FinTech Law TL;DR (May 1)
Will the real true lender please stand up / please stand up / please stand up?
Hi all 👋
Lots of new folks this week thanks to Ron Shevlin including this newsletter in his top 5 free fintech and crypto newsletters. Welcome (and thanks, Ron)!
If you want to come work with me, BlueVine is looking for a Product Counsel and BSA/AML Manager.
So what’s gone on in FinTech legal land this week?
True Lender
True lender is heating up:
What: This doctrine says third parties who, e.g.,1 buy loans from a bank can rely on the interest rate laws that applied when a bank made the loan (because the bank is the “true lender”). So if a bank makes a loan in Utah, a FinTech in Idaho can buy the loan from the Utah bank and not worry about Idaho’s interest rate caps.
Background: Back in 2020, the OCC issued a rule saying that third parties could rely on the true lender doctrine for national banks.
What Happened: Senate Democrats have introduced a bill that undoes the OCC’s rule. Several state attorneys general recently submitted a letter urging the repeal of this rule. And the Senate Banking Committee had a hearing on it this week. Whether the bill passes in the Senate is up in the air.
So What: If the OCC’s true lender rule is repealed, that makes national bank-FinTech partnerships less certain. But the rule just provided a safe harbor of sorts. And there’s another doctrine FinTechs can turn to.2 So it’s not terminal.
Some Nuance: You may hear these bank arrangements called “rent-a-bank” partnerships, usually in the context of payday lenders. But “rent-a-bank” refers to scenarios where the bank was not liable. So if the lender wronged you and disappeared, you had no one to sue. In contrast, under the OCC’s rule, banks are liable. Skin in the game!
CFPB Complaint Bulletin
The CFPB issued a bulletin on consumer complaints from the past year broken down by county. Two lowlights:
Complaints increased from ~350K in 2019 to ~514K in 2020.
Complaints increased more in predominantly minority communities.
CA’s Debt Collection Advisory Board
Ohad Samet joined CA’s Debt Collection Advisory Board! The board was recently created to advise the state on how it can best regulate debt collection.
Debt collection is going to be an area of regulation in the coming years. Just this week, in fact, CA’s financial regulator specifically said debt collection is one of its priorities.
So it’s great to see a FinTech thought-leader on the board, especially one from TrueAccord. 💪
Paxos Trust Charter
The OCC conditionally approved a national trust bank charter for Paxos:
Paxos is a blockchain infrastructure platform. I had no idea what that meant, either; they help connect traditional financial firms to crypto markets by providing custody, payment, KYC, stablecoin reserve management, and other services.
National trust banks can’t take deposits (so your assets aren’t insured!). But they can act as wealth managers, brokerages, and custodians.
Paxos already has a NY state trust charter. But now it’ll be able to conduct business across state lines more easily.
Paxos is the third crypto firm to get an OCC trust charter (see also Anchorage and Protego). This approval shows regulators increasing comfort with methods for custodying crypto.
Paxos also raised $300M this week. This raise may be driven more by regulatory considerations than VC-growth; new banks and trusts often need capital infusions to meet reserve requirements. My guess is OCC approval and the investment were conditioned on each other.
Elsewhere…
China's regulators told big tech companies they can’t provide financial services beyond basic payments.
The Supreme Court took away some of the FTC’s consumer protection powers.
Ireland is imposing more stringent AML/KYC requirements on crypto firms.
Mitchell Baldridge breaks down parts of the current proposed tax reform.
Turkey’s central bank banned crypto, but the government says it’s working on regulations to allow it.
The European Commission proposed AI regulations.
Sui Generis (Fun Finds)
WSJ has a fun piece of Elon Musk’s “regulatory entrepreneurship.” Best part: “When asked to comment on the specifics of this article, Mr. Musk replied with a ‘poop’ emoji.” 💩
TIL: In 1958, Congress passed the Onion Futures Act, which bans futures contracts on onions. Also, it bans futures on box office receipts? See also, the NPR episode on the law.
Until next week…
About
I’m Reggie, come say hi. Any views expressed are my own (well, sort of? I mean, they’re laws and regulations, so they’re not really “mine”?). Nothing here is legal or financial advice.
Here are the foundational FinTech laws and regs if you want a closer look at anything.
“E.g.” = for example. It’s a lawyer thing, sorry, I can’t help it.
“Valid When Made” which says you can rely on the interest rate laws of the originating bank if the loan was…well, valid when made. But a court case last year (Madden) threw that doctrine into question, too.