DOCSLIB.ORG

The Regulation of Marketplace Lending: a Summary of the Principal Issues

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
The Regulation of Marketplace Lending: a Summary of the Principal Issues The Regulation of Marketplace Lending: A Summary of the Principal Issues Charlotte Chicago New York 201 South College Street, Suite 1600 111 West Monroe Street 1270 Avenue of the Americas, 30th Floor Charlotte, NC 28244-0009 Chicago, IL 60603-4080 New York, NY 10020-1708 The Regulation of Marketplace Lending: 980.495.7400 312.845.3000 212.655.6000 Salt Lake City San Francisco Washington, DC A Summary of the Principal Issues 215 South State Street, Suite 800 595 Market Street, 26th Floor 1717 Rhode Island Avenue NW, Suite 800 Salt Lake City, UT 84111-2339 San Francisco, CA 94105-2839 Washington, DC 20036-3026 801.533.0066 415.541.0500 202.478.6444 April 2019 Update chapman.com THE REGULATION OF MARKETPLACE LENDING: A Summary of the Principal Issues April 2019 Update Marc Franson Peter Manbeck* This document has been prepared by Chapman and Cutler LLP attorneys for information purposes only. It is general in nature and based on authorities that are subject to change. It is not intended as legal advice. Accordingly, readers should consult with, and seek the advice of, their own counsel with respect to any individual situation that involves the material contained in this document, the application of such material to their specific circumstances, or any questions relating to their own affairs that may be raised by such material. The publication and receipt of this document do not constitute legal advice or establish an attorney-client relationship with any person. Attorney advertising material. © 2019 Chapman and Cutler LLP * The authors acknowledge with thanks the contributions of other Chapman and Cutler attorneys to the preparation of this survey, including David Batty, Colman Burke, Besty Chang, Walt Draney, Sara Ghadiri, Joe Silvia, Andy Wool and Gregory Xethalis, with a special thanks to our Research Services team and Sarah Andeen. Table of Contents SECTION PAGE Preface ............................................................................................................................................................ i Recent Developments....................................................................................................................................1 I. True Lender Litigation in Colorado .....................................................................................1 A. What Is True Lender Litigation? ...............................................................................1 B. Background on the Colorado Litigation...................................................................2 C. Procedural Posturing: Removal and Remand .........................................................3 D. Banks File Declaratory Judgment Actions in Federal Court ...................................3 E. Recent Happenings....................................................................................................4 F. Significance of These Cases .......................................................................................4 II. Update on Other Significant Litigation ................................................................................5 A. Madden Case Settled ..................................................................................................5 B. CashCall California Cases .........................................................................................5 C. Cases Involving Arbitration Clauses ........................................................................7 D. Cases Relating to Electronic Contracting .................................................................7 III. Federal Developments Affecting Marketplace Lending .....................................................8 A. Federal Trade Commission Actions .........................................................................9 B. Consumer Financial Protection Bureau ................................................................. 10 C. OCC: Status of the Limited Purpose Charter ......................................................... 11 D. Federal Deposit Insurance Corporation: The Industrial Bank Charter ............... 13 E. Department of the Treasury: Report on Financial Innovation.............................. 14 F. General Accounting Office ...................................................................................... 15 G. Federal Reserve Study: Online Small Business Lending ....................................... 16 H. Congress—The Old and the New ........................................................................... 16 IV. State Developments Affecting Marketplace Lending ....................................................... 18 A. Conference of State Banking Supervisors .............................................................. 18 B. Vermont Licensing Exemption for Business Lending ........................................... 18 C. More Sandboxes—Arizona, Wyoming and DC ..................................................... 19 D. California Disclosure Law on Small Business Lending......................................... 19 E. Attorneys General ................................................................................................... 20 F. New York—Online Lending Report....................................................................... 20 G. California Targets Lead Generators ....................................................................... 21 V. Other Issues of Significance ................................................................................................ 21 A. Privacy ...................................................................................................................... 21 B. Fair Lending ............................................................................................................. 22 C. Licensing .................................................................................................................. 22 D. Lending on Cryptocurrency Collateral .................................................................. 23 Regulatory Issues ........................................................................................................................................ 25 I. Regulatory Matters .............................................................................................................. 25 A. Charters for Marketplace Lenders .......................................................................... 25 1. OCC Proposes Special-Purpose Charter for Fintech Firms ...................... 25 2. Federal Deposit Insurance Corporation ..................................................... 27 B. Other Regulatory Promulgations ........................................................................... 28 1. Office of the Comptroller of the Currency ................................................. 29 1. Federal Deposit Insurance Corporation ..................................................... 30 1. Department of the Treasury ....................................................................... 33 4. Consumer Financial Protection Bureau ..................................................... 35 5. FTC FinTech Forum .................................................................................... 39 6. Federal Reserve ........................................................................................... 39 7. U.S. Congress FinTech Hearing .................................................................. 40 8. Basel Committee on Banking Supervision ................................................. 40 9. March 2018 GAO Study Released on FinTech ........................................... 40 II. Lending Laws, Licensing and Related Litigation .............................................................. 41 A. Usury Laws .............................................................................................................. 43 B. Issues Related to the Funding Bank Structure ....................................................... 49 C. Other Cases .............................................................................................................. 55 D. State Licensing Requirements ................................................................................. 60 III. Consumer Protection Laws ................................................................................................. 67 A. Truth in Lending Act............................................................................................... 67 B. FTC Act, UDAP Laws, and the CFPB’s UDAAP Authority ................................. 68 C. Fair Lending and Related Laws .............................................................................. 70 D. Debt Collection Practices ........................................................................................ 75 E. Privacy Laws............................................................................................................ 77 F. Electronic Commerce Laws .................................................................................... 78 G. Other Relevant Laws ............................................................................................... 81 H. State Developments ................................................................................................. 87 IV. Securities Laws .................................................................................................................... 89 A. Background .............................................................................................................. 89 B. Securities
Load more

Recommended publications
  • Regulating On-Line Peer-To-Peer Lending in the Aftermath of Dodd-Frank: in Search of an Evolving Regulatory Regime for an Evolving Industry
    DISCUSSION DRAFT Chaffee & Rapp Washington and Lee Law Review REGULATING ON-LINE PEER-TO-PEER LENDING IN THE AFTERMATH OF DODD-FRANK: IN SEARCH OF AN EVOLVING REGULATORY REGIME FOR AN EVOLVING INDUSTRY Eric C. Chaffee* Geoffrey C. Rapp** I. INTRODUCTION Like Congress’s prior attempt to legislate a post-bubble repair and prevention strategy for the American economy, the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley),1 the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) has received a somewhat chilly response from legal academics.2 As was the case with Sarbanes-Oxley,3 however, even amid all of the proposals included for the sake of “doing something” rather than for a strong policy justification, a few nuggets of genuine value can be found. One of those, in the case of Dodd-Frank, is the opening effort to address the regulatory gap surrounding on-line peer-to- * Associate Professor of Law and Chair of the Project for Law and Business Ethics, University of Dayton School of Law; J.D., University of Pennsylvania (2002); B.A., The Ohio State University (1999). I would like to thank Christine Gall, Esq. for support and encouragement while drafting this essay. ** Harold A. Anderson Professor of Law and Values, University of Toledo College of Law; J.D. Yale Law School (2001), A.B. Harvard College (1998). Eric Johnson (Toledo ’12) provided excellent research in support of portions of this article. 1 Sarbanes-Oxley Act, Pub. L. No. 107-204, 116 Stat. 745 (2002) (codified at 15 U.S.C.
    [Show full text]
  • Lending Trend Etfs AMPLIFYLEND CROWDBUREAU® ONLINE LENDING and DIGITAL BANKING ETF WHY INVEST in LEND?
    As of 3/31/2021 Invest in the Online Amplify Lending Trend ETFs AMPLIFYLEND CROWDBUREAU® ONLINE LENDING AND DIGITAL BANKING ETF WHY INVEST IN LEND? 1. Access to a rapidly growing and evolving industry that seeks to disrupt the LEND seeks investment results that generally financial and banking sectors. correspond to the CrowdBureau® P2P On- line Lending and Digital Banking Index (the 2. Diverse group of global companies providing solutions for increasing Index). The Index is comprised of companies capital needs of businesses and individuals. that 1) operate the platforms that facilitate 3. Expertise – CrowdBureau® (Index Provider) is a thought leader in the P2P lending and digital banking, and 2) pro- online lending & digital banking space. vide the technology & software that enable the operation of these platforms. WHAT IS PEER-TO-PEER LENDING? FUND FACTS Peer-to-peer (P2P) lending is the practice of lending money to businesses and Ticker LEND individuals through online services that match lenders with borrowers. P2P/ CUSIP 032108862 online lending generally refers to the financing method, typically internet-based, by which capital is raised through the solicitation of small individual investments Intraday NAV LENDIV or contributions from a large number of persons, entities or institutions that Expense Ratio 0.65% lend money directly or indirectly to businesses or consumers. Inception Date 5/9/2019 P2P lenders provide a solution for businesses and individuals to the inefficiencies Exchange NYSE Arca found within the traditional banking systemvestment to the mining space. M&A activity favors junior miners, as it is cheaper for senior miners to buy production Index-Tracking than build capacity themselves.
    [Show full text]
  • A Requiem for Sam's Bank
    Chicago-Kent Law Review Volume 83 Issue 2 Symposium: Rethinking Payments in Article 18 Law April 2008 A Requiem for Sam's Bank Ronald J. Mann Follow this and additional works at: https://scholarship.kentlaw.iit.edu/cklawreview Part of the Law Commons Recommended Citation Ronald J. Mann, A Requiem for Sam's Bank, 83 Chi.-Kent L. Rev. 953 (2008). Available at: https://scholarship.kentlaw.iit.edu/cklawreview/vol83/iss2/18 This Article is brought to you for free and open access by Scholarly Commons @ IIT Chicago-Kent College of Law. It has been accepted for inclusion in Chicago-Kent Law Review by an authorized editor of Scholarly Commons @ IIT Chicago-Kent College of Law. For more information, please contact [email protected], [email protected]. A REQUIEM FOR SAM'S BANK RONALD J. MANN* INTRODUCTION Wal-Mart's application to form a bank ignited controversy among dis- parate groups, ranging from union backers to realtors' groups to charitable organizations.' The dominant voices, though, were those of independent bankers complaining that the big-box retailer would drive them out of busi- ness. Wal-Mart denied any interest in competing with local banks by open- ing branches, 2 claiming that it was interested only in payments processing. Distrusting Wal-Mart, the independent bankers urged the Federal Deposit Insurance Corporation (FDIC) to deny Wal-Mart's request and lobbied state and federal lawmakers to block Wal-Mart's plans through legislation. Ultimately, Wal-Mart withdrew its application, concluding that it stood little chance of overcoming the opposition. The controversy dovetails with a banking regulatory concern about the existing system for supervising commercial firms that own non-traditional banks.
    [Show full text]
  • Dn-153040 Filed Pursuant to Rule 424(B)(3
    Filed Pursuant to Rule 424(b)(3) Registration Statement No. 333-147019 $500,000,000 Borrower Payment Dependent Notes This is a public offering to lender members of Prosper Marketplace, Inc., or Prosper, of up to $500,000,000 in principal amount of Borrower Payment Dependent Notes, or “Notes.” We will issue the Notes in a series, with each series of Notes dependent for payment on payments we receive on a specific borrower loan described in a listing posted on our peer-to-peer online credit auction platform, which we refer to as our “platform.” All listings on our platform are posted by individual consumer borrower members of Prosper requesting individual consumer loans, which we refer to as “borrower loans.” Important terms of the Notes include the following, each of which is described in detail in this prospectus: Our obligation to make payments on a Note will be limited to an amount equal to the lender member’s pro rata share of amounts we receive with respect to the corresponding borrower loan for that Note, net of any servicing fees. We do not guarantee payment of the Notes or the corresponding borrower loans. The Notes are special, limited obligations of Prosper only and are not obligations of the borrowers under the corresponding borrower loans. The Notes will bear interest from the date of issuance, have a fixed rate, be payable monthly and have an initial maturity of three years from issuance, which we may change from time to time. A lender member’s recourse will be extremely limited in the event that borrower information is inaccurate for any reason.
    [Show full text]
  • Predatory Lending Divestment Note for Advantage
    Predatory Lending Divestment Note for Advantage SRI Advantage Capital Strategies identifies industries that have detrimental environmental, social, and economic effects and takes action to mitigate risk both through screening and advocating for change. The Predatory Lending Industry Explained Predatory lending refers to payday lenders, pawnbrokers, rent-to-own stores, subprime mortgage and auto loan providers, and cheque cashers.1 These types of loans can be acquired by almost anyone regardless of financial background, but they come with exorbitantly high interest rates and other fees. Payday loans are not provided by financial institutions such as banks, which are regulated by the federal government, but rather by providers who are regulated provincially. Many provinces do not have restrictions on payday loans, although recently there have been some provincial efforts to better control the industry. Advantage Canada SRI does not invest in companies engaged in predatory lending because of the negative social effects of this industry. There are currently no predatory lending companies on the S&P 500. The Economic Rationale for Divestment Predatory lenders are subject to provincial regulation, but they are not currently subject to the same federal regulations as financial institutions such as banks. The operation of predatory lenders is a contentious issue, as they often provide necessary financial services to those who could otherwise not access them, but charge extremely high interest rates while doing so. Recently there has been a push from certain organizations for provinces to impose stricter regulations on payday loan providers. For example, Alberta recently implemented strict regulations on the interest rates predatory lenders can charge, a change that has severely crippled the industry in that province.2 The possibility of further provincial or federal regulation on predatory lenders represents an economic risk for these companies and therefore for investors.
    [Show full text]
  • From Alternative to Mainstream
    CHAPTER 1 From Alternative to Mainstream Alternatives Ascending Foreword The specter of market volatility brought on by large-scale events, such as global pandemic- related lockdowns in early 2020, has had a strong influence on investor approaches to their portfolios. Investors are responding by building resilience into their portfolios to navigate a future with the potential for enormous surprises. Alternative asset managers face a complex mix of opportunities and challenges presented by strong investor appetite for diversification, as well as broader industry pressures. BNY Mellon, in conjunction with Mergermarket, surveyed 100 institutional investors and 100 alternative asset managers on their perceptions of current trends in the space and on whether the two sides are moving in the same direction. The findings show changing investor and asset manager attitudes and behavior, in some cases contrasting with our 2017 research report, The Race for Assets.1 In addition to shifting investor needs, highlighted in Chapter 1 of this study, alternative asset managers face structural changes within their organizations. A majority of alternative asset manager respondents cite forces of increased competition and changing economics as top factors driving structural change. They see increased product innovation as another significant structural game-changer. Like their peers in the broader asset management industry,2 alternative asset managers are deploying digital and data analysis technologies to increase efficiency, overcome regulatory hurdles, promote product innovation and improve reporting. 1 https://www.bnymellon.com/us/en/insights/content-series/the-race-for-assets.html 2 https://www.bnymellon.com/us/en/insights/asset-management-transformation-is-already-here/survey-research-series-overview.html 2 The need for robust data management and analytics is also bringing new complexities to the fore.
    [Show full text]
  • USDA Single Family Housing Guaranteed Loan Program
    USDA Single Family Housing Guaranteed Loan Program No down payment loans for rural borrowers with incomes below 115 percent of area median income as defined by USDA BACKGROUND AND PURPOSE BORROWER CRITERIA The U.S. Department of Agriculture’s (USDA) Income limits: This program is limited to borrowers Single Family Housing Guaranteed Loan Program with incomes up to 115 percent of AMI (as defined by (Guaranteed Loan Program) is designed to serve eli- USDA). Approximately 30 percent of Guaranteed Loans gible rural residents with incomes below 115 percent are made to families with incomes below 80 percent of of area median income or AMI (see USDA definition in AMI. An applicant must have dependable income that overview) who are unable to obtain adequate hous- is adequate to support the mortgage. ing through conventional financing. Guaranteed Loans Credit: Borrowers must have reasonable credit his- are originated, underwritten, and closed by a USDA tories and an income that is dependable enough to approved private sector or commercial lender. The support the loans but be unable to obtain reasonable Rural Housing Service (RHS) guarantees the loan at credit from another source. 100 percent of the loss for the first 35 percent of the original loan and 85 percent of the loss on the remain- First-time homebuyers: If funding levels are limited ing 65 percent. The program is entirely supported by near the end of a fiscal year, applications are prioritized the upfront and annual guarantee fees collected at the to accommodate first-time homebuyers. time of loan origination. Occupancy and ownership of other properties: The dwelling purchased with a Guaranteed Loan must be PROGRAM NAME Single Family Housing Guaranteed Loan Program AGENCY U.S.
    [Show full text]
  • Peer-To-Peer Lending Corporate Excellence Insights
    August 2018 CORPORATE EXCELLENCE INSIGHTS We are a specialized provider of systematic Quality Investment Solutions and one of the few providers of Quality equity investment strategies worldwide. Corporate Excellence Insight is our monthly publication that includes a brief update on markets and our thoughts about major trends that are impacting the investment management industry. MARKET UPDATE: STRONG CORPORATE GROWTH Strong global economic and corporate profit growth outweighed the escalating trade tensions in July. Economic data surprised on the upside in the US, picked up in Japan while stabilized in Europe. Strong Q2 corporate results reaffirmed the estimates for double digit profit growth in 2018. $3.5bn 48.5 x11 U.S. WEEKLY JOBLESS CLAIMS HIT FIAT’S VALUE WAS MULTIPLIED WORLD'S FIRST BIG 5G DEAL MORE THAN 48-AND-A-HALF-YEAR LOW 11 TIMES THROUGH 14 YEARS T-Mobile US named Nokia to supply it The number of Americans filing for Sergio Marchionne, the executive who with next-generation 5G network gear, unemployment benefits dropped to a more rescued Fiat and Chrysler from bankruptcy marking the world’s largest 5G deal so far than 48-1/2-year low in July as the labor after taking the wheel of the Italian and concrete evidence of a new wireless market strengthens further, however trade carmaker in 2004 and multiplied Fiat’s upgrade cycle taking root. tensions are casting a shadow over the value 11 times through 14 years, has died economy’s outlook. aged 66. MONTHLY TOPIC PEER-TO-PEER LENDING Central banks in Europe and the United States got into the rate increasing stance, but the levels are still low and the pace of rate increase is very moderate.
    [Show full text]
  • Person-To-Person Lending
    PERSON-TO-PERSON LENDING IS FINANCIAL DEMOCRACY A CLICK AWAY? Prepared under AMAP/Financial Services, Knowledge Generation Task Order microREPORT #130 September 2008 This publication was produced for review by the United States Agency for International Development. PERSON-TO-PERSON LENDING IS FINANCIAL DEMOCRACY A CLICK AWAY? Prepared under AMAP/Financial Services, Knowledge Generation Task Order microREPORT #130 DISCLAIMER The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. AKNOWLEDGEMENTS This report was prepared and compiled by Ea Consultants and Abt Associates under the Accelerated Microenterprise Advancement Project-Financial Services Component (AMAP-FS) Knowledge Generation Task Order. It was authored by Jennifer Powers, Barbara Magnoni and Sarah Knapp of EA Consultants. The authors would like to thank the Management of Calvert Foundation, dhanaX, Kiva, MicroPlace, MyC4, Prosper, and RangDe, for taking the time to speak candidly with us about their institutions, their industry and some of the challenges and opportunities they face. The authors also acknowledge the contributions of the microfinance institutions benefiting from these sites including: International Microcredit Organization (IMON), Norwegian Microcredit LLC (Normicro) and YOSEFO, who allowed themselves to be interviewed for this report. Finally, the authors would like to acknowledge the guidance and support of Thomas DeBass, USAID. CONTENTS I.
    [Show full text]
  • Banker" Redirects Here
    Bank From Wikipedia, the free encyclopedia Jump to: navigation, search For other uses, see Bank (disambiguation). "Banker" redirects here. For other uses, see Banker (disambiguation). "Bankers" redirects here. For the economics book, see The Bankers. This article has multiple issues. Please help improve it or discuss these issues on the talk page. • It needs additional references or sources for verification.Tagged since July 2008. • It may require general cleanup to meet Wikipedia's quality standards. Tagged since June 2010. Banking Types of banks Central bank Advising bank Commercial bank Community development bank Credit union Custodian bank Depository bank Export credit agency German public bank Investment bank Industrial bank Islamic banking Merchant bank Mutual bank Mutual savings bank National bank Offshore bank Private bank Savings and loan association Savings bank Swiss bank Universal bank Deposit accounts Savings account Transactional account Money market account Time deposit ATM card Debit card Credit card Electronic funds transfer Automated Clearing House Electronic bill payment Giro Wire transfer Banking terms Anonymous banking Automatic teller machine Loan Money creation Substitute check List of banks Finance series Financial market Financial market participants Corporate finance Personal finance Public finance Banks and Banking Financial regulation v·d·e Finance Financial markets [show] Bond market Stock market (equity market) Foreign exchange market Derivatives market Commodity market Money market Spot market (cash market)
    [Show full text]
  • Close Industrial Loan Company Loophole
    CLOSE INDUSTRIAL LOAN COMPANY LOOPHOLE INDUSTRIAL LOAN COMPANIES: “BANKS” In the age of big data, social media and e-commerce OWNED BY COMMERCIAL COMPANIES conglomerates, this threat is greater now than it was in Industrial loan companies (ILCs) are the functional the 1930s. We should be cautious before giving these equivalent of full-service banks. They engage in companies yet more reach into the economic life of commercial and consumer lending as well as deposit Americans by allowing them to leverage ownership taking and have access to the Federal Reserve of bank-like ILCs. The integration of technology and payments system. A loophole in the Bank Holding banking firms would not only result in an enormous Company Act allows commercial companies to own concentration of financial and technological assets but or acquire ILCs, subject only to approval by the FDIC. also would pose conflicts of interest in our banking Federal law prohibits all other full-service banks, system and privacy concerns for consumers. whether federal or state chartered, from being owned What will happen when social media giants extend their by commercial companies. reach into our financial lives? Access to Americans’ The ILC charter historically been limited and may be personal, financial data—monthly paycheck direct issued by only a handful of states, though it grants the deposits, account balances, expense patterns, political power to operate nationwide. Prior to 2020, the FDIC contributions, history of late fees, transaction records, had not approved deposit insurance for a new ILC for etc.—would create a whole new level of targeted more than 10 years.
    [Show full text]
  • Estimated Loan Debt Letter Information
    ESTIMATED LOAN DEBT LETTER INFORMATION UIW sends es�mated loan debt amounts every year to students that borrow. The Es�mated Loan Debt Leter can be used as a tool in understanding your current loan balances, ensuring you will have manageable repayment, and help you plan for any future borrowing. Knowing what you owe will help you make wise borrowing decisions. KNOW WHAT (AND WHO) YOU OWE! • Direct Federal Student Loans Studentaid.gov can be used to view your direct loan and Pell grant balances at any �me, as well as retrieve your student loan data file. Please note, you will need your FSA ID creden�als to log in. • State Loans (THECB B-on-Time and College Access Loans) Access www.hhloans.com to view your balances and payment informa�on for the B-on-Time Loan, or the College Access Loan. The B-on-Time Loan must be repaid if you do not qualify for loan forgiveness. These loans are owned and managed by the Texas Higher Educa�on Coordina�ng Board (THECB). THECB can be reached at www.hhloans.com or 800-242-3062. • Non-federal loans www.Annualcreditreport.com is a free website you can use to obtain a free copy of your credit report from each of the three credit bureaus every 12 months. You will find any private loans you’ve borrowed on your credit report, regardless of who you borrowed them from or what school you borrowed them at. You should review your credit report periodically to ensure your informa�on is correct.
    [Show full text]