Weekly RoundUp
May 11, 2016

Financial Services Weekly News

Arbitration Rules Just the Beginning.  Having issued its long-expected proposed rules restricting the use of arbitration clauses in contracts for consumer financial products and services, many were hoping that the Consumer Financial Protection Bureau (CFPB) might go on an eagerly awaited summer vacation. But with actions on prepaid accounts, small dollar/payday loans, small business data collection, debt collection practices, discriminatory auto lending practices, and checking account access, as well as the continuing review of the regulation of nonbank financial companies, still pending on the agenda, it looks to be a busy summer for the CFPB and perhaps a long summer for consumer financial services companies.

Regulatory Developments

Client Alert: CFPB Proposes Rules Prohibiting Class-Action Waivers in Arbitration Agreements

On May 5, the CFPB issued long-expected proposed rules that will drastically limit the use of pre-dispute arbitration clauses in contracts for consumer financial products and services. First, the proposed rules would prohibit pre-dispute arbitration agreements that bar consumers from filing or participating in a class action. Second, for those consumer disputes that are arbitrated, the proposed rules would require the financial services companies that engage in arbitration to submit various arbitration records to the CFPB, including claims and awards, so that the CFPB can monitor these arbitrations “to ensure that the arbitration process is fair for consumers.” Please see the client alert prepared by Goodwin’s Consumer Financial Services Litigation group for more information.

U.S. Treasury Department Issues White Paper on Online Marketplace Lending Industry

On May 10, the U.S. Department of the Treasury (Treasury) issued a white paper regarding its review of the online marketplace lending industry. Entitled, “Opportunities and Challenges in Online Marketplace Lending,” the white paper supplies an overview of the marketplace lending landscape, reviews stakeholder opinions, and provides policy recommendations, including (1) providing more “effective oversight” of nonbank lenders, which could lead to greater transparency and “better outcomes for borrowers;” (2) enacting consumer-style protections for small business loans of less than $100,000; (3) developing industry standards for nonbank lenders on handling servicing and delinquencies; (4) creating a private-sector registry for online lenders’ capital markets activities and partnering with community development financial institutions; and (5) convening an interagency working group to coordinate policy actions.

FHFA Adjusts Multifamily Lending Caps for Fannie Mae and Freddie Mac

On May 4, the Federal Housing Finance Agency (FHFA) announced that it increased the 2016 multifamily lending caps for Fannie Mae and Freddie Mac from $31 billion to $35 billion, effective immediately. The adjustment is based on increased estimates of the size of the 2016 multifamily finance market and is consistent with FHFA’s 2016 Scorecard for Fannie Mae and Freddie Mac, where the FHFA agreed to review the size of the multifamily finance market each quarter and to increase caps if necessary.

FinCEN Issues Final Customer Due Diligence Rule

On May 9, FinCEN released the text of its final customer due diligence rule under the Bank Secrecy Act. The rule will require banks to collect information on beneficial owners when an account is opened. A beneficial owner is an individual who owns more than 25% of the equity interests in a company or is the single individual who exercises control. The rule allows banks to rely on information provided by the customer, and it also includes certain exceptions from coverage. The rule will be effective July 11 of this year, but compliance is not mandatory until May 11, 2018.

Treasury Proposes Legislation and Regulation to Counter Money Laundering and Corruption, and Combat Tax Evasion

On May 5, Treasury announced several actions designed to “strengthen financial transparency and combat the misuse of companies to engage in illicit activities.” In addition to finalizing the Customer Due Diligence Final Rule discussed above, Treasury also proposed Beneficial Ownership legislation and regulations related to foreign-owned, single-member limited liability companies. According to Treasury, “together, these efforts target key points of access to the international financial system – when companies open accounts at financial institutions, when companies are formed or when company ownership is transferred, and when foreign-owned U.S. companies seek to evade their taxes.”

Federal Reserve Board Proposes a Rule Regarding Qualified Financial Contracts

On May 3, the Federal Reserve Board proposed a rule that would require U.S. global systemically important banking institutions (GSIBs) and the U.S. operations of foreign GSIBs to amend qualified financial contracts (QFCs) to prevent the QFCs’ immediate cancellation if the firm were to enter bankruptcy or a resolution process. QFCs are used for derivatives, securities lending and short-term funding transactions, such as repurchase agreements. The proposal would only apply to bilateral, uncleared QFCs so as to avoid a mass termination of QFCs that may lead to the disorderly unwinding of the GSIB. The purpose of this proposal is to reduce the risk of a run on the solvent subsidiaries of a failed GSIB caused by a large number of firms terminating their QFCs at the same time. The proposal requires that GSIBs make clear in their QFCs that the U.S. special resolution regimes apply and that their QFCs restrict the ability of counterparties to terminate the contract, liquidate collateral or exercise other default rights based on the resolution of an affiliate of the GSIB. The comment period on the proposal will be open until August 5, 2016.

OCC Issues New Handbook on Private Student Lending

On May 9, the Office of the Comptroller of the Currency (OCC) added a new booklet on private student lending to its Comptroller’s Handbook. The booklet discusses how banks may legally and prudently engage in private student lending and the risks inherent in such lending; provides information on unique aspects of private student loans and industry practices; and includes private student lending product information, the processes involved in lending and risk management functions, and regulatory expectations for safe and sound operations. The booklet also provides additional notes on guaranteed rehabilitated student loans, a pool of loans that a small number of OCC-regulated community and midsize banks have shown interest in and have added to their balance sheets.

FDIC Seeks Comment on Mobile Financial Services Strategies and Participation in Economic Inclusion Demonstrations

On May 3, the Federal Deposit Insurance Corporation’s (FDIC) Division of Depositor and Consumer Protection issued Financial Institutions Letter 32-2016 seeking input from financial institutions, consumer groups and other stakeholders on the FDIC’s plans to assess opportunities for mobile financial services (MFS) to enhance underserved consumers’ banking experiences. The FDIC has identified a set of six strategies that banks employing MFS may consider to better meet consumer needs, as well as potential demonstrations that can document the usefulness of certain strategies. The FDIC is soliciting comments and feedback on (1) financial institutions’ current implementation of these strategies; (2) the best way to shape a demonstration project; and (3) indications of interest from financial institutions that may wish to participate in a demonstration. Feedback is requested by June 15, 2016.

Goodwin Procter News

ACI's Women Leaders in Financial Services Law and Compliance

Consumer Financial Services Litigation partner Sabrina Rose-Smith will speak at the ACI Women Leaders in Financial Services Law and Compliance conference on May 12 in New York. She will participate in the panel discussion, “Substantive Updates Part One: What Women Leaders in Finance Must Know About CFPB Regulations, Enforcement, Compliance, and Litigation,” which will provide attendees with a rundown on the latest developments affecting the future of financial services industry law. Goodwin is the exclusive sponsor of the conference cocktail reception.

American Bankruptcy Institute's 18th Annual NYC Bankruptcy Conference

This conference is a unique one-day educational forum, designed especially for experienced professionals. The event is designed to provide opportunities to connect with the industry’s leading bankruptcy professionals. The expanded workshop format allows for exchanges between panelists and attendees and a customized learning experience. Financial Institutions partner Bill Weintraub will be speaking on the Ethics Panel, "Current Issues in Retention and Compensation of Bankruptcy Professionals." For more information, please visit the event website.

ACC Greater NY Chapter: In-House Counsel Toolkit

Goodwin COO Mike Caplan will be participating in a panel discussion on “Building a Successful Partnership with Outside Counsel,” at the ACC In-House Counsel Toolkit event on May 18 in New York. The full-day event features three plenary sessions with three concurrent track sessions on topics relevant to modern in-house counsel.

PERE: CFOs and COOs Forum

Financial Institutions partner Brynn Peltz will be participating in a panel discussion on “Transparency: a clear view of fees and expenses,” at the PERE CFOs and COOs Forum on May 18 -19 in New York. The conference provides opportunities for private real estate finance and operations executives to speak directly with their peers about the evolution of the CFO/COO role, as well as get finance, compliance and operational industry updates.