. For example:

    • A special purpose charter will allow for fintech companies to operate in a safe and sound manner if they are put under uniform supervision, similar to other chartered banks under the OCC;
    • Putting fintech companies under a bank regulatory framework will promote consistency in the application of law and regulation;
    • Special purpose charters will allow for the federal banking system to become stronger;
    • As a result, fintech companies can innovate to promote financial inclusion and fair access to financial services.

    The paper further explains that a special purpose national bank charter will better serve the future of financial services policy. For example, where a law does not currently apply to new technological innovations, a charter will allow for the creation of new statutes that can lay the groundwork for guidance that will last through the 21st century.

    Regarding the features and attributes of a national bank charter, the report states that a special purpose national bank has the same status and attributes as a full-service national bank. With a national bank charter, a bank is under strict federal oversight and must follow the uniform standards put forth by the OCC. Chartered companies also would have to abide by state laws in the same way a full-service national bank does today.

    The OCC states that, “In general, a special purpose national bank is subject to the same laws, regulations, examination, reporting requirements, and ongoing supervision as other national banks. Statutes that apply to national banks apply to all special purpose national banks, even uninsured national banks.” Special purpose banks are also subject to the prohibition in engaging in unfair, abusive or deceptive or practices under the Dodd-Frank Act.

    If a fintech company is granted a charter, it may not mean they are not under the watch of other regulators. The OCC often coordinates with other agencies, including the Consumer Financial Protection Bureau (CFPB), the Federal Reserve Board, and the Federal Deposit Insurance Corporation (FDIC).

    A fintech company must also meet baseline supervisory expectations. In its paper, the OCC insists that its high supervisory standards must be met by fintech companies.

    Companies seeking a charter must also comply with a series of organizational requirements:

    • Must have a well-developed business plan;
    • Must have an appropriate governance structure that is tailored the size and complexity of the company;
    • Meet a minimum and ongoing capital level that can properly serve the size and complexity of the company;
    • Meet the OCC’s expectations of liquidity to handle expected and unexpected cash flows and collateral needs, and;
    • Have a proper system in place to manage compliance risk effectively.

    In the paper, the OCC goes further into financial inclusions, mentioning that an applicant must submit a business plan that shows how the proposed bank will effectively communicate with the community and consumers in order to aptly handle consumer and community needs.

    The application process for a fintech company is identical to that of any other company applying for a special purpose charter with the OCC. The process involves a prefiling stage of discussions about the proposal, a filing stage, a review and evaluation stage, and a decision stage.