Steve Pearlman

To the likely surprise of providers of buy now, pay later (BNPL) financing, the #CFPB recently issued an interpretative rule stating that BNPL products are actually "credit cards" under the Truth in Lending Act and BNPL providers are "card issuers" and therefore "creditors" under, and subject to, Regulation Z. Scott Pearson, Bryan Schneider and Eric Knight explain the significance here:

1

Beneficial Ownership Interest (BOI) Reporting - a crucial task for GPs of SPVs (LLCs) before year-end. Just learned from my CPA that all GPs and LPs need to be filed, including Names, DOB, Addresses, and a photo ID. Best of luck to all GPs gathering this data on time. Many might not be aware of this new requirement, leading to significant penalties for missing the deadline. #Compliance #Reporting #Deadline #CPA #SPVs #LLCs

7

S&P Global Ratings' Quarterly Banking Update is loaded with insights and snazzy charts. The two parts that really spoke to me were: 🔶 Slides 9-10 show continuing #NIM compression. Banks should be looking to #CRT as a way to grow higher rate lending capacity without having to recognize unrealized losses in their existing book. 🔶 Slide 22 shows the increase in lending to nonbank financials (e.g., fund finance, warehouse, private credit, indirect consumer). Banks that have not converted these asset classes to securitization structures should look into it as an easy way to optimize capital. https://lnkd.in/eMna4r-D

12

The Consumer Financial Protection Bureau (CFPB) has shared plans to classify certain data brokers as 'consumer reporting agencies' under the Fair Credit Reporting Act (FCRA). The CFPB Director stated that the agency is exploring policies to 'ensure greater accountability' for companies involved in buying and selling consumer data. This aligns with an executive order issued by President Joe Biden in late February to prevent data from being shared with foreign adversaries. Read more: https://lnkd.in/g3YrzSHM #FCRA #CFPB #DataBrokers #DataPrivacy

8

Our mid-year report, "Ten Key Regulatory Challenges of 2024," is now available. We are in a year of Regulatory Challenge marked by significant financial fines- including the largest single settlement ever a staggering $4.3B across DOJ, CFTC, FinCEN and OFAC for AML/sanctions compliance. KPMG Regulatory Insights offers a roadmap to navigate these challenges. https://bit.ly/4bXFLfc #RegulatoryInsights #RiskManagement

9

On June 3, 2024, the Consumer Financial Protection Bureau (CFPB) issued the Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders Final Rule. This new regulation mandates certain nonbank entities to register information about their company and certain orders, as well as submit copies of those orders, to the CFPB. This rule, effective on September 16, 2024, represents a significant change in compliance requirements for many nonbank financial service providers. For emerging fintech companies and their affiliate service providers, understanding and adhering to this rule is crucial. Read more: https://lnkd.in/eKvHsyuG #Fintech #CFPB #Compliance #Startups #NonbankRegulation #FinancialServices #LegalUpdate

3

Simple reminder, if fintech companies are going to do business with banks, know that your BSA/AML program will be part of the vendor due diligence review. Likewise, fintech companies need to be diligent in reviewing their vendor's BSA/AML to protect themselves. https://lnkd.in/gG7Y2b4Z

4

It's not just for community banks . . . Today, the OCC, the Fed, and the FDIC issued this new Guide for Third-Party Risk Management, noting it may be helpful for all banks—and their Fintech, service provider, and vendor partners). Nothing earth shaking in here but consider it your preview of the examination questions that may come from your friendly financial regulator. https://lnkd.in/e_33r7ar #consumerprotectioncompliance #amlcompliance #bankfintechpartnerships

20

Skiptism runs supreme. Regulators have drummed for simplification of banks. This is clarion call seems to be cast aside by bank CEOs. Cap1 expects regulators to come down on Cap1's assertion that the deal improves competition. Ignoring the current regulatory concerns of unsafe and unsound business practices, rooted in banks cutting corners to save costs and settlings for passing compliance grades. Taxpayer bailouts are not in the offing, especially for cutrate business practice choices. Executives will have to emerge into C-Suites skilled at growing their business without M&A options. Perhaps this means burning the ol' playbook of cutting costs when earnings plans are missed. Finding a new tactic, perhaps restructuring executive compensation could be a new dawning. #banks #mergersandacquisitions #regulatoryactions

1

The Consumer Financial Protection Bureau (CFPB) has turned its attention to the gaming industry, highlighting serious concerns about payment practices. Please read the latest analysis from Hudson Cook, LLP partners Justin Hosie, Julia Whitelock, and Jason Esteves and what it could mean for the future of gaming transactions. #cfpb #gaming #paymentpractices

8

FYI-The Consumer Financial Protection Bureau will track non-bank firms that violate consumer laws CFPB has finalized a rule defining the qualifications for recognized industry standard-setting bodies. These bodies issue standards that companies can use to comply with the upcoming Personal Financial Data Rights Rule. Finalized on June 5, 2024, the rule sets out the attributes required for standard-setting organizations to gain CFPB recognition and details the application process, “Industry standards can be weaponized by dominant firms in order to maintain their market position, undermining competition for all,” said CFPB Director R. Chopra. “The rule will prevent firms from rigging standards in their favor identifying attributes the CFPB will use to gauge behaviors of these firms. The CFPB aims to accelerate the shift to open banking in the United States. Congress enacted personal financial data rights in 2010, ensuring consumers control over their financial data. This move is expected to create more opportunities for smaller financial institutions and startups. These rights have not fully taken effect as the CFPB had not previously issued a rule. In 2023, the CFPB proposed a rule to implement these rights, which will be finalized. Under the forthcoming Personal Financial Data Rights rule, companies will be allowed to use technical standards developed by approved standard-setting organizations. Violators will soon have to register with the Bureau. The CFPB will track non-bank firms that violate consumer laws Standard-setting bodies must demonstrate several key attributes: Openness: The organization must be open to all interested parties, including public interest groups, app developers, and various financial firms. The CFPB will deny recognition to anybody rigged in favor of specific industry players. Transparency: Procedures must be transparent to participants and publicly available. Balanced Decision-Making: Decision-making power must be balanced across all interested parties, including consumer groups and both large/small commercial entities. No single special interest can dominate. Consensus: Standards development must proceed by consensus, considering comments and objections through fair and impartial processes. Due Process and Appeals: The organization must use documented policies & procedures, provide adequate notice of meetings, time for reviewing drafts, access to views and objections, and a fair process for resolving conflicts. An appeals process will be available for procedural disputes. Empowering Open Banking: CFPB’s Game-Changing Rule for Financial Freedom This rule marks a significant step towards open banking in the U.S., ensuring consumers have control over their financial data. Aiming to level the playing field by preventing dominant firms from manipulating industry standards to their advantage. By promoting fairness and transparency, the CFPB expects to foster innovation and competition in the financial sector.

1

Financial Crimes Enforcement Network, US Treasury released a 15-page advisory regarding #fentanyl. I'll say it again - if your #AML system does not allow you to operationalize these advisories, you need to get a new one. If your AML system says - don't worry, we have this covered... they don't. They can't. YOU as the AML Officer are the one that needs to be tailoring these advisories for your customer base. I encourage you to read the pdf below as there are several interesting red flags... but of course, below are the key takeaways: 1) Payment processors and e-commerce sites - you'll find that I have repetitive comments embedded throughout the document. They are unregulated (AML)... so, if you are a merchant acquiring #bank or a sponsor bank. You must ensure that your payment processors (both inbound and outbound rails for e-commerce sites) get this advisory and do something with it. Ask them to verify the industries of their #merchants. What are they doing for to monitor for this? (they will say nothing because there's no chargebacks) This is my hill. And I will not stop. Do we think that these criminals don't know about these loopholes?? 😑 2) All the red flags (14 of them) will live and die on good #data. Do you really know your business customers? Are your NAICS complete? Accurate? Appropriately assigned a risk rating? There are many NAICS related to chemicals and machine equipment. Ensure your high-risk customer criteria appropriately assigns risk scores to these. 3) If your bank thinks you don't have "risk" in this area, but you haven't done the work and developed a #threat landscape (customer and transactional), then you should start now. 4) This advisory is not just for tradFIs... but "brokers or dealers in #securities, mutual funds, and futures commission merchants and introducing brokers in commodities (FCM/IBs)". 5) If your FI does not business with any chemical or manufacturing equipment companies (I'm talking to you, #communitybanks)... ask them to certify they are not dealing with the precursor chemicals listed - see footnote 8, pg. 2. 6) Seeing payments to from MX and China? Dig deeper. Look for indicators of shell and front companies. 7) Negative news and keyword searches for related businesses will be vital in this hunt as well. Make them laser focused to your threats. There were many updates to the #OFAC list as well today. And so proud of the work that IRS Criminal Investigation and Lauren Kohr are doing to bring together the power of the PPP. Their initiatives along with FIs that will operationalize these advisories will go a long way in stopping the damage that fentanyl is doing to our communities. #ifollowdirtymoney #sanctions

277

25 Comments

Your DATA and the Banking World Back in October, the Consumer Financial Protection Bureau (CFPB) made public a new rule about data and data sharing. And it wasted no time signaling the intent behind it. In a press release issued Oct. 19, the CFPB said Rule 1033 “would accelerate a shift toward open banking, where consumers would have control over data about their financial lives and would gain new protections against companies misusing their data.” Kim Funari, vice president of regulatory compliance at i2c, agreed. She said the CFPB’s proposed rule on data handling and data rights will hasten the shift to open banking in the United States. As she told PYMNTS, Rule 1033 represents a move toward “consumer empowerment.” “All companies will be using the same formats and the same security rules,” Funari said. “It’s really leveling the playing field across the financial institutions and across the industry.” Section 1033 of the Consumer Financial Protection Act, part of Dodd-Frank, turns over the financial data owned by the consumer to the consumer to price check and weigh options, to take competitive bids from providers. At a high level, 1033 — beyond making data available to consumers and third parties — includes a mandate to standardize the formatting of that data.

1

Our mid-year report, "Ten Key Regulatory Challenges of 2024," is now available. We are in a year of Regulatory Challenge marked by significant financial fines- including the largest single settlement ever a staggering $4.3B across DOJ, CFTC, FinCEN and OFAC for AML/sanctions compliance. KPMG Regulatory Insights offers a roadmap to navigate these challenges. https://bit.ly/4bXFLfc #RegulatoryInsights #RiskManagement

10

New guidance from a trio of regulators designed to aid community banks in their management of third-party relationships is a welcome sign in the industry. Partner and U.S. Head of Community Banking, John Soffronoff tells Banking Dive the guidelines provide a good roadmap for community banks to evaluate their third-party relationships throughout their entire lifecycle. Click on the image below to learn more about what John has to say ⬇️ #Communitybanking #Risk #Financialservices

4

Recent fintech events have provoked a renewed wave of calls for some kind of national fintech or payments charter. This recent op ed by Alex Johnson is a great example: https://lnkd.in/gCJxYwGp Also on Thursday, Acting Comptroller Hsu concluded that “Rather, tailored federal payments regulation and supervision is needed.” (link 👇) In theory, I’m all in favor - the electronic money and payments regimes work well in the EU and UK. In practice, I fear it would have the same problem as the hero in Dr Seuss’ I Had Trouble In Getting to Solla Sollew. If you don’t know the book, it involves an arduous journey to Solla Sollew, “where they never have troubles! At least, very few”. Our hero gets there, only to discover that a Seussian creature is preventing anyone from getting in. What’s that got to do with financial regulation? I doubt that a ‘key-slapping slippard’ is preventing the Fed, OCC, and FDIC from approving new charters and master account access, But nevertheless they’ve been highly disinclined to grant access for fintech companies. Financial innovation in the US relies on being able to find ways to get to market. I can’t see the current group of federal regulators being prepared to approve PayPal in 2000, Square in 2008, Coinbase in 2013, or Chime in 2014. Simply put, we can’t risk putting financial innovation on hold in the US for years at a time every time the regulatory pendulum swings to the lower risk end. And that’s without considering that, in a post-Chevron world, Congress would almost certainly need to pass an enabling law. At the end of the book, our hero declines the chance to go to Boola Boo Ball, where “They never have troubles! No troubles at all!”. Instead, he decides to stop looking for a miracle solution and instead confront his troubles head on. No-one in their right mind would say that either partner banking or U.S. state regulation of non-bank financial institutions is anything close to ideal. But it's what we have to work with. So we should look to confront our troubles and make the existing system better rather than searching for implausible utopias. Over the next few weeks, I’ll be posting about some ideas for making existing systems safer for consumers and small businesses. If there are specific aspects you’d like me to hit on, please add them in the comments or message me.

63

14 Comments

Another bank bites the dust: Republic First fails and is assumed by Fulton Bank. A further sign of a banking apocalypse? No, as this was a Bank with lots of management issues. However, it remains a troubling indicator of future failures, primarily tied to imbalanced investment in low-yield US treasuries and low-rate mortgages, as well as the doom loop of commercial real estate. #bankfailures #cre #bankregulation #fdic #mortgages

4

I am not commenting on the merits of the case, but today the Supreme Court ruled that the funding structure for the CFPB is constitutional. This outcome avoids a lot of swirl and uncertainty for many industries. If the Supreme Court had ruled that there was a fundamental flaw with the way the CFPB was established and funded, then many of the CFPB decisions that many industries, including the collections industry are operating under could have been subject to change, reversal, and even the potential for chaos. #CFPB #Collections https://lnkd.in/dVvbx3wx

7

1 Comment