Special Alert: NYDFS Stakes Claim on Cybersecurity Regulation

On September 13, the New York Department of Financial Services (DFS) issued a proposed rule establishing cybersecurity requirements for financial services companies, and has thus ventured into new territory for state regulators. In the words of Governor Cuomo, “New York, the financial capital of the world, is leading the nation in taking decisive action to protect consumers and our financial system from serious economic harm that is often perpetrated by state-sponsored organizations, global terrorist networks, and other criminal enterprises.”

Given the concentrated position of financial service companies in New York and the regulation’s definition of a Covered Entity – which includes “any Person operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the banking law, the insurance law or the financial services law” – it could create an almost de facto national standard for medium to large financial services companies, regardless of where they keep their servers or suffer a cyberattack. This type of state-level regulation is not unprecedented. In 2003, California passed a data breach notification law that requires companies doing business in California to notify California residents of the breach and more recently amended the law to require 12 months of identity protection and strengthen data security requirements. In 2009, Massachusetts enacted a regulation mandating businesses implement security controls to protect personal information relating to state residents.

The DFS designed the regulation to protect both consumers and the financial industry by establishing minimum cybersecurity standards and processes, while allowing for innovative and flexible compliance strategies by each regulated entity. Yet the proposed regulation goes further than to just ask financial entities to conduct a risk assessment and to design measures to address the identified risks.

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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

 

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Special Alert: More Turbulence for Marketplace Lending – CFPB Prevails in “True Lender” Litigation

After what seems to be an extended season of heavy weather for marketplace lending, a federal district court in California unleashed a late-Summer lightning storm in Consumer Financial Protection Bureau v. CashCall, Inc. In a CFPB action leveled against the so-called “tribal model” of online lending, the court held that defendants, CashCall and its affiliated entities and owner, engaged in deceptive practices by collecting on loans that exceeded the usury limits in various states. Although the case focused on the tribal model – a structure where the loan is made by an entity located on tribal land and subsequently transferred to an assignee not affiliated with the tribe – the court’s opinion raises critical issues about the extent to which its analysis applies to the more common “bank partnership model” of marketplace lending.

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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

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Special Alert: Department of Defense Issues Interpretive Rule Regarding Compliance with the Military Lending Act

Today, the Department of Defense (“DoD” or “Department”) published in the Federal Register an interpretive rule regarding compliance with its July 2015 amendments to the regulations implementing the Military Lending Act (“MLA”). The July 2015 amendments will extend the MLA’s 36% military annual percentage rate (“MAPR”) cap, ban on mandatory arbitration, and other limitations to a wider range of credit products—including open-end credit—offered or extended to active duty service members and their dependents (“covered borrowers”). Compliance is mandatory beginning on October 3, 2016, except that credit card issuers have until October 3, 2017 to comply. Additional BuckleySandler materials on the MLA amendments are available here, here, and here.

DoD stated that the interpretive rule “does not substantively change the [July 2015] regulation implementing the MLA, but rather merely states the Department’s preexisting interpretations of an existing regulation” and thus is effective immediately upon publication. The DoD also emphasized that the guidance provided in the rule “represent[s] official interpretations of the Department….”

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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

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Special Alert: CFPB Finalizes Amendments to Mortgage Servicing Rules

On Thursday, the CFPB issued its long-awaited final amendments to the mortgage servicing provisions of Regulations X and Z. The Bureau had sought comment on the proposed rule in December 2014, more than 18 months ago. Spanning 900 pages, the final rule makes significant changes that will impact servicers even as it clarifies several points of confusion with the existing regulations. Most significantly, the amendments extend existing protections to successors in interest and borrowers who have previously been evaluated for loss mitigation under the rules, brought their loans current, and then experienced new delinquencies. The amendments also require servicers to provide modified periodic statements to borrowers in bankruptcy. In coordination with the final amendments, the Bureau published an interpretive rule under the Fair Debt Collections Practices Act (FDCPA) to address industry concerns about conflicts with the servicing rules.

A summary of the key amendments is provided below. Unless otherwise stated below, the amendments take effect 12 months from the date of publication of the rule in the Federal Register, which has not yet occurred. If recent experience is any guide, we anticipate that publication in the Federal Register may be delayed for as long as a month, given the length of the final rule, commentary, and preamble.

Please join BuckleySandler attorneys Ben Olson, Michelle Rogers and Kitty Ryan for a webinar on September 7 to further discuss the amended rules and their compliance, examination and enforcement implications. Invitation and registration information to follow.

Click here to view the full Special Alert.

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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

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Special Alert: CFPB Proposes Amendments to Know Before You Owe/TRID Rule

On Friday, the CFPB issued its much anticipated proposal to amend the KBYO/TRID rule. The CFPB crowded dozens of proposed changes into the almost 300 page proposal, most of which are highly technical and require careful examination. As the Bureau has signaled since its intention to issue amendments was first announced, the proposal is not intended “to revisit major policy decisions” because “[t]he Bureau is reluctant to entertain major changes that could involve substantial reprogramming of systems so soon after the October 2015 effective date or to otherwise distract from industry’s intense and very productive efforts to resolve outstanding implementation issues.” However, it has “proposed a handful of substantive changes where it has identified a potential discrete solution to a specific implementation challenge.”

If finalized, the amendments should resolve a number of significant ambiguities that have generated concerns about the liability of lenders and purchasers of mortgage loans and hampered loan sales, particularly the so-called “Black Hole” that can arise when closing is unexpectedly delayed. However, because it is unclear in most cases whether the Bureau intends the amendments to apply only prospectively and because the amendments would not alter the provisions for “curing” errors, these liability concerns will remain for loans originated prior to the effective date of the amendments. Furthermore, because the industry has been forced to make loans since October 2015 despite these ambiguities, it will be necessary in many cases to revise existing systems and practices to comply with the amended rule. Finally, in some cases, the Bureau seems to have gone beyond resolving ambiguities and is instead seeking to make targeted policy changes to the rule.

Although the proposed amendments are too voluminous and technical to be summarized comprehensively, we have highlighted a number of the more significant proposed changes below. Note that the CFPB specifically requested feedback on a number of the issues addressed in the proposal. Comments are due on or before October 18, 2016.

Click here to view the full Special Alert.

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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

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