On June 24, 2021, the U.S. House of Representatives passed a resolution to overturn the Office of the Comptroller of the Currency’s (“OCC”) “true lender” regulation that had been finalized on October 30, 2020. This resolution revives the uncertainty regarding the enforceability of loan terms when a national bank or federal savings association assigns loans to third parties. President Biden is expected to sign the resolution.Read More
By: Judie Rinearson
While global investment in fintechs has slowed, interest in fintech investments from the banking sector has actually increased. What’s particularly intriguing is that this is not coming just from the big banks (who have been involved in the fintech sector for years) but frequently many smaller banks are starting to recognize the opportunity presented by investing in the fintechs — especially those fintechs that the banks already work with. Boston partners, Stan Ragalevsky and Rob Tammero have analyzed this development, which looks to be a true win-win for both the banks and fintechs involved. Click here to read more.
Over the last two days, the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”) (together, the “Agencies”) each issued a proposed rule (collectively, the “Proposed Rules”) that would codify the Agencies’ position that the interest on a loan originated on a bank, if permissible when the loan was made, will continue to be a permissible and an enforceable term of the loan following the sale, assignment, or transfer of the loan. This is known as the “valid-when-made” doctrine.Read More
By Jim Bulling and Elise Hamblin
Fintech lenders must continue to take into consideration the unfair contract terms laws that have applied since 12 November 2016. As set out in a recent ASIC Report 565 “Unfair Contract Terms and Small Business Loans”, unfair contract terms are currently areas of concern for ASIC. To date, ASIC has found that eight lenders have failed to take sufficient steps to comply with their obligations under the unfair contract terms laws.
The Cambridge Centre for Alternative Finance sits within the University of Cambridge Judge Business School and has recently published its 4th UK Alternative Finance Industry Report entitled “Entrenching Innovation”. The Centre defines alternative finance as financial channels and instruments that emerge outside of the traditional financial system (i.e. regulated banks and capital markets).
Over the last several years, a number of U.S. state and federal government enforcement actions have challenged the viability of the bank partnership model that many marketplace lenders have used to fund consumer and small business loans. Specifically, regulators have argued that, in partnerships where the non-bank entity controls much of the funding process or the bank has little-to-no risk of loss, the non-bank entity is the “true lender.”
The U.S. Consumer Financial Protection Bureau (CFPB) recently issued its first no-action letter, pursuant to a policy designed to encourage innovation in the fintech marketplace by creating a testing ground for new technologies. If received, a no-action letter simply indicates that the CFPB “has no present intention to recommend initiation of an enforcement or supervisory action” against the applicant with respect to the specific product and regulatory concerns at issue.
The Australian Treasury has released for consultation, draft legislation which would give the Australian Prudential Regulatory Authority (APRA) prudential regulatory powers in relation to non-bank lenders including marketplace lenders. Non-bank lenders are corporations:
- whose business activities in Australia include the provision of finance such as:
- the lending of money;
- carrying out activities, whether directly or indirectly (such as through a trust), which result in the funding or originating of loans;
- letting or hire-purchase of goods; or
- acquiring debts dues to another person, bills of exchange or promissory notes; and
- with more than $50 million in loan principal amounts outstanding or debts due to it resulting from transactions entered into in the course of providing finance.
On 22 May 2017, the Committee on the Global Financial System (CGFS) and the Financial Stability Board (FSB) released a report titled ‘FinTech credit’. FinTech credit is credit activity facilitated by electronic platforms, such as marketplace lenders. This usually involves borrowers being matched directly with investors, although some platforms use their own balance sheet to lend.
The report examines FinTech credit markets and how they will affect the nature of credit provision and the traditional banking sector. The report is also aimed at assisting policymakers understand current FinTech credit markets, and the associated challenges in monitoring and regulating such activity. It also assesses the potential microfinancial benefits and risks of these activities, and considers the possible implications for financial stability in the event that FinTech credit should grow to account for a significant share of overall credit.
RateSetter, a UK P2P lending platform, has raised £13 million in its latest round of fundraising as it prepares to launch its “innovative finance” ISA (IF-ISA). The IF-ISA allows investors, or lenders, to earn interest free of income tax. Before a P2P platform can offer its own ISA, it must be fully authorised by the Financial Conduct Authority (FCA).
This comes at a time of increased regulatory scrutiny of the P2P lending sector. There is growing frustration in the industry at the prolonged regulatory approval process for IF-ISAs. This is a function of high numbers of applications before the FCA and a high level of regulatory scepticism over this type of product.