On December 28, the New York Department of Financial Services (DFS) announced that it had revised its proposed cybersecurity regulations in response to public comments that they would be too burdensome, particularly on smaller institutions. The proposed rules, which were initially announced on September 13, 2016, and set to take effect on January 1, 2017, were billed as a “first-in-the-nation regulation” to protect New York residents from cyberattacks. It would require banks, insurers and other financial services companies regulated by DFS to set up a cybersecurity program aimed at protecting consumer information from cyberattacks. The revised regulation eases certain reporting and encryption requirements, and exempts small institutions from complying with certain sections of the rule. The rule, as revised, is set to take effect March 1, 2017.
On December 22, the Federal Deposit Insurance Corporation (FDIC) announced the development of, and invited public comment on, a new handbook designed to assist de novo bank organizers applying for federal deposit insurance. The handbook is meant to be a resource for organizers navigating a de novo institution’s initial organizational phases, including pre-filing activities, the federal deposit insurance application process and pre-opening activities. While functioning as a centralized reference, the handbook also contains helpful links, references and other resources. The handbook is intended to clarify the FDIC’s process, not to establish new or modify current FDIC policy or guidance. The 60-day comment period ends on February 20, 2017.
On December 30, the federal banking agencies finalized a new, streamlined quarterly consolidated report of condition and income (a.k.a., a call report) for banks with less than $1 billion in assets and no foreign offices. The new call report, effective with the March 31, 2017, filing date, reduces the total number of pages for small banks from 85 to 61 as a result of removing approximately 40% of the currently required data items. Recognizing that small institutions operate under widely varying business models, a supplemental schedule to the streamlined call report, to the extent applicable, would be used to collect data on complex and specialized activities.
On December 28, Office of the Comptroller of the Currency (OCC) issued a final rule that prohibits national banks from investing or dealing in any industrial or commercial metal. This prohibition came about as a result of various federal agencies reviewing banking activities as required by the Dodd Frank Act. Previously, on the basis of an interpretive letter issued in 1995, banks were permitted to buy and sell copper on the grounds that trading copper, at that time, was becoming increasingly similar to trading gold, silver, platinum and palladium. The 1995 interpretive letter stated that national banks could buy and sell copper under the express authority to buy and sell coin and bullion and as part of or incidental to the business of banking. The final rule, which supersedes the 1995 letter, (1) excludes industrial and commercial metals from the terms “coin,” and “bullion”; and (2) provides that dealing or investing in industrial or commercial metal is not part of, or incidental to, the business of banking. The final rule also provides a one-year divestiture period for banks that currently hold industrial or commercial metal, and explicitly applies the prohibition to federal savings associations.
On December 29, the federal bank regulatory agencies announced final rule adjustments to the asset-size thresholds they use to define “small bank” or “small savings association” and “intermediate small bank” or “intermediate small savings association” under the Community Reinvestment Act (CRA) regulations, effective on January 1, 2017. The CRA requires annual adjustments to the asset-size thresholds, which are based on changes in the Consumer Price Index (CPI). As a result of a 0.84 percent increase in the CPI in this cycle, the definition of “small bank” or “small savings association” has changed to mean an institution that, as of December 31 of either of the prior two calendar years, had assets of less than $1.226 billion. Similarly, the definition of an “intermediate small bank” or “intermediate small savings association” has changed to mean an institution with assets of at least $307 million as of December 31 of both of the prior two calendar years and less than $1.226 billion as of December 31 of either of the prior two calendar years. A list of the current and historical asset-size thresholds is available on the Federal Financial Institutions Examination Council’s website.
The Consumer Financial Protection Bureau (CFPB) has updated its Resources for HMDA Filers webpage. The 2017 Loan/Application Register Formatting Tool has been released and modifications have been made to the Technology Preview, Filing Instructions Guide for data collected in or after 2018, and Frequently Asked Questions (FAQs).
Enforcement & Litigation
On January 3, the CFPB announced that it had entered into two consent orders, available here and here, with two national credit reporting agencies over allegations that the agencies violated the Consumer Financial Protection Act by misrepresenting how lenders use certain credit scores that the agencies sell to consumers. The CFPB also alleged that the agencies enrolled consumers in monthly credit monitoring subscription services without obtaining consumers’ informed consent. View the Enforcement Watch blog post.
On December 28, the U.S. Department of Justice (DOJ) announced a $48 million settlement with a national mortgage lender, resolving allegations that the lender violated the False Claims Act by underwriting and endorsing Federal Housing Administration (FHA)-insured loans that failed to comply with FHA underwriting guidelines. View the Enforcement Watch blog post.
On December 28, the U.S. Department of Justice (DOJ) announced that it filed a complaint against, and entered a consent order with, two Ohio-based banks, resolving allegations that the banks had violated the Fair Housing Act and Equal Credit Opportunity Act by engaging in discriminatory lending. View the Enforcement Watch blog post.
The courts have generally approved third-party releases when there is consent, but without consent only in limited or “extraordinary” circumstances. Bill Weintraub, partner in Goodwin’s Financial Industry Practice and co-chair of its Financial Restructuring Practice, discusses the general standard for approval, the type of consent required, multi-factor tests used by some courts and the jurisdiction of the bankruptcy court in The Review of Banking & Financial Services (Dec. 2016).
Section 6039 of the Internal Revenue Code requires corporations to provide information statements to employees (including former employees) and information filings to the IRS regarding exercises of incentive stock options (ISOs) by employees and former employees. Similar information statements and filings are required to report transfers of shares of stock by employees and former employees that were purchased under an employee stock purchase plan (ESPP) designed to meet the requirements of Section 423 of the Internal Revenue Code. To satisfy the information return and statement requirements, companies will need to complete and file Form 3921 with respect to ISO exercises and Form 3922 with respect to ESPP transfers, as applicable. For more information, view the client alert issued by Goodwin’s ERISA and Executive Compensation Practice.
Dave Permut, a partner in Goodwin’s Financial Industry and Consumer Financial Services Litigation practices, will be speaking at ACI's 22nd National Forum on Residential Mortgage Litigation & Regulatory Enforcement on the “Fair Lending Updates: Status of Disparate Impact since Texas Department of Housing; Increased Enforcement by Regulators Including the CFPB; Using UDAAP Where Other Statutes or Regulations Fail; The Latest Litigation Strategies and Recent Themes and Issues” panel.
The 2017 Consumer Financial Services Committee Meeting of the ABA Business Law Section will consist of nearly 250 practice-area professionals. Goodwin is a sponsor. For more information, please visit the event website.
Nathan Brodeur, counsel in Goodwin's Environmental and Real Estate Development and Permitting practices will be speaking at the Environmental Bankers Association 2017 Winter Conference. This panel discussion, “Bridging the Divide: International Due Diligence for Corporate and Commercial Real Estate” will focus on the wide differences, limitations and process considerations for undertaking ESA diligence in Latin America and the European Union. For more information, please visit the event website.
Consumer financial services companies are facing unprecedented regulatory and enforcement scrutiny, mounting litigation and costly class actions, and there is no sign of change coming anytime soon. That is why it is essential that in-house and outside counsel have a mastery of new class action litigation and settlement trends, emerging theories of liability, the latest enforcement actions and regulatory initiatives, and the most effective defense and settlement strategies. It is with this in mind that American Conference Institute has developed its 27th National Conference on Consumer Finance Class Actions & Litigation with a brand new Miami location. Thomas Hefferon, partner and co-chair of Goodwin’s Financial Industry Practice, will serve as co-chair of this conference.