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May 2019

SDNY Decision Blocks National Bank Charters for FinTech

By William S. C. Goldstein

FintechEarlier this month, a federal district court in New York handed a win to the New York State Department of Financial Services (DFS) in its long-running, closely watched suit seeking to block the Office of the Comptroller of the Currency (OCC) from issuing national bank charters to non-bank financial technology (FinTech) companies that don’t receive deposits.  Judge Victor Marrero denied most of OCC’s motion to dismiss and found the agency’s interpretation of the National Bank Act, 12 U.S.C. § 21 et seq., to be unpersuasive.  Vullo v. Office of the Comptroller of the Currency, No. 18-cv-8377, 2019 WL 2057691, at *18 & n.13 (S.D.N.Y. May 2, 2019).  DFS’s suit has significant stakes for the FinTech industry: under the United States’ dual banking system, nationally chartered banks are regulated primarily by OCC and avoid the application of most state laws and regulations through federal preemption, while financial institutions without national bank charters are generally subject to state oversight—and non-bank institutions are often regulated by multiple states. Id. at *8.  Judge Marrero’s decision casts doubt on whether comprehensive, uniform regulation of FinTech companies can be achieved without congressional action.

The OCC allegedly first began considering whether to accept applications from FinTech companies for special purpose national bank (SPNB) charters in early 2016, pursuant to a 2003 regulation authorizing such charters for entities engaged in “at least one” core banking function: receiving deposits, paying checks, or lending money. Id. at *2 (quoting 12 C.F.R. § 5.20(e)(1)(i)).  DFS first sued OCC in 2017, arguing that the National Bank Act (NBA) prohibits charters from issuing to entities that don’t receive deposits and that to issue them would violate the Tenth Amendment of the Constitution.  That suit was dismissed without prejudice in December of 2017 on justiciability grounds after Judge Naomi Reice Buchwald found that DFS had not suffered an injury in fact and that its claims were not ripe. Id. at *3.  After OCC announced in July of 2018 that it would begin accepting applications from non-depository FinTech companies for SPNB charters, DFS sued again, under the Administrative Procedure Act (APA) and the Tenth Amendment, to prevent OCC from issuing any charters and to invalidate the underlying regulation.  OCC moved to dismiss this past February, arguing that DFS lacked standing, its claims weren’t ripe or timely, and that on the merits it failed to state a claim. Id. at *4.  Judge Marrero issued a decision on OCC’s motion on Thursday, May 2.

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The CFPB Rolls Out New Regulations for Debt Collection

By Amy Egerton-Wiley

CallDebt collectors have for years sought guidance on how and when digital messages could be sent to contact consumers.  On Tuesday, the Consumer Financial Protection Bureau (CFPB) announced a notice of proposed debt collection regulations that would provide that guidance.  The new regulations would expand the potential avenues by which debt collectors could contact consumers and would establish a host of other regulations that would alter debt collection practices.  The proposed rulemaking announced by the CFPB is more than 500-pages long and would be the first substantive rules to interpret the Fair Debt Collection Practices Act, which regulates the debt collection industry. 

The CFPB identified several main highlights that the proposed rulemaking would achieve, including establishing a bright-line rule limiting call attempts and telephone conversations, clarifying consumer protection requirements for certain consumer-facing debt collection disclosures, clarifying how debt collectors can communicate with consumers, prohibiting suits on time barred debts, and requiring communication before credit reporting. 

The new regulations would allow debt collectors to expand methods of communicating with consumers, such as exploring WhatsApp or other online models.  They also, however, restrict the abilities of debt collectors to contact consumers.  For example, the proposed rules would cap the number of times a debt collector could call a consumer to seven times in one week, and once the debt collector reached the consumer, it would not be able to contact the individual again for another week.  The bureau cited increased clarity and modernizing the legal regime as its goal for the new regulations. 

The CFPB’s statement and proposed rules can be found here.

US Supreme Court Holds that Classwide Arbitration is Unavailable Unless the Parties Clearly Agree to It


By: Michael T. BrodyGabriel K. GillettHoward S. Suskin and Adam G. Unikowsky

Supreme Court Pillars - iStock_000017257808LargeOn April 24, 2019, the US Supreme Court issued its decision in Lamps Plus, Inc. v. Varela, No. 17-988, holding that classwide arbitration is not available unless clearly authorized by the parties.[1]  In a 5-4 decision authored by Chief Justice Roberts, the Court reasoned that when an arbitration agreement is ambiguous or silent about classwide arbitration, the parties have not actually agreed to it.[2]  As a result, the Federal Arbitration Act (FAA) does not allow a party to be forced into classwide arbitration based on an ambiguous agreement, even if state-law contract interpretation principles would construe ambiguity against the agreement’s drafter.[3]

Lamps Plus is just the latest in a long string of victories for arbitration advocates.  Building on prior decisions rejecting classwide arbitration in the consumer and employment contexts, the Court has now suggested that classwide arbitration is presumptively unavailable and that a clear expression of intent is required to overcome that presumption.  The practical result is that classwide arbitration may only be available against corporate defendants that specifically subject themselves to it.  And that may be a null (or very small) set, at least for companies that take the majority opinion’s view that classwide arbitration “‘sacrifices the principal ad­vantage of arbitration—its informality—and makes the process slow­er, more costly and more likely to generate procedural morass than final judgment.’”[4]

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The Consumer Welfare Standard on Shaky Ground?


By: Lee K. Van Voorhis and Eugene Lim

City-community-crossing-109919For the past forty years, the consumer welfare standard (CWS) was the consensus economic model that antitrust enforcement agencies used to determine whether a company’s behavior necessitates antitrust action.  The CWS became mainstream after former DC Circuit Justice Robert Bork published his exceedingly influential The Antitrust Paradox in 1978.[1]  The book argued that antitrust laws were created to maximize consumers’ benefits, which meant focusing on surplus gains for consumers while disregarding efficiency gains for producers. The US Supreme Court quickly solidified Bork’s views in Reiter v. Sonotone Corp.[2]  The CWS has since provided more predictability in antitrust enforcement, narrowing its focus purely on consumer prices.[3]

However, critics are now voicing concerns that it is time to broaden the factors analyzing what benefits consumers.  Critics have advocated that antitrust enforcement should be determined by a “total welfare standard" (TWS) instead.[4]  Note that it is not clear whether the TWS is best for any particular political point of view.  On the one hand, the standard considers whether mergers could lead to higher unemployment, or harm the environment.  On the other hand, the standard would allow some mergers that result in higher prices to consumers, but have benefits that outweigh those higher prices.

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No Circuit Split Yet on Constitutionality of CFPB

By Jessica Ring Amunson

New-Development-IconIn a highly anticipated decision, the Ninth Circuit recently held that the target of a civil investigative demand from the Consumer Financial Protection Bureau (CFPB) could not avoid responding to the demand on the grounds that the CFPB itself is unconstitutional.  The Ninth Circuit thus joined the en banc DC Circuit in upholding the constitutionality of CFPB’s single-director, for-cause removal structure.  However, a circuit split may yet emerge with cases still pending before both the Second and Fifth Circuits raising the same issue.

In CFPB v. Seila Law LLC, the CFPB issued a civil investigative demand seeking to determine whether Seila violated the Telemarketing Sales Rule in the course of providing debt-relief service to its clients.  Seila refused to comply, arguing that the civil investigative demand was invalid because the CFPB is unconstitutionally structured.  According to Seila, not only was the civil investigative demand unlawful, but everything the agency has done is also unlawful because the agency’s structure violates the separation of powers.  The agency is headed by a single director who can be removed by the President only for cause.

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New Indictment a Reminder of CPSC’s Enforcement Capabilities

New-Update-IconOn March 29, 2019, the Department of Justice announced that it had indicted for the first time two corporate executives for failing to furnish information under the Consumer Product Safety Act (CPSA).  The government alleged that the two individuals – executives of companies that imported, distributed and sold dehumidifiers – had failed to timely report known defects in the products to the Consumer Product Safety Commission (CPSC).  In an article published by the New York Law Journal, Jenner & Block Partner Anthony S. Barkow and Associate Danielle Muniz discuss this recent indictment and the sometimes overlooked enforcement capabilities of the CPSC, the federal agency that enforces the CPSA. 

To read the full article, please click here.