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The OCC outlines safety and soundness principles and appropriate risk management processes for its regulated institutions that engage in BNPL lending.

By Arthur S. Long, Parag Patel, Barrie VanBrackle, Becky Critchley, Deric Behar, and Charlotte Collins

On December 6, 2023, the Office of the Comptroller of the Currency (OCC) issued Bulletin 2023-37 (Guidance), which clarifies the OCC’s policy positions on the risk management of “Buy Now, Pay Later” (BNPL) lending. These consumer lending arrangements (also known as “point-of-sale installment loans” or “pay-in-4”) involve short-term installment loans repayable in four or fewer payments and carry no finance or interest charges. The OCC expects that banks engaged in BNPL lending “do so within a risk management system that is commensurate with associated risks.”

The Guidance applies to all OCC-regulated institutions, including national banks, federal savings associations, covered savings associations, and federal branches and agencies of foreign banking organizations. The OCC also highlighted that the Guidance applies to community banks engaging in (or considering engaging in) BNPL lending.

The move becomes effective on October 1, 2023, with the Supreme Court soon to decide on the agency’s rule-writing authority.

By Barrie VanBrackle, Marifiel Gonzalez, and Deric Behar

On February 1, 2023, the Consumer Financial Protection Bureau (CFPB) proposed a rule (the Proposal) to amend Regulation Z, which implements the Truth in Lending Act (the Act) to limit credit card late fees. The CFPB received comments before its May 3, 2023 deadline, and it announced that the proposed rule will go into effect on October 1, 2023.

Absent further challenges as described below, credit card issuers should be ready to implement controls to comply with the Proposal.

New laws implement regulatory standards and licensing requirements for fintechs seeking to improve employee access to wages.

By Parag Patel, Mik Bushinski, and Deric Behar

On June 13, 2023, Nevada enacted a law that regulates earned wage access (EWA) services provided to state residents. Missouri followed by enacting an EWA law on July 7, 2023 that shares many similarities with Nevada’s. The new EWA laws make Nevada and Missouri the first two states in the US to establish statutory frameworks designed to regulate EWA services.

EWA services enable a consumer to receive earned employment income prior to a scheduled payday. They ideally provide an alternative to high-cost forms of credit, such as payday loans, although some consumer advocacy groups have warned of fees and other problematic aspects with certain EWA services.

To date, the principal providers of EWA services are fintechs, some of which are new entrants and some of which have been in the EWA business for several years.

Importantly, the EWA laws in both states exempt EWA services from their respective state laws that regulate loans and money transmission. EWA service providers in Nevada or Missouri would therefore not be regulated as a lender or money transmitter in connection with the EWA services they provide to residents of those states.

The rule requires that lenders collect and report extensive applicant data to the CFPB, intended to deter discrimination and promote economic growth.

By Parag Patel, Victor Razon, and Deric Behar

On March 30, 2023, the Consumer Financial Protection Bureau (CFPB) finalized a regulation implementing Section 1071 of the 2010 Dodd-Frank Act. The regulation requires lenders, including fintech lenders, to collect and report certain demographic and financial data to the CFPB for credit applications received from small businesses. The purpose of the regulation is to promote economic development, increase transparency and accountability, and address unlawful discrimination in small business lending. The CFPB intends to establish a comprehensive and publicly accessible database containing the small business credit application data collected in connection with this regulation.

The agency just revived its dormant authority to supervise nonbank financial entities that it determines pose risk to consumers. 

By Matt Hays, Benjamin Naftalis, Parag Patel, Barrie VanBrackle, and Deric Behar

On April 25, 2022, the Consumer Financial Protection Bureau (CFPB) — the US government agency established under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) and responsible for consumer protection in the financial sector — announced that it is invoking a largely unused legal provision to examine nonbank financial companies that pose risks to consumers.

A new Executive Order could help open the door for the portability of consumer financial data.

By Charles Weinstein and Deric Behar

Definitive regulation for open banking may be on the horizon in the US. On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy (the Order), which contains a section on banking and consumer finance that encourages the Consumer Financial Protection Bureau (CFPB) to issue rules on consumer financial data portability.

The Order’s request to the CFPB could help foster competition and reduce market concentration among banking institutions by simplifying personal data portability for consumers and making open banking functionality more readily available.