Category Archives: Government

Millions of California taxpayers to get ‘inflation relief’ payments

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June 27 (UPI) — California lawmakers have reached a budget deal that will offer “inflation relief” payments to millions of taxpayers in the state.

“California’s budget addresses the state’s most pressing needs, and prioritizes getting dollars back into the pockets of millions of Californians who are grappling with global inflation and rising prices of everything from gas to groceries,” said Gov. Gavin Newsom, Senate President pro Tempore Toni Atkins, and Assembly Speaker Anthony Rendon in a joint statement Sunday.

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“The centerpiece of the agreement, a $17 billion inflation relief package, will offer tax refunds to millions of working Californians,” it added. “Twenty-three million Californians will benefit from direct payments of up to $1,050. The package will also include a suspension of the state sales tax on diesel, and additional funds to help people pay their rent and utility bills.”

The payments may come through direct deposit refunds to tax filers by late October, according to the Newsom administration, KCRA 3 reported.

State suspension of diesel sales tax, now 23 cents per gallon, for a year, will start on Oct. 1.

“The state will provide local government with the equivalent amount of revenue, estimated at $439 million, so that there will be no impact on local transportation funding projects,” H.D. Palmer with the Department of Finance told KCRA 3.

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The budget also includes funding to “respond to severe wildfires,” and other climate change issues, a $47 billion multi-year infrastructure and transportation package, and other investments in education and healthcare resources, according the joint statement.

Under the new budget, state leaders also noted that “California will become the first state to achievement universal access to healthcare coverage.”

State leaders also reaffirmed a commitment to invest $200 million in additional funding for reproductive health care services in the wake of Friday’s Supreme Court decision.

California Finalizes Commercial Financing Disclosure Regulations

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The California Office of Administrative Law (OAL) has approved the California Department of Financial Protection and Innovation’s (DFPI) final regulations, which require providers of commercial financing, including nonbank lenders, to provide commercial borrowers with cost-of-credit disclosures similar to those provided to consumer customers. These regulations become effective on December 9, 2022.

How We Got Here

The statute that governs commercial financing is the California Financial Code (see Cal. Fin. Code §§ 22800 to 22895). On
September 30, 2018, California enacted SB No. 1235, which is now codified at Division 9.5 of the California Financial Code. That law required providers of commercial financing to give consumer-style “cost-of-credit” disclosures to recipients and directed the DFPI to promulgate regulations governing those disclosures. In our article about SB No. 1235, dated September 4, 2019, we discussed the proposed law and, in particular, how a provider was defined and what was required to be disclosed. In October 2020, the DFPI proposed regulations, which were subsequently modified several times in response to comments from various stakeholders. The final regulations were sent to the OAL for review in December 2021 and approved by the OAL on June 9, 2022.

Final Regulations

The DFPI’s final regulations address seven categories of commercial financing transactions:

  • Closed-End Transactions
  • Open-End Credit Plans
  • General Factoring
  • Sales-Based Financing (e.g., merchant cash advances)
  • Lease Financing
  • Asset-Based Lending Transactions
  • All Other Transactions (a catchall for transactions that
    don’t fit in the six specific categories above)

At the time of extending a financing offer, a commercial financing provider is required to provide cost-of-credit disclosures to recipients whose business is directed or managed principally from California. Moreover, the final regulations mandate the formatting and content requirements, row by row and column by column, for each category of commercial financing. We note that the final regulations also impose other requirements, for example, signature requirements (including electronic signatures) and rules for determining statutory exemptions. We further note that the final regulations require disclosures of annual percentage rates (APRs) and disclosures for estimating or calculating APRs, finance charges, and other items. The final regulations state that a non-depository institution that is providing technology or support services to a depository institution’s commercial financing program is exempt if the non-depository institution has no interest in or agreement to acquire an interest in the commercial financing, and the program is not branded with the non-depository institution’s trademark.

An important takeaway is that given the limited scope of the exemption for non-depository institutions, typical arrangements between fintech companies and banks may result in fintech companies fitting the definition of a provider and, as such, being subject to these regulations.

Next Steps

The final regulations will be effective on December 9, 2022, so it is important to get started with building the processes and systems needed to comply. Notably, other states, including New York, Utah, and Virginia, are currently considering similar rules. And some states, including Connecticut, Maryland, Missouri, and New Jersey, are considering or have considered a version of these rules that would apply to small businesses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Loan Market Update Cadwalader, Wickersham & Taft LLP

Lots of news out of the loan market. SOFR remains a focus, we have new forms from the LSTA, and what has been deemed an “existential threat” to the syndicated loan market has reared its head once

CFPB Takes Adverse Action Against Machine Learning McGlinchey Stafford

In 2020, the CFPB blogged that Regulation B’s flexibility can be compatible with AI algorithms, because “although a creditor must provide the specific reasons for an adverse action…

Biden’s Federal Trade Commission Is Now At Full Strength – What That Means For Business Leaders

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Breaking a partisan deadlock, there are now three FTC Commissioners appointed by Democrats, and two appointed by Republicans who are in charge of how the FTC spends its resources prosecuting the federal competition (or antitrust) laws. As one might imagine, while there are certain topics for which there may be bipartisan consensus (for example see the FTC’s latest suits challenging two hospital mergers), there are other topics for which a new regime can now take action.

As a brief background, there are two Federal agencies in charge of enforcing the antitrust laws: the Federal Trade Commission and the Department of Justice Antitrust Division. The DOJ Antitrust Division falls under the Attorney General, and an Associate Attorney General is nominated and confirmed to preside over the agency (currently Jonathan Kanter). The FTC, by contrast, has five Commissioners, and President Biden’s latest nominee, Alvaro Bedoya, broke the 2-2 political tie that had existed since October 2021.

As previously discussed here, Biden set out an ambitious antitrust agenda at the outset of his administration, issuing an Executive Order that set out a “whole of government” approach to increase consumer choice and decrease concentration in a number of sectors. Now, with a FTC majority, Democrats are in a stronger position to pursue that agenda, and recruit other federal agencies to help pursue this mission.

There are four major areas where one can expect action: labor freedom / mobility, privacy and related data collection, challenges to deals previously unchallenged, and any significant price increases on everyday/essential goods.

Labor Freedom / Mobility. One of the core contentions of Biden’s executive order was that workers are paid too little and have too few options, whereas corporations have used tactics such as non-compete clauses (that prevent former employees from competing with their former employer) that have created an imbalance of power in labor negotiations. Up until now, other than state specific prohibitions on non-competes, there has been no federal action aimed to address this phenomenon.

One of the potential actions of the new FTC is to create rules that are designed to curb or otherwise eliminate the use of non-competes. FTC staff members have publicly stated that non-compete rules would lead to higher wages, better working conditions, and increased competition for the goods those companies sell.

 

The reason this type of initiative would likely require the new Democratic FTC majority is because of arguments made by conservative critics that such rules are not within the FTC’s authority and would not account for pro-competitive aspects of non-competes, such as investments in trade secrets and employee training. Democrats may also try to advance such rules with others that may not have bipartisan support, such as the right for customers to self-repair and regulations on prescription drugs.

Privacy and Related Data Collection. Unlike in Europe with GDPR, there is no US federal privacy regime that governs the collection and use of data, especially online. The newest FTC appointed commissioner, Alvaro Bedoya, is a privacy expert who has previously advocated to bar law enforcement’s use of facial recognition as well as and automated scanning of social media for purposes of immigration enforcement.

As in labor, the FTC can be expected to engage in rulemaking on this front. It would likely bear upon how corporations are permitted to collect and use personal data, and also touch on areas such as targeted advertising and artificial intelligence. Confirming the fact this is a partisan issue, the existing Democratic Commissioners have stated that they are in favor of privacy rulemaking, whereas the Republican Commissioners have expressed concerns and skepticism over such rules.

FTC Chairwoman Khan has consistently expressed an interest in the intersection of competition and privacy, which touches on their ongoing actions against Big Tech. The Chairwoman has also referenced the intersection between privacy and civil rights, such as those involving personal autonomy and children. Republican opponents can be expected to resist these efforts as overreaches of the FTC’s authority and an attempt to create new substantive laws.

New Types of Deal Challenges. In the opening year of Biden’s FTC, there was bipartisan report to challenge certain vertical deals, which are those between companies that do not directly compete with one another, but rather have a supply or other vertical relationship (such as research support) in the distribution chain. This came as a surprise to several in the antitrust community, because the grand majority of deal challenges are allegedly horizontal, or directly competitive, in nature. Vertical deals are generally considered procompetitive under the law, absent some critical input being foreclosed to competitors.

With the new Democratic majority, the FTC may challenge deals in ways that have never or very seldom been recognized as competition problems. Examples may include mergers that are argued to lead to lower wages for workers, excessive overall bargaining power (also known as conglomerate effects where the merging parties are neither vertically aligned or horizontally competitive), or would lead to the excessive aggregation of data.

These potential efforts dovetail with legislative efforts to substantively expand the antitrust laws to recognize theories of harm that have not been recognized by Courts. Thus, even if such challenges do not succeed, they will embolden efforts to push for legislative changes that may have general bipartisan support.

Price hikes harmful to everyday consumers. With the original COVID-19 outbreak, there were efforts by the Federal Agencies and State AGs to prevent “price gouging” on essential goods such as masks and hand sanitizer. This trend has since spilled over into essentials apart from COVID-19 such as gasoline and meat. Several of these industries were specifically called out by the Biden Executive Order.

One can expect that price hikes in this respect will be defended as normal fluctuations in supply and demand, and it is international phenomenon (such as Ukraine) that is driving up the costs of these goods. The FTC may decide to initiate industry studies or authorize investigations to confirm whether there are any competitive dynamics that are driving these prices.

It would not be a stretch to argue that the FTC is looking for at least one “poster-child” example of how excessive concentration or some other anticompetitive act played a role in such a price increase. If that were the case, it would incentivize corporate America as a whole to confirm that there is no conduct they are involved that could be accused in a similar light.

Ramifications for Business Leaders. Thus, for all of these initiatives, a good rule of thumb for all business leaders is that your company should avoid being the “poster-child” for any of the phenomenon that Biden argues requires these actions and remedies. In short, companies should avoid: practices that anecdotally or globally prevent worker mobility or upward wages for those workers, collecting data that appears to benefit companies in ways that sacrifice privacy rights, completing deals that appear to confirm or aggravate these phenomenon, and increase prices for goods that many Americans rely upon without a clear explanation as to why it was unavoidable.

Put another way, companies should do their best to be a part of the solution to these problems, rather than the opposite. Examples of this would be: promoting and documenting the fact that your company is ahead of the curve on compensation and employee development, use data in ways for which consumers clearly consent and are pivotal to the quality of your offering, complete deals that allow workers and consumers to have increased options rather than fewer, and find ways to build trust with consumers that the prices your company is charging are as aggressive as possible, in response to competition.

Biden Admin Announces Cancelling Nearly $6 Billion In Loan Debt

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In the first indication that President Joe Biden could be preparing to cancel student loan debt, the administration is prepared to wipe out nearly $6 billion owed by hundreds of thousands who attended a for-profit college chain, a possible trial balloon for the wider loan forgiveness that Democrats have been clamoring for.

On Wednesday, around 560,000 borrowers who racked up debt while attending the now-defunct Corinthian Colleges got the good news that their debt is being erased, the largest single such loan discharge in the history of the U.S. Department of Education although former Corinthian students who have honored their obligations and paid off their loans will not receive refunds.

“As of today, every student deceived, defrauded, and driven into debt by Corinthian Colleges can rest assured that the Biden-Harris administration has their back and will discharge their federal student loans,” said U.S. Secretary of Education Miguel Cardona in a statement. “For far too long, Corinthian engaged in the wholesale financial exploitation of students, misleading them into taking on more and more debt to pay for promises they would never keep. While our actions today will relieve Corinthian Colleges’ victims of their burdens, the Department of Education is actively ramping up oversight to better protect today’s students from tactics and make sure that for-profit institutions – and the corporations that own them – never again get away with such abuse.”

Corinthian Colleges filed bankruptcy in 2015 after widespread findings of fraudulent practices including providing false data about the success that students had in finding jobs in their fields of study after graduation; it closed its doors after being hit with a $30 million fine from the Department of Education.

The move is unlikely to satisfy congressional Democrats who, facing an electoral bloodbath in the midterm elections, have been demanding that Biden cancel $50,000 in student debt. He is reportedly leaning toward nullifying $10,000 per borrower for those making less than $150,000 per year.

Rep. Alexandria Ocasio-Cortez, the intellectual driving force of the dominant progressive wing of the Democratic Party was dismissive of the lower number.

“$10k means tested forgiveness is just enough to anger the people against it *and* the people who need forgiveness the most,” the socialist diva tweeted last week. “$10k relieves most the people who owe the least. What relief is there for the most desperate? For them, interest will undo that 10k fast. We can do better.”

The Washington Post Editorial Board criticized Biden’s $10,000 debt forgiveness measure, saying “the president’s apparent plan would still be an expensive and inequitable election-year stunt.”

“These provisions, while welcome, would not stop the policy from becoming yet another taxpayer-funded subsidy for the upper middle class. The president’s means test would be almost useless, as some 97 percent of borrowers would still qualify for forgiveness,” WaPo added.

Activists and desperate Democrats are begging for Biden to “do something” on student loans to stave off an extinction-level event in the midterms, but $10,000 of forgiveness is unlikely to impress the upper-class professional leftists whose debt far exceeds the meager number and passing the buck to taxpayers will only further contribute to the sour mood among many voters who either did not take out loans or paid them back.

Vice President Kamala Harris, who as California’s attorney general sued Santa Ana-based Corinthian, is expected to make the formal announcement on Thursday.

CFPB Encourages States To Use Federal Authorities To Bring Enforcement Actions

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The Consumer Financial Protection Bureau (“CFPB”) issued  an interpretive rule on May 19, reiterating the authority that states have to pursue companies and individuals that violate federal consumer financial protection laws, including the Consumer Financial Protection Act of 2010 (“CFPA”). When Congress enacted the CFPA in 2010, it provided for concurrent enforcement by federal and state regulators. Congress viewed federal preemption of state enforcement efforts as one cause for the Great Recession, and it thus equipped states with express enforcement authority under the CFPA. The CFPB’s new rule interpreting the CFPA is not subject to notice-and-comment rulemaking under the Administrative Procedures Act, and it will become effective upon publication in the Federal Register. The rule affirms that:

  • States are not limited by statutory limitations on the CFPB’s enforcement authority.  The CFPA includes a long list of exemptions to the CFPB’s authority, such as: merchants; retailers; accountants and tax preparers; attorneys engaged in the practice of law; persons regulated by the Securities and Exchange Commission; persons regulated by the Commodity Futures Trading Commission; and auto dealers. The rule interprets these exemptions as not applying to states or state regulatory entities because Congress applied these carve-outs only to the “Bureau” or “Director.” Thus, according to the CFPB, states can use the CFPA to pursue enforcement actions “against a broader cross-section of companies and individuals” than even the CFPB itself.
  • States have authority to enforce the CFPA and other federal financial protection laws. The CFPA authorizes states to bring civil actions against “covered persons” or “service providers” that violate: (1) the CFPA (e.g., by engaging in unfair, deceptive, or
    abusive acts or practices); (2) any of the 18 enumerated consumer laws listed within the CFPA (e.g., Equal Credit Opportunity Act, Fair Debt Collection Practices Act, Truth in Lending Act); or (3) any rule or order prescribed by the CFPB, such as consent orders. The interpretive rule notes that the CFPA requires that states consult with the CFPB before initiating any such action.
  • CFPB enforcement actions do not box out state enforcement actions. Where the CFPB is pursuing enforcement, states can bring coordinated actions or separate
    actions to stop or remediate harm that is not addressed by the CFPB’s action against the same entity. The CFPA allows such concurrent actions except in a few instances, such as for mortgage loan modification and foreclosure rescue services. The CFPB views concurrent state actions as “complementary enforcement activities” that serve to protect consumers at the state level.

The interpretive rule is meaningful more for its timing than its content. States have been empowered to bring civil actions under the CFPA since its passage. Thus, we view this rule as an express call to arms to states to bolster their enforcement efforts − particularly as to: (1) enforcement of Bureau consent orders; and (2) entities that are exempted from the CFPB’s authority.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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It Is Ok To Be NotelessCadwalader, Wickersham & Taft LLP

In the days leading up to the closing of a credit facility, it is not uncommon for the administrative agent to ask each lender a simple question, “do you need a note?”