The California Department of Business Oversight (CDBO) recently concluded that the point of sale consumer financing programs offered by Sezzle, Inc., and another, unnamed party constituted making loans for purposes of the California Financing Law (CFL). A number of payment providers and technology companies have been developing innovative payment options, including consumer financing options, that are facilitated by advances in technology and mobile connectivity. Some market participants have structured their products such that a license should generally not be required under state law. The CDBO’s actions, however, may require companies to revisit that analysis and consider their licensing obligations.
On December 3, 2019, the five federal banking agencies1 issued a joint statement (the “Joint Statement”) regarding the use of alternative data for credit underwriting. The Agencies highlighted potential benefits that may arise from the use of alternative data, including the ability to make faster and more accurate credit determinations and the potential to provide credit at a lower rate or to individuals or small businesses that would otherwise be unable to access it. While the Agencies issued approving language regarding the use of certain types of alternative data, they also cautioned that the use of alternative data may have consumer protection implications, including fair lending, prohibitions against unfair, deceptive or abuse acts or practices and the Fair Credit Reporting Act.
On March 15, 2017, the Office of the Comptroller of the Currency published a draft supplement to the Comptroller’s Licensing Manual that sets forth details of the OCC’s proposal to accept applications from financial technology companies for special purpose national bank charters. The OCC’s guidance makes clear that it intends to hold fintech companies to the same chartering standards as entities seeking a traditional national bank charter and that there will be no “light-touch” supervision of chartered fintechs. While there may be debate over whether the guidance provides a viable alternative for organizing fintech firms, the OCC’s move signals their desire to modernize their licensing framework to keep pace with an evolving financial services industry. The OCC invites comment on the draft supplement through close of business on April 14, 2017.
The Office of the Comptroller of the Currency (OCC) has confirmed its intention to explore issuing limited-purpose national bank charters to fintech firms engaged in banking activities — commonly called the “fintech charter.” Earlier this year, the OCC had signaled this possibility. Now, through the release of a policy paper titled “Exploring Special Purpose National Bank Charters for Fintech Companies” (FinTech Paper) and a speech by the Comptroller on Dec. 2, the OCC has taken a more formal step.
On November 18, the Federal Trade Commission (FTC) issued final amendments to the Telemarketing Sales Rule (TSR) banning payment methods that the FTC believes are disproportionately used by scammers (the Final Rule). The Final Rule follows the notice of proposed rulemaking (NPRM) that the FTC published on July 9, 2013. While the Final Rule makes some modifications to the proposed amendments to the TSR that were included in the NPRM, the NPRM was not modified significantly and continues to ban remotely created payment orders (including remotely created checks), cash-to-cash money transfers and cash reload mechanisms in both inbound and outbound telemarketing.
In particular, the FTC rejected many industry comments on the grounds that the commenter did not provide examples or data to support its claims, highlighting the importance of hard evidence in making a case during the FTC’s rulemaking process. Moreover, although the American Bankers Association (ABA) argued that the proposed rule would be a direct and impermissible regulation of banks that exceeds the FTC’s authority, the FTC rejected the ABA’s position.
This Sidley Update briefly summarizes the key components of the Final Rule and the FTC’s analysis in support of its rulemaking.