Cornerstone May Newsletter

INDUSTRY NEWS

SUPREME COURT UPHOLDS CFPBS FUNDING STRUCTURE

The Supreme Court ruled in favor of upholding the Consumer Financial Protection Bureau's (CFPB) funding structure, rejecting a challenge to its constitutionality. This decision solidifies the CFPB's ability to draw funds directly from the Federal Reserve Board, bypassing the Congressional appropriations process, and reinforces the Bureau's financial independence. The ruling reversed a previous decision by the Court of Appeals for the Fifth Circuit, which had deemed the CFPB's funding structure unconstitutional. The case revolved around a small-dollar lending rule introduced by the CFPB in 2017, which faced opposition from the payday lending industry. The outcome of the ruling has significant implications for the regulatory and enforcement authority of the CFPB within the financial services industry.

MARYLAND

NEW ONLINE DATA PRIVACY LAWS

The Maryland Online Data Privacy Act (MODPA) introduces stringent provisions, including data minimization, restrictions on processing sensitive data, and specific protections for children's data privacy, setting it apart from other state privacy laws.

The law encompasses a wide range of businesses, with lower compliance thresholds compared to other state laws, potentially affecting smaller entities. Notably, it prohibits the processing and sale of sensitive data without exception and mandates the use of Universal Opt-Out Mechanisms (UOOMs). Furthermore, it imposes substantial obligations on controllers and processors, including the use of geofencing near health facilities and comprehensive data security practices. Consumers in Maryland are granted various rights under the MODPA, such as the right to confirm, correct, and delete their personal data, and the right to opt out of targeted advertising and the sale of personal data.

The Act also outlines exemptions, such as for financial institutions and data regulated by specific federal laws. The MODPA aims to ensure transparency in data practices and provide robust consumer data protection, with strict enforcement and remedies under Maryland's UDAP law.

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UPDATES TO FTCS SAFEGUARDS RULE

The FTC has updated its Safeguards Rule to add breach notification requirements. It plans to host a new public database of instances in which consumers’ nonpublic information has been subjected to unauthorized access. As of May 13, 2024, Financial institutions subject to the FTC’s jurisdiction, which include mortgage lenders, payday lenders, collection agencies, check cashiers, credit counselors, and more – and all of their service providers may want to familiarize members of their workforce with processes they have in place to detect, report, investigate and resolve data security issues. Read the whole article for details and key features.

COLORADO

REQUIREMENTS FOR AI SYSTEMS

Colorado, signed into law by Governor Jared Polis, establishes stringent requirements for developers and deployers of artificial intelligence (AI) systems. It mandates reasonable care to avoid algorithmic discrimination in high-risk AI systems and necessitates extensive documentation for general-purpose AI models. The measure also requires disclosure to consumers when they interact with an AI system and marking of synthetic digital content generated or manipulated by an AI system. Notably, it grants the Attorney General exclusive enforcement authority and does not provide for a private right of action. Additionally, it outlines exemptions for specific activities and defines critical terms such as "algorithmic discrimination," "artificial intelligence system," and "consequential decision." The law is effective immediately.

NEW LEGISLATION

BOI REMINDER

Your Beneficial Ownership Information (BOI) must be reported to FinCEN before the end of the year. This Federal requirement affects most businesses in the country, and the fines for non-compliance are heavy and levied daily.

A beneficial owner is any individual who exercises substantial control over a reporting company or owns/controls at least 25% of the ownership interests.

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FILING SERVICE

Understanding the complexities of federal compliance, we now offer to handle the filing of your BOI report with FinCEN on your behalf. This service is designed to save you time and ensure accuracy. If you are a client, we likely already have all information needed in order to file on your behalf.?

Our dedicated team is ready to assist you. Connect with us today to learn more or move forward with Cornerstone handling your CTA filing. If you are already a Cornerstone client, please book time directly with Beth Aide, Sr. Customer Success Manager.

CONNETICUT

MEDICAL DEBT CREDIT REPORTING LAW

Connecticut Governor Ned Lamont recently signed a bill into law that will prohibit healthcare providers from reporting medical debt to credit agencies and void any medical debt that is reported to credit bureaus. The law, effective from July 1, mandates that healthcare providers, hospitals, and affiliated entities refrain from reporting medical debt to credit agencies and include specific clauses in their contracts with collection entities to prevent such reporting. Medical debt under the law encompasses obligations related to health care services, products, or devices, excluding debt charged to regular credit cards unless designated for medical expenses. The bill garnered support from the Consumer Financial Protection Bureau and the Connecticut Hospital Association, positioning Connecticut alongside Colorado in outlawing the credit reporting of medical debt.

MARYLAND

CONSUMER REPORTING AGENCY REGULATIONS

Signed into law on May 9, Maryland measure SB 41 outlines regulations pertaining to consumer reporting agencies, specifically highlighting the prohibition of certain items of information in consumer reports beyond a specified timeframe. The legislation also exempts these regulations in the cases of credit transactions, life insurance underwriting, and high-salary employment. The measure takes effect on October 1, 2024.

NEW YORK

SOCIAL MEDIA RESTRICTIONS FOR COLLECTIONS

A proposed NY measure imposes limitations on debt collectors' engagement with consumers through social media platforms for debt collection purposes. Debt collectors are prohibited from joining or requesting to join a consumer's social media network or communicating through social media to collect a debt. However, certain exceptions are outlined, including communications related to rescheduled court appearances, discussions for rescheduling court appearances, and activities by principal creditors collecting their debt. The definition of a social media platform is provided, emphasizing its role in connecting users for social interaction and enabling the creation of public or semi-public profiles. If passed, this measure would take immediate effect, indicating a prompt response to regulate debt collectors' usage of social media for debt collection.

INDUSTRY NEWS

BILLS INTRODUCED IN CONGRESS TO CANCEL ALL MEDICAL DEBT

A group of lawmakers has introduced bills in the Senate and House of Representatives to eliminate existing medical debt and remove it from consumers' credit reports. The proposed legislation aims to create a federal grant program to cancel the $220 billion of unpaid medical debt, prioritizing low-resource providers and vulnerable populations. The bill would require hospitals to apply for grants to eliminate medical debt owed, prioritizing safety net hospitals and debt owed by low-income or vulnerable patients for emergency or non-elective care. The legislation seeks to amend the Fair Debt Collection Practices Act to prohibit collectors from pursuing medical debt incurred before the law's enactment and to provide a private right of action for consumers, entitling them to compensatory and punitive damages. Furthermore, the bill aims to amend the Fair Credit Reporting Act to prevent the reporting of medical debts.

NEBRASKA

COMPREHENSIVE DATA PRIVACY LAW ENACTED

The Nebraska Data Privacy Act, signed into law by Governor Jim Pillen, imposes significant compliance requirements on businesses that conduct operations in Nebraska or handle the personal data of Nebraska residents. It applies to entities engaged in the sale or processing of personal data and excludes certain exempt categories, such as financial institutions and entities regulated under the Health Insurance Portability and Accountability Act (HIPAA). The Act grants consumers various rights, including the right to confirm, access, correct, and delete their personal data, opt-out of targeted advertising and data sale, and obtain portable copies of their data. Additionally, it introduces stringent regulations for the processing of sensitive data and mandates comprehensive contract requirements between controllers and processors. The Attorney General has exclusive authority to enforce violations, with civil penalties of up to $7,500 per violation for non-compliance.

CORNERSTONE CAN HELP

NEW HIRE BACKGROUND CHECKS

Cornerstone offers background screening services that are accurate and prompt so you can spend less time worrying about compliance and more time on your business. Most criminal searches are completed in less than a day. We provide screenings for new hires as well as for statutory requirements. We can perform domestic screenings as well as international screenings.

NEW YORK

DEFINITION OF MEDICAL DEBT

If passed, this New York measure will amend the definition of medical debt to exclude debt charged to a credit card unless the credit card is issued under an open-ended or closed-end plan offered specifically for the payment of health care services, products, or devices provided to a person. This measure is eligible to be sent to Governor Kathy Hochul for approval and would take effect immediately and be deemed to have been in full force from December 13, 2023.

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INDUSTRY NEWS

AMENDING FAIR DEBT COLLECTION PRACTICES ACT?

An introduced bill aims to amend the Fair Debt Collection Practices Act. If passed, the bill would require debt collectors to provide comprehensive details in validation notices, including the name of the original and current creditors, the most recent date of default, and all methods for consumer contact. Moreover, consumers would be granted the ability to dispute debts using any available contact method. Additionally, the bill seeks to enforce a 30-day notification period before filing a collection lawsuit and mandates that collectors include specific information in their initial pleadings, such as documentary evidence and a sworn affidavit confirming the applicable statute of limitations and a personal review of relevant records.?

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MAINE

MEDICAL DEBT COLLECTION REGULATIONS

Signed into law and effective from August 9, 2024, Maine introduces significant regulations on medical debt collection. It prohibits debt collectors from charging fees or interest for medical debt collections, and from pursuing litigation without providing proof of notifying the consumer when their household income is no more than 300% of the federal poverty line. Moreover, the measure prohibits debt collectors from making false representations during medical debt collection, including claims about accumulating interest, charging fees, or threatening litigation.?

PENNSYLVANIA

UPDATED REGULATIONS OF VIRTUAL CURRENCY

In February 2019, the Pennsylvania Department of Banking and Securities (DoBS) initially stated that virtual currency, including Bitcoin, was not considered "money" under the Money Transmitter Act (MTA), thus exempting web-based virtual currency exchanges from regulation. However, the DoBS recently reversed this interpretation, now including virtual currency in the definition of "money" due to its widespread use as a payment method. Consequently, companies engaged in virtual currency activities are expected to obtain a license through the Nationwide Multistate Licensing System and Registry by October 15, 2024. Despite the DoBS's delay in updating its application checklists to reflect this change, businesses involved in virtual currency transmission are advised to promptly apply for licensing to ensure compliance with the new regulations before the effective date.

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Trust your licensing to our experts. Cornerstone can assist in obtaining this license and maintaining renewals to ensure compliance for our clients. ?

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INDUSTRY NEWS

LEGAL CHALLENGE TO CFPBS CREDIT CARD LATE FEE RULES

The Consumer Financial Protection Bureau (CFPB) encountered a setback with its credit card late fee rule, facing legal challenges from the American Bankers Association (ABA) and other plaintiffs. The final rule, which aimed to cap late fees at $8, was met with opposition on various grounds, including constitutional concerns, alleged violations of the CARD Act and Dodd-Frank Act, and claims of arbitrariness. Additionally, a venue dispute led to the case being transferred to the District of Columbia. The recent development saw a Texas federal court granting a preliminary injunction, effectively halting the implementation of the rule and prompting further legal proceedings based on the plaintiffs' likelihood of success.

INDUSTRY NEWS

SECS BITCOIN AND CRYPTO CUSTODY RESTRICTIONS OVERTURNED?

The Senate recently passed legislation aiming to overturn the SEC's Staff Accounting Bulletin (SAB) 121, which restricts highly regulated financial firms from offering custody services for Bitcoin and other cryptocurrencies. The legislation, already approved by the House, seeks to remove barriers imposed by SAB 121, enabling regulated financial firms to provide custody services for digital assets. However, the White House has signaled its intention to veto the bill, citing concerns about disrupting the SEC's investor protection efforts and the broader financial system. Despite the Senate's approval, the resolution's fate remains uncertain due to the potential presidential veto. This development underscores the ongoing debate surrounding the custody of digital assets by financial institutions and the implications for the broader crypto-asset market.

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INDUSTRY NEWS

FED CONSIDERS EXTENDING PAYMENT SYSTEM OPERATING DAYS

The Federal Reserve Board is evaluating a proposal to extend the operating days of its payment networks, the Fedwire Funds Service and the National Settlement Service, to operate every day of the year, including weekends and holidays. This expansion, if implemented, would facilitate the settlement of electronic payments, such as direct deposits, over weekends. The proposal emphasizes voluntary participation by service participants, such as banks and credit unions. The Federal Reserve views this initiative as potentially enhancing the safety and efficiency of the U.S. payment system and fostering innovation in payment solutions.

INDURSTRY NEWS

CFPB ACTION AGAINST FINTECH COMPANY FOR MISLEADING CONSUMERS

Consumers who were deceived by LendUp Loans LLC are set to receive checks in the mail. LendUp offered single-payment and installment loans online, presenting itself as an alternative to payday lenders. The company's marketing emphasized the "LendUp Ladder," promising lower interest rates and larger loan amounts for borrowers who repaid loans on time and completed free courses. Despite these promises, many customers did not qualify for larger loans and continued to face similar or higher interest rates. The total distribution amount is almost $40 million, sourced from the CFPB's victims relief fund. LendUp has faced multiple enforcement actions over the years, with the CFPB's latest judgment permanently prohibiting the company from making new loans, collecting on certain outstanding loans, selling consumer information, and making misrepresentations related to loan servicing and debt collection.

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INDUSTRY NEWS

FTC SETTLEMENT AGAINST PAYMENT PROCESSOR FOR FACILITATING FRAUD

The FTC announced a settlement in federal court against a payment processing company for involvement in processing transactions for a debt-relief company engaged in fraud. The settlement includes a $10 million payment to compensate affected consumers and imposes tighter restrictions on the company's future business operations. The FTC's complaint revealed that the payment processor processed payments for the fraudulent debt-relief company despite substantial evidence of its deceptive practices, including high chargeback rates and warnings from its internal fraud monitoring team. The company is now prohibited from servicing high-risk clients, including those involved in debt collection and relief activities, as well as those flagged by industry fraud monitoring programs. This case underscores federal regulators' efforts to target service providers that overlook warning signs of fraudulent activities and emphasizes the importance of thorough diligence and oversight of third-party partners.

KANSAS

ENACTS EARNED WAGE ACCESS LAW

Kansas has enacted comprehensive earned wage access (EWA) legislation, set to take effect immediately upon publication. The law mandates an annual registration requirement for individuals or entities offering EWA products, with EWA providers required to register with the Kansas State Bank Commissioner. Additionally, the law includes various provisions such as non-recourse treatment of proceeds and fees, mandatory fee disclosures, and stringent regulations on tipping, debt collection, credit payments, late fees, and credit score requirements. This development aligns with a trend of state-level action on EWA regulation, as more states are enacting similar laws, prompting EWA providers to promptly assess their business and procedures to ensure compliance with the new law.

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INDUSTRY NEWS

CFPB AGAINST JUNK FEES IN MORTGAGE SERVICING

The CFPB's recent release of its Supervisory Highlights spotlights the agency's intensified efforts to address what it terms "junk fees" charged by mortgage servicers. The report outlined various violations observed during mortgage servicing examinations, including improper property inspection fees, unfair late fees, and inadequately described charges on periodic statements. Additionally, the report highlighted mismanagement of tax and insurance payments, deceptive practices in evaluating repayment options, and escrow violations. The CFPB's continued scrutiny of these fees and its focus on ensuring compliance amidst the COVID-19 pandemic indicates the agency's commitment to protecting consumers from what it perceives as excessive and unfair fees in mortgage servicing. This development underscores the importance for mortgage servicers to adhere to compliance obligations and take appropriate measures.

INDUSTRY EVENTS

2024 FINTECH SYMPOSIUM

Cornerstone is proud to sponsor The U.S. Fintech Symposium, June 4-6 in Chicago, uniting tech and finance experts to explore how advanced technologies are transforming enterprise finance. Register now using our discount code CORNERSTONE100 for $100 off registration. We'd love to connect with you there!?

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DATA PRIVACY LAWS: IMPACT ON FINTECH AND COLLECTIONS

Data protection laws, particularly the California Consumer Privacy Act (CCPA), have played a pivotal role in fortifying consumer privacy and reshaping businesses' management of personal information. The CCPA grants Californians control over their personal data, striking a balance between consumer protection and the promotion of fintech growth. Additionally, the Fair Debt Collection Practices Act establishes strict communication guidelines for debt collectors, emphasizing the importance of compliance to maintain trust and legal integrity. Read the whole article for compliance strategies in navigating the regulatory landscapes, balancing innovation with adherence to privacy standards.

OKLAHOMA

BITCOIN RIGHTS LEGISLATION

Oklahoma recently enacted legislation to protect the rights of bitcoin holders, marking a significant move in the digital asset space. The bill, signed into law by Governor Kevin Stitt, guarantees individuals and businesses the right to self-custody their digital assets, including the ability to mine cryptocurrency at home. Effective from November 1, 2024, the legislation also allows the use of bitcoin and other digital assets for legal transactions without imposing additional taxes, aligning their treatment with traditional legal tender. This proactive stance positions Oklahoma as a pioneer in embracing and safeguarding digital assets, with the aim of fostering a more inclusive financial environment.

MASSACHUSETTS

BUY NOW PAY LATER REGULATED AS SMALL LOAN BUSINESS

If passed, the Massachusetts measure would designate buy now, pay later platforms as small loan businesses and third-party loan servicers. It outlines specific criteria for defining a person as a small loan business, including offering alternative payment methods for online merchandise purchases, providing initial funding, allowing scheduled installments, and potentially charging interest or fees for late payments. Additionally, it mandates the commissioner of banks to investigate certain companies to determine their compliance with state law and requires the companies to apply for a small loan business license within six months if found non-compliant. Furthermore, the measure stipulates that all providers offering buy now, pay later services must disclose comprehensive information to consumers, including the full amount to be paid, potential penalties for late payments, aggregate amount owed for late payments, and disclosure of late payments to credit reporting agencies. This measure has been ordered for a study as a next step.

Cornerstone is closely monitoring the outcome of this measure, will be providing updates and standing by to handle all licensing needs to ensure compliance for our clients.??

OHIO

EARNED WAGE ACCESS REGULATION

Ohio bill introduces comprehensive regulations for earned wage access services, requiring individuals or companies to obtain a certificate of registration to offer such services. The registration process includes an investigation fee and an annual registration fee, and applicants must meet specific financial and operational criteria, including a minimum net worth and assets requirement. Registrants are allowed to operate online or at physical locations, subject to strict compliance and disclosure requirements. The bill also prohibits certain practices such as sharing fees with employers, requiring credit reports for accessing services, charging late fees, and reporting consumer repayment inability to credit agencies or debt collectors. Additionally, the bill clarifies that earned wage access services provided by registrants are not considered loans, money transmission, or a violation of laws governing unpaid income.?

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ALASKA

INFORMATION SECURITY MEASURES

Alaska proposed bill SB 134 would mandate that licensees conduct a risk assessment to evaluate the security and confidentiality of nonpublic information in their possession. This includes identifying potential threats, assessing their likelihood and potential damage, and evaluating the sufficiency of existing safeguards. The bill also outlines specific requirements for handling encrypted nonpublic information and the responsibilities of third-party service providers in the event of a cybersecurity event. Additionally, it necessitates the designation of a person responsible for the information security program and requires insurers to submit annual compliance certifications and maintain relevant documentation. If a licensee becomes aware of a cybersecurity event, prompt investigation and measures to restore the security of compromised information systems are mandated.