CFPB Auto Lending Rule May Be on the Way Out

An Obama-era regulation intended to restrain discriminatory lending practices by automobile lenders appears to be on its way out.

On April 18, under the Congressional Review Act (CRA), the Senate voted to repeal the Consumer Financial Protection Bureau’s (CFPB’s) 2013 guidance on dealer markups in the automobile lending process. The CFPB’s guidance was in response to discriminatory lending allegations arising out of auto dealers’ use of third-party lenders to secure financing for consumer automobile purchases. When consumers purchase through dealerships, dealers will often coordinate indirect financing through a third-party lender. In some cases, dealers could charge consumers a higher interest rate than the rate quoted by the lender, also known as a “dealer markup.”

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Mulvaney Issues Report Outlining Proposals to Reform CFPB

Earlier this month, the Consumer Financial Protection Bureau (CFPB) issued its semiannual report (the “Report”) to the President and Congress. In the Report, Acting CFPB Director Mick Mulvaney proposes to significantly reform the CFPB’s structure and oversight. He claims that the structure of the CFPB “ignore[s] due process and abandon[s] the rule of law in favor of bureaucratic fiat and administrative absolutism.” (Report 2.) He offers four specific proposals to reform the agency.

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Tax Reform’s Impact on Financing Strategies

As more of the dust settles after the December 2017 passage of the Tax Cuts and Jobs Act, P.L. 115-97, borrowers and lenders alike are reconsidering their future financing strategies. One of the more significant changes in the tax law is the new limit imposed on interest expense deductions.

Prior to the passage of the tax reform bill, corporations could usually deduct the full amount of their business debt interest payments. The tax reform bill changed this for many taxpayers, including corporations, by imposing a limitation of the amount of the deduction based upon a formula.[1] The new formula generally caps the business interest deduction at the sum of “(A) the business interest income of such taxpayer for such taxable year, (B) 30 percent of the adjusted taxable income of such taxpayer for such taxable year, plus (C) the floor plan financing interest of such taxpayer for such taxable year.”[2] For most corporations, the practical result of the new tax provisions is that they can no longer deduct net interest expenses exceeding 30 percent of their earnings before interest, taxes, depreciation and amortization (EBITDA). This new challenge for heavily leveraged businesses will only increase in 2022, when the deduction must be calculated after computing depreciation and amortization expenses.

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Banks, Broker-Dealers and Other Financial Institutions Face May 11 Deadline To Comply with FinCEN’s Customer Due Diligence Rule

Six years after the Financial Crimes Enforcement Network (FinCEN) originally proposed its Customer Due Diligence (CDD) Rule, the deadline for financial institutions to comply draws near. Banks, broker-dealers, mutual funds and futures commission merchants and introducing brokers in commodities (“covered financial institutions”)[1] will have to start complying with the CDD Rule by May 11, 2018.[2] To comply with the primary change under the CDD Rule, covered financial institutions will now have to identify and verify the identity of beneficial owners of “legal entity customers” such as corporations, limited liability corporations, limited partnerships and general partnerships.[3]

Background: FinCEN initially proposed the CDD Rule in 2012,[4] arguing that requiring financial institutions to identify beneficial owners of accounts would help protect the U.S. financial system from criminal abuse and guard against terrorist financing, money laundering and other financial crimes. The proposal sparked significant response from the industry, with FinCEN receiving a total of 231 comments, many raising concerns about the costs and challenges of obtaining and verifying beneficial ownership information, and of implementing necessary system changes and training within FinCEN’s initially proposed one-year deadline. In response, FinCEN modified its original proposal somewhat. For instance, while FinCEN had proposed requiring firms to use a standard certification form to obtain beneficial ownership information, the revised rule permits, but does not require, use of the standard form. FinCEN also extended the original one-year compliance deadline to two years. FinCEN issued the revised rule as final in May 2016.[5]

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D.C. Circuit Overturns Parts of the FCC’s Expansive Interpretation of the TCPA

On March 16, a panel of the United States Court of Appeals for the D.C. Circuit issued a long-anticipated decision that vacated in part, and affirmed in part, portions of the Federal Communication Commission’s (FCC’s) July 10, 2015, Omnibus Declaratory Ruling and Order (the Order) that gave controversial interpretations of key provisions of the Telephone Consumer Protection Act of 1991, as amended (TCPA). In ACA International v. Federal Communications Commission, the court reviewed four main aspects of the FCC’s Order, upholding two provisions and setting aside two.

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Florida Passes Bill to Stop Bankruptcy Debtors From “Having Their Cake and Eating It Too”

On March 20, Florida Governor Rick Scott signed Senate Bill 220 into law. The bill is designed to limit the ability of defendants in foreclosure proceedings to keep contesting the foreclosure after agreeing, in bankruptcy, to surrender the property to their lenders.

By way of background, when an individual debtor files for bankruptcy, whether under Chapter 7 (liquidation) or Chapter 13 (reorganization), the debtor is required to make a statement under penalty of perjury as to how the debtor proposes to handle property that secures a debt, such as a home or a car. Broadly speaking, the debtor can choose to surrender the property, to redeem the property (by paying off the debt), or to retain the property and make payments on the debt going forward.

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A Guide to U.S. Regulation of Cryptocurrencies and Cryptocurrency Exchanges

The proliferation of Bitcoin and other cryptocurrencies has raised many questions about the legal status of these technologies and financial instruments and how their exchange should be regulated under federal and state money transmitter laws. Regulation of cryptocurrencies and exchanges is evolving quickly, and navigating the regulatory guidance requires careful consideration of both the guidance and the underlying business models. As new cryptocurrencies and exchanges launch,  understanding the regulatory landscape and adapting quickly adapt to changing rules will be imperative for companies eager to benefit from the massive growth of the cryptocurrency industry. Institutions must analyze the complex regulatory requirements put forth by Financial Crimes Enforcement Network (FinCEN), the Securities and Exchange Commission (SEC), state regulators, and others, as well as enforcement actions taken by the SEC and the U.S. Department of Justice. We have published in Bloomberg Law a Guide to address these important topics, and hope our readers find it helpful as they navigate the rapidly evolving legal landscape in this space.

CFPB Publishes Five-Year Strategic Plan

On Feb. 12, the Consumer Financial Protection Bureau (Bureau) published a revised version of its five-year Strategic Plan covering FY 2018 – 2022 (Plan). The Bureau is required to publish a five-year Strategic Plan in accordance with federal law. The Plan sets forth strategic expectations for the Bureau and differs significantly from the draft version issued in October 2017 under former Bureau Director Richard Cordray. From the length of the Plan and the tone of the mission statement to the re-branding of the agency as the “Bureau of Consumer Financial Protection,” the Plan lays the groundwork for a divergent course.

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FTC Reaches Settlement With Debt Collector; Imposes Financial Penalties and Other Remedies

On Dec. 5, 2017, the Federal Trade Commission reached a settlement with three defendants who it alleged partook in deceptive, abusive and unfair debt collection practices in violation of the Federal Trade Commission Act and the Fair Debt Collection Practices Act. Federal Trade Commission v. Hardco Holding Group LLC, 6:17-cv-01257 (M.D. Fla. Dec. 5, 2017).

In July, the FTC filed a complaint against defendants Hardco Holdings LLC, S&H Financial Group Inc., and Daryl Hall, alleging that they engaged in deceptive and abusive debt collection practices, including harassing consumers into paying debts not actually owed or that they had no authority to collect. The FTC alleges that, acting under various names to mislead consumers, including Alliance Law Group, the defendants contacted consumers and threatened them with imminent or pending legal action, including prison time, and claimed the police would come to their home and arrest them if they failed to repay their debt. In total, the complaint alleged two violations of the Federal Trade Commission Act and four violations of the Fair Debt Collection Practices Act. Id., Complaint at ¶ 28-44. Continue Reading

SEC Acts on Cryptocurrencies and ICOs

In the past few years, and particularly in the past few months, cryptocurrencies or digital currencies – most notably bitcoin and ether – have surged in popularity and dominated the financial press and to some degree even the mainstream media. The value of the most famous cryptocurrency, bitcoin, has reached historically high levels.

Given the increasing demand for cryptocurrencies, it is no surprise that market participants are responding and racing to satisfy that demand by producing more such currencies or so-called tokens representing the currencies. Additional currencies, or to be precise the tokens representing interests in such currencies, are produced and disseminated by a process colloquially known as an “initial coin offering” or “ICO,” not coincidentally a term which is similar to the better-known term “IPO.” As with all new technologies, regulators have been slow to catch up, but they now appear to have done so. Continue Reading