The month in review
OCC Conditionally Approved Fintech’s Acquisition of a Bank and its Charter
On March 17, 2025, the Office of the Comptroller of the Currency (OCC) granted conditional approval for CenTrust Bank, National Association, based in Northbrook, Illinois, to undergo a significant asset transformation as part of a larger transaction with SmartBiz Loans, a Delaware corporation. SmartBiz aims to become a bank holding company by acquiring CenTrust, which will be renamed SmartBiz Bank, National Association.
This transaction involves two merger steps: SmartBiz merging with CenTrust’s holding company and then SmartBiz merging into it. The transaction will expand CenTrust’s lending and deposit activities nationwide and provide a loan origination platform for partner banks. The OCC’s approval follows a thorough review of regulatory compliance, safety, soundness, and capital adequacy.
The approval includes several conditions:
- CenTrust must notify the OCC of significant business plan changes during its first three years of operation.
- Loan concentrations must align with the business plan.
- The bank must maintain a Tier 1 leverage ratio of at least 11% for three years.
- A $6 million capital injection from SmartBiz is required post-transaction.
- New executives or directors must be approved by the OCC for two years post-transaction.
- A Community Reinvestment Act (CRA) Strategic Plan must be submitted within 90 days and finalized within 12 months of the transaction closing.
- Compliance with all representations and commitments made in the application is mandatory.
Additionally, the OCC granted waivers for residency requirements for certain non-resident directors, subject to ongoing compliance and potential withdrawal.
The approval is contingent on receiving all regulatory clearances, including Federal Reserve approval, and the transaction must be completed within six months unless an extension is granted. The OCC reserves the right to modify, suspend, or rescind the approval if significant changes occur.
This conditional approval marks a significant milestone for CenTrust and SmartBiz, enabling nationwide expansion and innovation in banking services while adhering to strict regulatory oversight.
FTC Granted Preliminary Injunction in Section 5 Claim Against Small Business Lender
The Federal Trade Commission (FTC) secured a preliminary injunction against Seek Capital and its CEO, Roy Ferman, in a case alleging deceptive practices targeting small business owners. The U.S. District Court for the Central District of California granted the injunction, prohibiting Seek Capital from making false claims about securing small business loans or lines of credit and forbidding contact with consumers whose information was obtained before February 20, 2025. The FTC’s November 2024 complaint accused Seek Capital of falsely advertising loan services while instead charging clients thousands of dollars to open personal credit cards, causing over $37 million in financial harm to small business owners. The court found the FTC likely to succeed on its claims and ruled the injunction necessary to prevent further harm while the case proceeds.
In the case of Federal Trade Commission v. Seek Capital, LLC et al., the U.S. District Court for the Central District of California granted the FTC’s motion for a preliminary injunction against Seek Capital, LLC and its affiliates. The FTC alleged that the defendants engaged in deceptive practices that violated the Federal Trade Commission Act (FTCA) and the Consumer Review Fairness Act (CRFA). Specifically, the FTC accused the defendants of misrepresenting their relationships with lenders, falsely advertising “line of credit capability” for credit cards, misrepresenting financing terms (such as 0% APR), charging fees despite promises of “no fees until funding,” misleading consumers about the impact of their services on credit scores, and fabricating or coercing customer reviews. Additionally, the FTC presented evidence that the defendants’ contracts included provisions barring consumers from posting negative reviews, a violation of the CRFA.
The court found that the FTC was likely to succeed on the merits of its claims under both the FTCA and CRFA. Under the FTCA, the defendants were accused of employing deceptive acts and unfair methods of competition, including exaggerating their relationships with lenders, misleading consumers about credit card capabilities, and falsely advertising favorable financing terms. The court also ruled that the defendants’ practice of charging early termination fees contradicted their “no fees until funding” promise and that their misrepresentations about credit score impacts and customer reviews were deceptive. Under the CRFA, the court determined that the defendants violated the law by including provisions in their contracts that restricted consumers from leaving negative reviews.
As part of the injunction, the court prohibited the defendants from engaging in deceptive practices, misrepresenting their services, or restricting consumer reviews. The court also barred the defendants from contacting past or current customers, selling customer information, or destroying business records. Additionally, the FTC was granted expedited discovery to monitor compliance with the order. Despite the defendants’ claims that they had ceased the alleged misconduct and that the injunction would harm their business, the court ruled that the public interest in preventing further consumer harm outweighed the defendants’ private interests.
New and upcoming laws and regulations
- NYDFS Compliance Notifications
- Due date: April 15, 2025
- Businesses that are subject to the NYDFS Cybersecurity Regulations must submit their annual notices of compliance or acknowledge their noncompliance by April 15, 2025. Covered Entities must submit these notices signed by both the highest-ranking executive and the Chief Information Security Officer (CISO), or the senior officer responsible for the cybersecurity program if no CISO exists. They must also retain all supporting records, schedules, and documentation for five years for examination by the department upon request.
- California Rosenthal Act
- Effective date: July 1, 2025
- California will now subject certain commercial finance transactions to the Rosenthal Act, which governs debt collection activities in California. Specifically, the new law expands the act to include commercial debt where the total debt owed to the creditor is no more than $500,000. Commercial finance companies who are subject to the Rosenthal Act will have to comply with substantial debt collection requirements for certain California transactions.
- Dodd-Frank 1071
- Key dates:
- July 18, 2025: Tier 1 Covered Financial Institutions (i.e. those originating at least 2,500 covered credit transactions in both 2022 and 2023) must begin collecting data.
- June 1, 2026: Filing deadline Tier 1 Covered Financial Institutions
- This federal law requires covered finance companies to collect and report data related to certain commercial finance applications and originations. The new law aims to assist regulators in detecting purported disparate impact discrimination claims by commercial finance companies under the Equal Credit Opportunity Act. Note also that smaller Covered Financial Institutions will have to begin collecting data under Section 1071 in 2026.
- NOTE: As reported in this space, the Fifth Circuit Court of Appeals has stayed compliance dates for the 1071 Rule, but only for the named plaintiffs.
Critical insights from Husch Blackwell
Husch Blackwell’s Christopher Friedman and Alex McFall to discuss regulatory issues at the International Factoring Association’s 2025 Annual Meeting in Palm Desert, California
Husch Blackwell Partner Christopher Friedman and Senior Counsel Alex McFall, as well as industry legal veteran Cindy Medina Vega of Raistone Capital, will present a panel at the IFA’s Annual Meeting—the industry’s premier gathering of commercial factors and other alternative commercial finance companies. The panel will focus on key regulations in the commercial factoring space and will highlight regulatory trends and methods that alternative commercial finance companies can use to reduce risk. The conference will take place May 7-9, and registration information can be found here.
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