Regulatory Developments
President Signs Resolution Disapproving SEC’s Resource Extraction Rule
President Trump has signed H.J. Res. 41, which “disapproves the rule submitted by the SEC relating to “Disclosure of Payments by Resource Extraction Issuers” and provides that “such rule shall have no force or effect.” On February 2, the U.S. Senate passed a Joint Resolution under the Congressional Review Act that formally disapproves of the SEC’s final rule requiring disclosure of payments by certain “resource extraction issuers.” The Senate vote followed one week after the House of Representatives voted in favor of the same disapproval resolution. The disapproval resolution effectively vacates the SEC resource extraction rule, and prohibits the SEC from issuing any future rules on the same topic without explicit direction from Congress. The disapproval resolution leaves the statutory mandate in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) intact but unenforceable.
On February 10, the Federal Reserve Board (FRB) issued a revised publication on the three supervisory scenarios for annual stress tests required under the Dodd-Frank Act stress testing rules and the Capital Plan Rule. The revisions correct the historical values for the BBB corporate yield. The corrections affect the baseline, adverse and severely adverse scenarios. In the adverse and severely adverse scenarios, the BBB corporate yields peak at slightly lower levels after the correction. The correction also lowered yields in the baseline scenario, but the differences are smaller than in the other two scenarios. A complete list of the revisions is provided on the “errata” page of the FRB’s publication.
CFPB Updates HMDA Compliance Page
The CFPB has updated its HMDA compliance resources page. The new resources include a webinar that discusses identifiers and other data points, including those related to applicants and borrowers, and a chart that illustrates banks’ options for collecting and reporting ethnicity and race information required by Regulation C.
Fintech Flash: New York Looks to Further Regulate Fintech Lenders
New York’s 2018 Budget contains a bill aimed at allowing the Department of Financial Services “to better regulate the business practices of online lenders.” The bill would remove the interest trigger in the Licensed Lender Law and require a license to make consumer loans of $25,000 or less and business loans of $50,000 or less at any interest rate. The bill also potentially implicates licensing for marketplace lending platforms using a bank partnership model and includes language of interest to the merchant cash advance and factoring industries. View the Fintech Flash issued by Goodwin’s Fintech Practice.
Bitcoin Investment Trust Files Registration Statement For IPO
Bitcoin Investment Trust filed a public registration statement with the SEC on January 20, 2017, for a proposed initial public offering. This is the second bitcoin investment vehicle trying to register its securities after SolidX Bitcoin Trust filed last July. According to its registration statement, the Bitcoin Investment Trust is a passive investment fund that will hold bitcoins from U.S. dollar-denominated online exchanges that fit specific criteria. View the Digital Currency and Blockchain Perspectives blog post.
Enforcement & Litigation
ABA and National Bank File Suit Over Federal Reserve Dividend Cut
On February 9, the American Bankers Association and Washington Federal N.A., a national bank headquartered in Seattle, filed a class action lawsuit against the United States in the Court of Federal Claims in Washington, D.C. The lawsuit seeks to reimburse Federal Reserve member banks for improper reduction of dividend payments as required by the Fixing America's Surface Transportation Act (FAST Act) passed by Congress and signed by the president in late 2015. Prior to passage of the FAST Act, the Federal Reserve had paid a 6% annual dividend to banks that purchase stock in the regional Federal Reserve Banks, a rate that was codified in the Federal Reserve Act of 1913 and is memorialized in contracts between the Federal Reserve Banks and their member bank stockholders. In 2016, as required by the FAST Act, banks with more than $10 billion in assets were paid dividends at a rate of approximately 2% instead of 6%. The complaint asserts breach of contract and taking of private property without just compensation in violation of the Fifth Amendment to the U.S. Constitution.
Texas Court Upholds DOL Fiduciary Rule
On February 8, a judge in the U.S. District Court for the Northern District of Texas ruled that the Department of Labor (DOL) acted within its statutory authority in issuing the fiduciary rule last year. However, given the change in administration, the ultimate impact of the judge’s decision may be negligible. As discussed in the February 8 edition of the Roundup, on February 3, President Trump signed a Presidential Memorandum directing the DOL to examine the Fiduciary Rule “to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice,” raising the chances that the Fiduciary Rule as currently drafted does not become operative in April as scheduled.
On February 9, the Attorney General’s Office for the State of Georgia (Georgia AG) announced that it reached a settlement and entered into a consent order with a California-based online lender relating to an alleged “rent-a-tribe” scheme. The consent order, filed in Georgia state court, bars the lender from doing business in Georgia unless and until it complies with the state’s usury, lending and licensure laws. The settlement also requires the lender to provide over $40 million in financial relief to Georgia borrowers. View the Enforcement Watch blog post.
On February 7, the CFPB and the New York Attorney General (NY AG) jointly announced they filed suit in the U.S. District Court for the Southern District of New York against a settlement advance company and its founder. The Complaint alleges that the company violated section 1054 of the Consumer Financial Protection Act (CFPA), 12 U.S.C. § 5564, New York Executive Law § 63(12), and New York General Business Law (GBL) Article 22-A, §§ 349 and 350 by defrauding 9/11 Responders and NFL players. View the Enforcement Watch blog post.
On February 7, the U.S. Attorney for the Eastern District of New York, the Office of the Inspector General for the Department of Housing and Urban Development (HUD), and the Inspector General for the Federal Deposit Insurance Corporation announced a settlement agreement and consent order with a residential mortgage lender and several of its executives, including its Chief Executive Officer and Chief Operating Officer. The mortgage lender originates and underwrites loans insured by HUD’s Federal Housing Administration (FHA). View the Enforcement Watch blog post.
On January 31, the CFPB announced that it ordered a California-based mortgage lender to pay $3.5 million in civil penalties for an illegal mortgage kickback scheme. According to the CFPB, the lender entered into several different referral programs with multiple third parties, each of which the CFPB contends violated Section 8(a) of Real Estate Settlements Procedures Act (RESPA), 12 U.S.C. § 2607(a). Although the consent order targets alleged violations relating to marketing service agreements (MSAs), a prior CFPB target, its scope is much broader – also taking aim at a host of other third-party relationships. View the Enforcement Watch blog post.
Mass. Bankruptcy Court: Mortgage with Incorrect Legal Description Is Avoidable by Chapter 7 Trustee
On January 4, the United States Bankruptcy Court for the District of Massachusetts found that a Chapter 7 Trustee could avoid the debtor’s mortgage and preserve it for the benefit of the bankruptcy estate. The opinion, Eastern Bank v. Benton (In re Thomas H and Nancy C. Benton), Adv. P. No. 16-1101, 2017 Bankr. LEXIS 11, 2016 WL 53581 (Bankr. D. Mass. Jan. 4, 2017), concerned debtors who owned a home in Marstons Mills, Massachusetts and a condominium in Hyannis, Massachusetts. Prior to filing their Chapter 7 bankruptcy petition, the debtors had obtained a home equity loan from Eastern Bank. While the loan agreement identified the collateral as the debtors’ home at Marstons Mills, the mortgage description identified the collateral as the Hyannis property. View the LenderLaw Watch blog post.
Goodwin News
ABA National Conference For Community Bankers – Feb. 19
The premier event for Community Bank CEOs. At the 2017 ABA National Conference for Community Bankers, we’ll develop strategies that take into account the community bank of now, but look ahead to new opportunities. Goodwin is a sponsor. For additional information, please visit the event website.
Boston University School of Law's 2017 Fintech Symposium will bring together leading scholars and industry professionals to discuss key legal issues facing the young Fintech sector. The term “Fintech,” broadly describes financial innovations that utilize both the advanced technologies and the “disruption” mindset of startup companies. However, the financial industry has proven difficult to disrupt, as incumbents hold a huge advantage in their ability to navigate strict financial laws and regulations. Meanwhile, lawmakers themselves are wrestling to make room in the financial sector for young companies, while ensuring consumers are protected and financial crises are avoided. Our four panels of experts will discuss these issues as they pertain to four specific areas of Fintech: (1) Cryptocurrency, (2) Crowdfunding, (3) Robo-advising, and (4) Digital Banking. Amber Dolman, a partner in Goodwin's Financial Industry Practice and co-leader of the firm's Fintech Practice, will be a featured speaker on a panel discussing robo-advising. For additional information, please visit the event website.
LendIt USA is the world's largest marketplace lending event, bringing together over 4,000 members of the global online lending ecosystem. Goodwin is a sponsor. For additional information, please visit the event website.
This week’s Roundup contributors: Kata Fustos and Michelle Wright Knoop.