In addition to regulatory reform, the transition to a Trump Administration is expected to result in significant personnel and policy changes at numerous government agencies. On November 14, Securities and Exchange Commission (SEC) Chair Mary Jo White became the first such agency head to announce her resignation, effective at the end of the Obama Administration. White has served as SEC Chair since April 2013. White’s Republican successor, who has not yet been named, is expected to be less aggressive in pursuing enforcement actions and using enforcement as a tool to regulate the securities industry.
On October 13, the U.S. Securities and Exchange Commission (Commission) unanimously adopted regulatory changes that require open-end funds, including traditional mutual funds and exchange-traded funds, to establish liquidity risk management programs. The Commission also adopted, by a 2-1 vote, rule amendments to permit certain open-end funds to use “swing pricing.” We provided a brief report on these developments in a preliminary update issued on October 14. This Alert summarizes in further detail the critical elements of these regulatory developments. For more information, view the client alert issued by Goodwin’s Investment Management Practice.
The staff of the Division of Corporation Finance of the SEC has issued three additional responses to company no-action requests to exclude shareholder-proposed amendments to proxy access bylaw provisions previously adopted by the company. Each of the three SEC responses states that the SEC staff does not believe that the company can exclude the shareholder proposals on the basis that either: the shareholder’s proposed amendments (which included three or five specific amendments) constitute more than one proposal and could therefore be excluded by the company in reliance on Rule 14a-8(c); or the company had substantially implemented the shareholder’s proposed amendments through its initial adoption of a proxy access bylaw that differed in its ancillary provisions from the amendments subsequently proposed by the shareholder. For more information, view the client alert prepared by Goodwin’s Public Companies Practice.
The Federal Financial Institutions Examination Council (FFIEC), which includes the CFPB, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) as well as other agencies (together, the Agencies), has revised the Uniform Interagency Consumer Compliance Rating System (CC Rating System). The CC Rating System, established in 1980, was revised to reflect the regulatory, supervisory, technological and market changes that have occurred in recent years to better reflect current consumer compliance supervisory approaches and to more fully align the CC Rating System with the Agencies’ current risk-based, tailored examination processes. The new system will begin to be used by FFIEC member agencies for examinations beginning on or after March 31, 2017. In order to ensure regulatory consistency, the new rating system will apply to all institutions, not just banks. In the past, regulatory supervision consisted of transaction testing. Now the Agencies will focus instead on an institution’s compliance management systems (CMS). Each institution will continue to receive a rating from 1 to 5, based primarily on the adequacy of its CMS, specifically with respect to (a) board and management oversight, (b) compliance program, and (c) violations of law and consumer harm. According to the FFIEC, these revisions were not developed to set new or higher supervisory expectations for financial institutions and their adoption will represent no additional regulatory burden; rather, the revisions are designed to better reflect current consumer compliance supervisory approaches and to more fully align the rating system with the Agencies’ current risk-based, tailored examination processes.
Enforcement & Litigation
On November 10, the Federal Trade Commission (FTC) announced that it had filed a lawsuit in the Northern District of Georgia against a prepaid credit card provider. The FTC's complaint alleges violations of Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.” The complaint also alleges the company violated the FTC Act by claiming all consumers were guaranteed approval to use the credit cards when in fact consumers were often not approved, and by representing that it would provide provisional credits for any user-reported accounting errors, which the company failed to do. The FTC seeks an injunction as well as restitution for consumers. View the full Enforcement Watch blog post.
On November 9, the New Mexico Attorney General (AG) announced that a New Mexico judge issued a final judgment against a payday lender and ordered the lender to pay $32 million in restitution. The court found the lender had “fashioned their loans and business practices so as to circumvent regulation of payday loans” by decreasing the amount of payday loans issued and increasing the amount of installment loans issued. View the full Enforcement Watch blog post.
On November 9, the New York Department of Financial Services (NYDFS) announced it entered into a consent order with a New Jersey-based mortgage company and its subsidiary. The order stems from multiple investigations concerning loans originated between 2008 and early 2014. The NYDFS alleges that the company had inadequate oversight of its origination practice, “shortcomings in the internal audit function,” “absence of adequate internal controls,” and allegedly violated the Truth in Lending Act. The NYDFS also alleged, among other things, that the company compensated its originators in a way that caused borrowers to be steered toward higher-cost loans. View the full Enforcement Watch blog post.
On November 4, the Ohio Attorney General’s office (AG) announced it filed a complaint against a California-based mortgage-relief services provider and its director (Defendants) alleging violations of Ohio’s consumer protection laws. The complaint alleges that the provider sent advertisements to Ohio residents stating that the company has helped consumers to “receive payment relief, have foreclosure proceedings stopped, eliminate second mortgages” and receive “relief from monetary damages.” In order to receive their services, consumers allegedly would sign a contract and pay Defendants a fee ranging from $1,745 to $3,900. View the full Enforcement Watch blog post.
Trump and Clinton grabbed all of the headlines, but marijuana-related referenda were also on the ballots in nine states. The results of the referenda will dramatically change the landscape of state-legalized marijuana in the United States. Before the November 8 election, only four states – Washington, Colorado, Alaska and Oregon – and the District of Columbia permitted the sale of marijuana for recreational use (to adults age 21 and over). Four additional states – California, Massachusetts, Nevada and Maine – will now be added to this roster. In addition, the election results will add Arkansas, Florida and North Dakota to the 25 states and the District of Columbia that had already legalized the medical use of marijuana. For more information, view Goodwin’s client alert.
Goodwin partner Peter LaVigne joined the private equity panel for a November 1 Navatar Group webinar, titled, "Solving Private Equity's Broker-Dealer Compliance Challenge." Panelists discussed the background of the Blackstreet Capital Management case – which settled after finding that the manager in that case had acted as an unregistered broker, the lessons that can be drawn from it, and solutions to the broker registration problem for private equity fund managers. View the webinar and presentation slides.
Join Goodwin and LendIt for this Marketplace Lending webinar featuring Goodwin partner Mike Whalen. Marketplace lending originations are projected to quadruple in the next four years, but regulatory and business considerations show that challenges still exist. This forum, based on a culmination of a series of industry alerts published by Goodwin, will provide actionable ideas on how online lending platforms and banks can partner in this innovative age. If you are a small business or consumer lender, this forum will help you better understand how partnerships can be structured to stabilize your business model. Banks of all sizes, commercial, community and regional, will learn how technological advances can help improve user experience and what processes can be outsourced or acquired. Register for this webinar.
Consumers purchasing products or services are often required to agree to assert claims only individually and only in arbitration. The Supreme Court has held that, as a general matter, these terms of sale are enforceable. The CFPB seeks to ban them with respect to financial services such as credit cards and loans. This panel will discuss the benefits and risks of regulating consumer arbitration. For more information, view the event website.
Directors, C-Suites, and General Counsel are increasingly focusing on compliance – a critical aspect to every business operation. Mistakes can seriously heighten corporate and personal liability. Goodwin partner Richard Strassberg joins Jason Brown, Chief Deputy Attorney General of New York State, Susan Schroeder, Senior Vice President, Deputy Chief, Enforcement Department of FINRA, and Jonny Frank, partner at StoneTurn Group. They will provide an overview of key national and state regulatory issues in financial services and other industry compliance.
Goodwin is hosting the 5th Annual Banking Symposium, a forum for CEOs and senior management of financial institutions to discuss critical and emerging issues in the industry. This year's theme, Unwinding the Road Ahead, will cover the aftermath of the 2016 presidential election and the effects of the new political landscape on financial institutions, the regulatory and compliance issues that are keeping you and your peers up at night, and how banks and Fintech partnerships are driving revenue and enhancing the bottom line. For event information and a list of speakers, please visit www.bankingsymposium.com.