LIBOR Act Provides Answers, Safe Harbor for Lenders
On March 15, 2022, the Consolidated Appropriations Act of 2022 was signed into law. Division U, the Adjustable Interest Rate (LIBOR) Act, resolves what had otherwise been a pending concern with variable interest rate loan contracts that use LIBOR as their index.
LIBOR, which historically had been used as the variable rate index in many commercial and consumer loan contracts, is scheduled to sunset on June 30, 2023. While commercial and consumer lenders have now largely transitioned away from writing new contracts using LIBOR, there are $200 trillion worth of LIBOR-based legacy contracts. Many of those contracts do not clearly provide for a specific replacement to LIBOR, raising the issue of what would happen to those contracts when LIBOR is discontinued. The LIBOR Act now provides a legislative answer to that question and a safe harbor for lenders who comply with its provisions.
The LIBOR Act provides that the benchmark replacement rate selected by the Federal Reserve Board (FRB) will replace LIBOR as the variable rate index in all affected loan contracts. It is widely anticipated that the FRB will designate the Secured Overnight Financing Rate (SOFR) as the benchmark replacement rate. The LIBOR Act also provides that use of the designated benchmark replacement constitutes the use of a “comparable” or “commercially reasonable replacement rate” using language commonly found in variable interest rate contract provisions. In addition, the LIBOR Act provides that use of the designated benchmark replacement constitutes a safe harbor that protects the creditor from any legal liability.
Specifically addressing consumer variable rate loans, the LIBOR Act authorizes the FRB to adjust the benchmark replacement over a one-year period starting on June 30, 2023. The purpose of these adjustments is to “transition linearly from the difference between” the LIBOR tenor specified in the consumer loan documents to the benchmark replacement over that time period. At the end of that period, the FRB will publish the benchmark replacement incorporating the “tenor spread adjustments” specified in the LIBOR Act. Presumably, this phase-in for consumer loans will lessen the impact of the transition away from LIBOR on consumer borrowers.
Finally, the LIBOR Act directs the FRB to promulgate regulations to implement the LIBOR Act within 180 days of enactment, meaning that such regulations are expected in September 2022. The LIBOR Act and its forthcoming regulations, taken together with the amendments to Regulation Z and its Official Comments that address disclosure issues related to the LIBOR transition and take effect on April 1, 2022, appear to resolve the contractual and consumer protection issues arising from the demise of LIBOR.
President Biden Signs Executive Order on Ensuring Responsible Development of Digital Assets
By Rachael L. Aspery, McGlinchey Stafford, PLLC
On March 9, 2022, President Biden signed an Executive Order that serves as the first “whole-of-government” strategy that addresses both the benefits and risks of digital assets and their underlying technology. The Order outlines six priorities that factor into addressing a national policy for digital assets, which include: consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.
The priorities call attention to the heightened risk that digital assets pose to consumers, investors, and businesses if risks are not properly mitigated and protections are not implemented. The priorities highlight that oversight, standards, and other safeguards are essential in digital asset exchanges, trading platforms, and financial services so that appropriate measures are taken to ensure consumer protection and privacy and to prevent unlawful surveillance that ultimately can contribute to human rights abuses.
Additionally, the priorities address the need to mitigate illicit finance and national security risks posed by misuse of digital assets, including money laundering, cybercrime, ransomware, narcotics and human trafficking, and terrorism and proliferation financing. The Order acknowledges that the growth in decentralized financial ecosystems, peer-to-peer payments activity, and obscured blockchain ledgers contributes to the market and national security risks. The U.S. must ensure appropriate controls and accountability for the digital asset ecosystem to promote heightened standards for regulation, oversight, and law enforcement action.
The priorities also address the United States leadership in the fabric of the global financial system, including its continued contributions in the development of payment innovations and digital assets, and the importance of remaining competitive in the technological and economic development of digital assets, architectures, platforms, and payment systems. However, it must do so responsibly by focusing on privacy, security, and technologies that defend against illicit finance activities, exploitation, and human rights violations, while reducing negative climate impacts and environmental pollution resulting from cryptocurrency mining.
Additionally, the Order calls for interagency coordination to implement the Order, and it articulates the “highest urgency” to research and develop the design and deployment of a United States Central Bank Digital Currency (“CBDC”) that is consistent with the priorities outlined in the Order, to ensure the global financial system has appropriate transparency, connectivity, and privacy protections. The Order explores the idea of a digital version of the U.S. Dollar. President Biden in the Order acknowledges the benefits and opportunities that digital currency can present, particularly with cross-border funds transfers and payments to foster greater access to the financial system, but not without risk mitigation. Relevant departments and agencies have between 90 and 180 days to submit reports to the President pertaining to topics such as the future of money and payment systems, the conditions of adopting broad digital assets and technological innovation that may influence the outcomes presented, the implications for the United States financial system, and means to address illicit finance risks.
Utah Governor Signs Nation’s Fourth Comprehensive Consumer Data Privacy Law
By Dailey Wilson, Hudson Cook, LLP
On March 24, 2022, Utah Governor Spencer Cox signed into law the Utah Consumer Privacy Act (“UCPA”), which takes effect on December 31, 2023. By enacting the UCPA, Utah becomes the fourth state in the nation to implement a generally applicable consumer data privacy law, after California (the California Consumer Privacy Act or CCPA), Virginia (the Virginia Consumer Data Protection Act), and Colorado (the Colorado Privacy Act). While the UCPA is similar to these other state laws, businesses subject to the law may face different obligations than they do under other state laws. Regardless, the continued expansion of the state data privacy regulation patchwork complicates data privacy compliance efforts.
The UCPA applies to any controller or processor that conducts business in Utah or produces a product or service that is targeted to Utah consumers; has an annual revenue of $25 million or more; and either (1) during a calendar year controls or processes personal data of 100,000 or more Utah residents or (2) derives over 50% of its gross revenue from the sale of personal data and controls or processes personal data of 25,000 or more Utah residents. The UCPA applies to information that is linked or reasonably linkable to an identified or readily identifiable individual. The law also provides special protections for sensitive data, which includes personal data revealing racial or ethnic origin, religious beliefs, sexual orientation, citizenship or immigration status, medical history, mental or physical health condition, or medical treatment or diagnosis by a health care professional. Sensitive data also includes the processing of genetic personal data or biometric data, if the processing is for the purpose of identifying a specific individual, as well as specific geolocation data.
However, the UCPA does not apply to, among other things:
- financial institutions or their affiliates governed by, or personal data processed in accordance with, the federal Gramm-Leach-Bliley Act;
- certain activities regulated by the Fair Credit Reporting Act;
- information on persons acting in a commercial or employment context;
- deidentified data, aggregated data, or, in some contexts, pseudonymous data; or
- certain publicly available information.
The UCPA also does not restrict a controller’s or processor’s ability to comply with other law, engage in certain fraud prevention and detection and security activities, or engage in certain internal processing uses, among other limited activities.
The UCPA provides consumers with a number of rights related to their personal data. Under the UCPA, consumers have the right:
- to confirm whether or not a controller (the person that determines the purpose and means of processing personal data) is processing personal data;
- to access their personal data;
- to delete personal data that the consumer provided to the controller;
- to obtain a portable copy of personal data that the consumer previously provided to the controller in a format that is readily usable and allows the consumer to transmit the data to another controller without impediment; and
- to opt out of the processing of personal data for (1) targeted advertising or (2) the sale of personal data.
The UCPA imposes different obligations depending on whether the business is a controller or a processor (the entity processing personal data on behalf of the controller). Therefore, a business will need to analyze whether it is acting as a controller or a processor when engaging in any personal data processing. There also are requirements for contracts between controllers and processors as well as requirements for engaging subcontractors.
The Utah attorney general has the exclusive authority to enforce the UCPA. The attorney general may seek civil penalties of up to $7,500 for each violation of the UCPA, in addition to actual damages for the consumer. The UCPA provides for a thirty-day right to cure. The UCPA does not provide for a private right of action.
Utah Enacts Commercial Financing Disclosure Law
By Katherine C. Fisher, Hudson Cook, LLP
On March 24, 2022, Utah Governor Spencer Cox signed S.B. 183, the Commercial Financing Registration and Disclosure Act (“CFRDA”). This makes Utah the third state to adopt a commercial financing disclosure law, following California and New York. However, the Utah disclosure law does not include an “APR” disclosure requirement. APR disclosure requirements have proven difficult to implement and have delayed the effective dates of the disclosure laws in California and New York.
Beginning on January 1, 2023, the CFRDA requires a provider of commercial financing in Utah to register with the Nationwide Multistate Licensing System and Registry and with the Utah Department of Financial Institutions (“DFI”). Additionally, in a commercial financing transaction consummated on or after January 1, 2023, the provider must disclose certain information to a business that will receive funding before consummation of the transaction. This information includes:
- The total amount of funding provided to the business.
- The total amount of funding disbursed to the business, if different from the amount provided.
- The total amount that the business must pay to the provider.
- The total dollar cost of the commercial financing transaction, which is the difference between the amount that the business must pay to the provider and the total amount of funding provided to the business.
- The manner, frequency, and amount of each payment, or if payment amounts may vary, the manner and frequency of payments and an estimate of the amount of the first payment.
- A statement of whether prepayment may increase or decrease the cost of the commercial financing transaction, including references to any relevant provisions in the commercial financing transaction agreement.
- Any part of the funding that the provider pays to a broker.