OCC and FDIC Propose “Madden Fix” Rules to Codify “Valid-When-Made” Principle

By: William S. C. Goldstein

New-Development-IconThe long-running saga of Madden v. Midland Funding is entering a new phase.  Last week, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) proposed rules that would codify the concept that the validity of the interest rate on national and state-chartered bank loans is not affected by the subsequent “sale, assignment, or other transfer of the loan.” See Permissible Interest on Loans That Are Sold, Assigned, or Otherwise Transferred, 84 Fed. Reg. 64229, (proposed Nov. 18, 2019); FDIC Notice of Proposed Rulemaking, Federal Interest Rate Authority, FDIC (proposed Nov. 19, 2019).  Under these rules, an interest rate that is validly within any usury limit for such a bank when it is made would not become usurious if the loan is later transferred to a non-bank party that could not have charged that rate in the first instance.

The proposed rules are a long-awaited response to the Second Circuit’s decision in Madden, which held that a non-bank purchaser of bank-originated credit card debt was subject to New York State’s usury laws.  786 F.3d 246, 250-51 (2d Cir. 2015).  In so holding, the Second Circuit cast doubt on the scope of National Bank Act (NBA) preemption, which exempts national banks from most state and local regulation, allowing them to “export” their home state interest rates without running afoul of less favorable usury caps in other states (FDIC-insured state banks are afforded similar protections).  Before Madden, it was widely assumed that “a bank’s well-established authority [under the NBA] to assign a loan” included the power to transfer that loan’s interest rate.  See Permissible Interest on Loans That Are Sold, 84 Fed. Reg. at 64231. The Madden decision also did not analyze the “valid-when-made” rule, a common law principle providing that a loan that is non-usurious at inception cannot become usurious when it is sold or transferred to a third party. See, e.g., Nichols v. Fearson, 32 U.S. (7 Pet.) 103, 109 (1833) (“[A] contract, which, in its inception, is unaffected by usury, can never be invalidated by any subsequent usurious transaction.”).  Madden has been widely criticized by a host of commentators, including the Office of the Solicitor General.

Continue reading "OCC and FDIC Propose “Madden Fix” Rules to Codify “Valid-When-Made” Principle " »


Final Version of the Big Data Interoperability Framework Released by NIST

By: Alexander N. Ghantous

Data  platformsThe National Institute of Standards and Technology (NIST) announced on October 29, 2019, that the final, nine-volume version of the “NIST Big Data Interoperability Framework” (Framework) has been published.[1]  The Framework, which was developed by NIST in collaboration with hundreds of experts from an array of industries, provides ways developers can utilize the same data-analyzing software tools on any computing platform.[2]  Under the Framework, analysts can transfer their work to different platforms and use more sophisticated algorithms without revamping their environment.[3]  This interoperability provides a solution to data scientists who are tasked with analyzing increasingly diverse data sets from a multitude of platforms.[4]  Consequently, it could also play a role in solving modern day difficulties that include, but are not limited to, detecting health-care fraud and issues that arise during weather forecasting.[5]

 

[1]Nat’l Inst. of Standards and Tech., https://www.nist.gov/news-events/news/2019/10/nist-final-big-data-framework-will-help-make-sense-our-data-drenched-age (Oct. 29, 2019).

[2] Id

[3] Id

[4] Id.

[5] Id


Big Data, Hedge Funds, Securities Regulation, and Privacy: Mitigating Liability in a Changing Legal Landscape

Abstract2-ATBi_600x285In an article published by Westlaw Journal Securities Litigation & Regulation, Partners Charles D. Riely and Keisha N. Stanford and Associate Logan J. Gowdey explain that the use of big data to analyze market activity is on the rise.  But with the opportunities that big data presents comes a complex regulatory landscape.  The authors introduce these issues and offer a starting point for general counsel and chief compliance officers to mitigate risks.

To read the full article, please click here.

 
 

Consumer Finance Observer – Fall 2019

CFOJenner & Block has published its second issue of Consumer Finance Observer or CFO, a newsletter providing analysis of key consumer finance issues and updates on important developments to watch.  As thought leaders, our lawyers write about the consumer finance sector on topics ranging from artificial intelligence, compliance, data security, FinTech, lending and securities litigation.

In the Fall 2019 issue of the CFO, our consumer finance lawyers discuss the use of alternative data; best practices to avoid TCPA wrong-number claims; the OCC’s FinTech Charter; the FTC monitoring of class action settlements; an Eleventh Circuit ruling in a TCPA case; a quick look at HUD’s FHA Lender Annual Certification Statements; FinCen's report on business email scams; and a brief history of the CFPB payday lending rule.  Contributors are Amy M. GallegosJoseph L. NogaMichael W. RossDavid P. Saunders and Damon Y. Smith; Associates Gabriel K. GillettWilliam S.C. GoldsteinOlivia Hoffman and Katherine Rosoff; and Staff Attorney Alexander N. Ghantous.

To read the full issue, please click here.


FTC Releases Guidance for Social Media Influencers

 

By: David D. Heckman and Kristen M. Iglesias

Social-media-influencerOn November 5, 2019 the Federal Trade Commission (FTC) released Disclosures 101 for Social Media Influencers, to provide guidance to social media users that recommend or endorse products in their posts, videos or other content (often called ‘influencers’).  Influencers have become big business, with millions of followers and payments of tens or even hundreds of thousands of dollars per post.  The FTC took action in 2017, sending educational warning letters to influencers and settling charges with two influencers popular in the online gaming community for failing to disclose that they jointly owned a gambling service they endorsed.  While the new guidance does not carry the force of law, it provides helpful insight into how the FTC views the issue and will approach enforcement. 

The FTC cites the need for disclosure of any “material connections” between the influencer and the brand or product being endorsed.  A material connection includes any financial, employment, personal, or family relationship with a brand or product.  The guidance specifies that a material connection should be disclosed by an influencer if they are being provided with any free or discounted products or other perks, even if the influencer is reviewing or endorsing a different product made by the same brand.  Additionally, the FTC guidance clarifies that influencers should disclose a material connection even if they believe their review of the product is unbiased.  Endorsement is similarly broadly defined, to include “tags, likes, pins, and similar ways of showing [the influencer likes] a brand or product.”

Continue reading "FTC Releases Guidance for Social Media Influencers " »


NY Action Against UnitedHealth Algorithm

-

By: Isabel F. Farhi

HealthcareOn  October 25, 2019, the New York State Department of Financial Services (DFS) and Department of Health (DOH) jointly sent a letter to UnitedHealth Group, Inc. (UnitedHealth) calling for the company to address its use of an algorithm it uses to make health care decisions, which a recent study had shown may have a racially discriminatory impact.

Specifically, researchers Ziad Obermeyer, Brian Powers, Christine Vogeli and Sendhil Mullainathan published an article in the periodical Science concerning “Impact Pro,” an algorithm UnitedHealth has used to identify patients who should receive the benefit of “high risk care management,” a service for patients with complex health care needs.[1]  According to one source, UnitedHealth licenses this algorithm to hospitals.[2]  The Science article describes how one metric the algorithm uses to determine eligibility for the program is the cost of patients’ previous health care.  Yet, as the article explains, black patients typically spend less money on health care, in part because of historic barriers to access due to poverty and in part because of historic distrust of doctors.  The article concludes that because of these systemic problems with the reliance on historic cost expenditures as an eligibility metric, two patients, one white and one black, with the same illness and complexity of care, could be treated differently when being considered for enrollment in the high risk care management program.[3]

Continue reading "NY Action Against UnitedHealth Algorithm" »


Texas Jury Awards $200 Million In Mobile Banking Patent Dispute

By: Benjamin J. Bradford IStock-1155413889

On November 6, a jury in the Eastern District of Texas awarded the United Services Automobile Association (USAA) a $200 million verdict finding that Wells Fargo willfully infringed two of USAA’s patents directed to the “auto-capture” process, which is used by banking customers to deposit checks using photographs taken from a mobile phone or other device.  (Civ. No. 2:18-cv-00245 (E.D. Tex.))  Based on the finding of willfulness, USAA may be entitled to enhanced damages beyond the $200 million verdict.

Despite the verdict, the fight between Wells Fargo and USAA is still ongoing.  Wells Fargo filed patent office challenges to the validity of USAA’s patents, which are still pending before the Patent Trial and Appeals Board, but may not be decided for another 15 months.  In addition, Wells Fargo will likely appeal the decision, including a recent denial of summary judgment that found the patents were not invalid under 35 U.S.C. 101.  Nevertheless, the verdict against Wells Fargo will likely embolden USAA to assert its patents against other banks and financial institutions that use an “auto-capture” process. 


The Intersection of the California Consumer Privacy Act and California’s Preexisting Consumer Protection Statutes

By Kate T. Spelman

CaliforniaWith the close of the California state legislative session on Sept. 14, 2019, the final shape of the California Consumer Privacy Act (CCPA)—which is set to take effect on Jan. 1, 2020—came into focus. The most recent amendments included carve-outs for business-to-business contracts and employee records, though both sunset after a year. While the statutory language is settled for now, many questions remain about how it will be enforced. The Attorney General has issued proposed regulations clarifying some of this uncertainty. However, one issue that may be left for future judicial interpretation is the interplay between the CCPA and California’s preexisting consumer protection statutes such as the Unfair Competition Law (UCL) and the Consumer Legal Remedies Act (CLRA). As discussed below, the CCPA contains an explicit prohibition, along with implicit safe harbors, likely to limit certain UCL and/or CLRA claims related to the use or disclosure of information subject to the CCPA.

The CCPA Likely Bars Derivative UCL Claims

The CCPA provides for enforcement by the Attorney General, but §1798.150(a) creates a private right of action for consumers whose personal information “is subject to an unauthorized access and exfiltration, theft, or disclosure as a result of the business’s violation of the duty to implement and maintain reasonable security procedures and practices.” Despite several legislative attempts to broaden the private right of action—which were supported by California’s Attorney general—it is currently limited to “violations as defined in subdivision (a),” precluding CCPA claims related to violations of other statutory provisions. (Notably, the CCPA contains no express provision permitting attorney fees for prosecution of claims under §1798.150, though plaintiffs’ attorneys may argue that such fees should be awarded as “other relief the court deems proper” (§1798.150(a)(1)(C)), or pursuant to the private attorney general attorney fee statute, CCP §1021.5.)

Continue reading "The Intersection of the California Consumer Privacy Act and California’s Preexisting Consumer Protection Statutes" »


California Attorney General Issues Proposed CCPA Guidelines

By: David P. Saunders

New-Update-IconOn October 10, 2019, the California Attorney General surprised many by issuing 24 pages of proposed regulations implementing the California Consumer Privacy Act of 2018 (CCPA).  After reviewing the proposed regulations, they have left many in the industry shaking their heads.  Absent from the proposed regulations is much of the clarity that industry participants were hoping for.  In its place are additional obligations that not only risk confusing consumers, but that likely will pose administrative and logistical challenges.

Public comment on the proposed regulations is open through 5:00 pm PST on December 6, 2019.  Interested parties can submit comments by e-mail to PrivacyRegulations@doj.ca.gov or by mailing comments to the Privacy Regulations Coordinator, California Office of the Attorney General, 300 South Spring Street, First Floor, Los Angeles, CA 90013.  Additionally, the Attorney General will be holding four public hearings on the new proposed regulations, the schedule of which is available here. 

In the meantime, let us examine the proposed regulations...

To read the full client alert, please click here


FinCEN Has Eye on Sports Betting, Crypto Money Laundering Risks

Casino1In an article published by Bloomberg, Partners Reid J. Schar and Wade A. Thomson and Associate E.K. McWilliams highlight a recent speech by the director of the Financial Crimes Enforcement Network (FinCEN), an arm of the Treasury Department.  Speaking at an anti-money laundering conference in Las Vegas, FinCEN Director Kenneth A. Blanco affirmed the Department’s commitment to enforcing the Bank Secrecy Act on casinos and other businesses that deal in cryptocurrency.  The authors give context to the speech and discuss its implications for brick-and-mortar and online gaming establishments.

To read the full article, please click here.