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