LEND360 PowerUp Webinar Series

Transcription

1 LEND360 PowerUp Webinar Series The Impact of Regulation and Policy on Online Lending Wednesday, June 21, 2017

2 Today s presentation is interactive If you would like to ask a question, please type it into the Chat feature. We will address your questions at the end of the presentation.

3 Today s Presenters Michael Day, Director of Policy LEND360 Rick Eckman, Partner Pepper Hamilton, LLP

4 Today s Presenters Brian Knight, Senior Research Fellow Mercatus Center at George Mason University Scott Pearson, Partner Ballard Spahr, LLP

5 Agenda Webinar Overview The Current Environment The Issues Most Affecting Online Lending True Lender/Valid When Made Federal Bank Regulators Attempts to Address Madden Decision Current State Regulatory Environment Licensing/Reg Issues Implementation of 1071 How Policy Changes Can Impact These Issues National Charter Opportunities for States to Engage in Pro-Innovative Regulation Evolution of the CFPB Conversations/Questions

6 Webinar Overview Michael Day, Director of Policy LEND360

7 The Current Environment Michael Day, Director of Policy LEND360

8 The Issues Most Affecting Online Lending True Lender/Valid When Made Madden Vs. Midland The Current State Regulatory Environment Implementation of 1071

9 True Lender/Madden V. Midland Colorado has filed lawsuits against Avant and Marlette attacking the bank partnership model Allege that both companies need to comply with CO usury law relying on the Madden case that says these companies lose federal preemption when loans are sold to them

10 True Lender/Madden V. Midland Also allege that neither company is the true lender applying the predominant economic interest test Cases were removed to federal court where that removal is being contested

11 True Lender/Madden V. Midland WebBank and Cross River bank filed actions against the CO UCCC Administrator seeking a declaratory judgement and injunctive release alleging the lawsuits filed restricts the banks lending business and will cause irreparable financial loss Allege actions interfere with the bank s right to export interest rates under Section 27 of the FDIA Application of Madden restricts their ability to sell loans to third parties

12 Federal Bank Regulators and Madden The OCC filed brief with Supreme Court arguing that 2nd Circuit decision was wrong BUT saying that Court should not take the case at this stage Former Comptroller Curry demurred on addressing Madden via rule, saying it would interfere with ongoing litigation Unclear what Joseph Otting, the presumptive nominee for Comptroller, or expected FDIC leadership thinks about issue

13 Possibility of Using Regulation to undo Madden or Address True Lender OCC has taken the position that part of the power of a bank is to be able to sell loans to non-banks and have those loans remain valid If true, the OCC should have the authority under the NBA to codify that via rulemaking FDIC likely has the same authority since the authorities of State and National banks are generally considered to be parallel

14 Possibility of Using Regulation to undo Madden or Address True Lender Bank regulators could potentially also address true lender if they determine that the power to lend and sell loans does not require the bank to have or maintain a predominant economic interest in the loans Such an effort would be highly controversial

15 The Current State Regulatory Environment Filling the Void Concern from states that federal deregulation under Trump will leave consumers and small businesses unprotected Opposition to OCC Special Purpose Charters Increased supervisory and enforcement activity, primarily in blue states such as NY, CA, IL, MA High cost products are primary targets, but not the only ones

16 The Current State Regulatory Environment General Election Map

17 The Current State Regulatory Environment Democratic State Attorneys General of Note DEMOCRATIC STATE ATTORNEYS GENERAL OF NOTE LISA MADIGAN (IL) MAURA HEALEY (MA) ERIC SCHNEIDERMAN (NY) MARK HERRING (VA) BOB FERGUSON (WA) BRIAN FROSH (MD) TOM MILLER (IA) JOSH SHAPIRO (PA)

18 The Current State Regulatory Environment Democratic State Attorneys General of Note JOSH STEIN (NC) XAVIER BECERRA (CA)

19 The Current State Regulatory Environment Authority of State Enforcement Agencies State UDAP statutes Federal UDAAP authority under Dodd-Frank Section 1042 Some federal statutes expressly confer enforcement authority on state AGs (e.g., FCRA, TCPA, ADA, FHA, parts of RESPA and TILA)

20 The Current State Regulatory Environment Recent State Enforcement Actions Multistate actions by state attorneys general with the CFPB Mortgage origination, servicing and foreclosure settlements Settlements protecting servicemembers Cramming settlements with Sprint and Verizon Multistate actions by state attorneys general without the CFPB Noteworthy joint action against the big three credit bureaus Individual actions by state regulators and state attorneys general across all products and services Mortgages, credit cards, auto loans, student loans, installment loans, payday loans Debt collection, credit repair and debt settlement Privacy (including data security)

21 The Current State Regulatory Environment Public State MPL Regulatory Developments New York DFS and California DBO Inquiries Colorado and Maryland Licensing Actions CashCall, Inc. v. Maryland Comm r of Fin. Regulation (Md. Ct. App.) use of licensing statute to undercut a bank model lending program Commonwealth of Pennsylvania v. Think Finance, Inc., et al. (E.D. Pa. Jan. 14, 2016) Criminal RICO Prosecutions in PA (Rubin, Tucker, Hallinan/Neff)

22 The Current State Regulatory Environment Licensing Issues Unlicensed entities Recharacterization of purchase financing (e.g., litigation finance) Ancillary licenses (e.g., broker, servicer, debt collector) Referral fees Activities of licensees Usury limitations based on licensee status (MD, CT, CO) Other issues

23 The Current State Regulatory Environment Possible Future Enforcement Usury (Madden/True Lender) Fair Lending (consumer and small business) Broker pricing discretion Redlining cases Lending only to prime borrowers or in certain locations Small business finance recharacterization MCA and consumer Data security (new standards in NY and CA)

24 Implementation of 1071 Section 1071 stated purpose: to facilitate enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses.

25 Implementation of 1071 Amends ECOA to required financial institutions to report information concerning credit applications made by: Women-owned Minority-owned Small Business

26 Implementation of 1071 Notable milestone regarding the implementation of Section 1071: April 2016 Assistant Director for the Office of Small Business Lending Markets appointed April s 2017 CFPB Annual Fair lending reports identifies data collection under 1071 as one of 3 agencies fair lending priorities May 15th 2017 Field hearing, White paper and RFI on Small Business Lending issued comments due on Juley 14th June 8th Announcement at Consumer Advisory Board meeting that a 60 day extension for comments on Small Business Lending RFI

27 How Policy Changes Can Impact These Issues: National Charter OCC announced Special Purpose National Charter for nondepository lenders and money transmitters As originally proposed would have imposed significant, arguably excessive, requirements on applications

28 How Policy Changes Can Impact These Issues: National Charter Unclear what level of support is has with new leadership, though Acting Comptroller Keith Norieka has mentioned need to be open to new bank forms CSBS/NYDFS have filed suit to stop, OCC has requested extension of time to respond Litigation outlook unclear

29 How Policy Changes Can Impact These Issues: State Efforts States have announced Vision 2020 effort to make complying with multi-state regulation easier Does not address substantive differences in state law or need for multiple licenses State charters may be viable (Sofi has applied for a Utah ILC, but is planning to take deposits)

30 How Policy Changes Can Impact These Issues: State Efforts States could offer new types of charters, but may require changes to federal law FDIA largely assumes deposit taking

31 How Policy Changes Can Impact These Issues: Evolution of the CFPB Possibility for new leadership (eventually) Small Dollar credit rule may or may not be released and may or may not resemble proposal Some indication of interest in innovation at CFPB (alternative data RFI)

32 Questions and Conversation Today s presentation is interactive If you would like to ask a question, please type it into the Chat feature. We will address your questions at the end of the presentation

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