Weekly RoundUp March 22, 2017

Financial Services Weekly News

Editor's Note

The Battle Over the Proposed OCC Fintech Charter Continues.  The Office of the Comptroller of the Currency (OCC) has released a draft supplement to its Licensing Manual explaining the process for Fintech companies to charter a special purpose national bank. Details are below. While the OCC’s licensing supplement sheds some much needed light on the process for Fintech companies to apply for a national bank charter, opponents of the special purpose charter remained critical. As discussed in the January 25 and March 15 editions of the Roundup, states’ banking regulatory authorities and members of Congress have heavily criticized the OCC’s actions. As discussed below, the OCC addressed many of these criticisms in the summary of public comments it released in connection with the Licensing Manual supplement. Nevertheless, the Conference of State Bank Supervisors (CSBS) and the New York State Financial Services Superintendent remained skeptical, each issuing statements criticizing the OCC’s recent guidance. The CSBS stated that the OCC had “acted beyond the legal limits of its authority, bypassed and ignored bipartisan objections from Congress, and created new risks to consumers and taxpayers.” The New York Superintendent stated, “The imposition of an entirely new federal regulatory scheme on an already fully functional and deeply rooted state regulatory landscape will invite efforts to evade state usury laws and other consumer protections, stifle small business innovation, create institutions that are too big to fail, and increase the risks presented by nonbank entities.” The CSBS also asked Congress to “continue to weigh in on this important issue.” With state regulatory agencies defending their turf, both parties in Congress raising questions about the substance and pace of the proposed special purpose Fintech charter, public comments on the draft supplement due on April 14, and Comptroller Curry’s term ending later that month, it promises to be a critical month for the proposed special purpose Fintech charter.

Editor's Note

Regulatory Developments

Client Alert: OCC Issues Draft Supplement Outlining Application Process for Fintech Charters

The OCC has released a draft supplement to its Licensing Manual that explains the process for an entity engaged in financial technology—or Fintech—activities to charter a special purpose national bank (an SPNB) and the considerations that the OCC will take into account when evaluating a proposal to charter an SPNB. This action follows the OCC’s release in December 2016 of a paper that addressed and requested public comment on the agency’s plans to consider applications for national bank charters from Fintech companies, which was described in an earlier client alert. At the same time that the OCC released the draft supplement, it also released a summary of public comments that the agency received in response to its December 2016 paper. The OCC has requested public comments on the draft supplement by April 14, 2017. For more information, view the client alert issued by Goodwin’s Fintech Practice.      

SEC Staff Issues an Information Update for Advisers Relying on the Unibanco No-Action Letters

The staff of the SEC’s Division of Investment Management issued an information update for investment advisers relying on the relief set forth in a long line of no-action letters referred to as the “Unibanco letters.” The Unibanco letters provide relief to investment advisers and their affiliated companies to allow them to utilize personnel and other resources of affiliated but unregistered non-U.S. advisers in providing investment advice to U.S. clients. Reliance on the relief is conditioned on advisers committing to a number of undertakings and representations. The information update describes specific documentation that an adviser relying on the Unibanco letters should provide to the staff to facilitate the SEC’s ability to monitor and enforce advisers’ performance of their obligations to U.S. clients. The documentation should include the name of any participating affiliate and the name and contact information of a U.S. agent for service of process on participating affiliates and generally the representations required of the adviser and affiliated adviser in the Unibanco letters. The information update also says such documentation and any amendments should be provided to the staff by email to IMOCC@sec.gov using “Participating Affiliate” in the subject line.

CFPB Seeks Comment on Its Plan for Assessing the Remittance Rule

On March 17, the Consumer Financial Protection Bureau (CFPB) announced that it would conduct an assessment of certain of its regulations related to consumer remittance transfers under the Electronic Fund Transfer Act, Subpart B of Regulation E (Remittance Rule). The CFPB requested public comment on its plan for assessing the regulations, as well as recommendations and other information that may be helpful during the assessment.  The CFPB will focus its assessment on two areas: (1) whether the market for remittances has evolved after the Remittance Rule in ways that promote access, efficiency and limited market disruption; and (2) whether the new regulations have brought more information, transparency and greater predictability of prices to the market. The CFPB noted that the assessment is an informational process and not part of the formal or informal rulemaking proceedings. Upon completion of the assessment, the CFPB plans to issue an assessment report by October 28, 2018, and may at a later date consider commencing formal rulemaking proceedings based on its findings.

Federal Reserve Increases Thresholds for BHC Acquisitions

On March 16, the Federal Reserve Board (Fed) approved People’s United Financial, Inc.’s acquisition of Suffolk Bancorp (the “Acquisition”). Before approving such an acquisition, the Dodd-Frank Act requires the Fed to consider the extent to which the proposed acquisition would result in greater or more concentrated risks to the stability of the U.S. financial system. Prior to its order approving the Acquisition, the Fed had stated that an acquisition of less than $2 billion in assets or that resulted in an entity with less than $25 billion in total assets was presumed to not raise material financial stability concerns. In its order approving the Acquisition, the Fed increased these thresholds, stating that, as a result of its recent experience, acquisitions involving less than $10 billion in assets or that result in an entity with less than $100 billion in total assets were not likely to create entities that pose systemic risk to the stability of the U.S. financial system absent evidence that such transaction would result in a significant increase in interconnectedness, complexity, cross-border activities or other risk factors.

Enforcement & Litigation

DOJ Argues That CFPB Structure Is Unconstitutional

On March 17, the Department of Justice (DOJ) filed an amicus brief in PHH Mortgage v. Consumer Financial Protection Bureau in which it argued that the CFPB’s single director structure was unconstitutional and that President Trump should have the power to remove the CFPB’s director without cause. The amicus brief represents a reversal of the DOJ’s previous positon in the case, made in a brief filed earlier by the DOJ under the Obama administration.Last month, the full D.C. Circuit Court of Appeals agreed to hear the case, vacating an earlier ruling by a three-judge D.C. Circuit panel finding the CFPB’s single director structure unconstitutional and permitting the director’s removal at the president’s discretion. Oral argument in the en banc review of the case is scheduled for May 24.

CFPB Enters Consent Order with Mortgage Lender Over Alleged HMDA Violations

On March 15, the CFPB entered into a consent order with a national nonbank mortgage lender that requires the lender to pay a $1.75 million civil monetary penalty to resolve alleged violations of the Home Mortgage Disclosure Act (HMDA). The CFPB alleged that the mortgage lender violated HMDA, 12 U.S.C. § 2803, and its implementing regulation, Regulation C, 12 C.F.R. § 1003.4, by failing to collect and report accurate data on certain HMDA-covered loans (purchase loans, home improvement loans, and refinance loans) between 2012 and 2014. During that time period, the mortgage lender originated more than 190,000 such loans, totaling approximately $38 billion in origination value. View the Enforcement Watch blog post.

CFPB May Focus on Credit Reporting as an Enforcement Priority

On February 28, the CFPB issued its monthly complaint report spotlighting credit reporting complaints (the Spotlight). Two days later, the CFPB issued a Special Edition of its Supervisory Highlights Report, which also focused on credit reporting (the Report), and Director Cordray delivered prepared remarks on the topic the same day. Taken together, these show that the CFPB will likely increase its focus on  identified credit reporting problems—the Report states that the CFPB considers the issue “a high priority”—and may herald enforcement actions relating to credit reporting issues in the coming months. View the LenderLaw Watch blog post.  

Goodwin News

American Bankers Association Risk Management Conference – March 26

The ABA's annual Risk Management Conference is designed to give risk professionals from banks of all sizes tools to help master the full range of risk areas, and gain insights needed to identify, monitor, measure and control for dynamic risk across the enterprise. Topics include: enterprise, operational, market and credit, cybersecurity, and regulatory risk. Inez Friedman-Boyce, a partner in Goodwin’s Securities Litigation and White Collar Defense group, will be a featured speaker on a panel titled “Shareholder Activism Risk: How Are You Protecting and Managing Before You Have An Event?” For additional information, please visit the event website.

Goodwin + YES Boston’s Fintech Discussion 2017 – March 30

The Yale Entrepreneurial Society and Goodwin will host YES Boston 2017 for a panel discussion on financial technology and networking reception. Welcome and introduction remarks will be provided by Goodwin partner Bill Schnoor and Stephen Kelleher, Senior Director of BNY Mellon. The panelists include: Jeremy Allaire, Founder, Chairman and CEO of Circle Internet Financial, Inc., Sean Belka, SVP/Director of Fidelity Center for Applied Technology/Fidelity Labs, Ralph Dangelmaier, CEO of BlueSnap, Inc., Robert Erman, Managing Director Head of Client Solutions Innovation BNY Mellon Technology Solutions, Sarah Hodkinson, VP Marketing of TripAdvisor, Inc. and Board Member of Radius Bank and Benjamin Malka, General Partner of F-Prime Capital. For further details, please email Events@goodwinlaw.com.

Consero Financial Services & Insurance Litigation Forum – April 2 - 4

Consero’s 2017 Financial Services & Insurance Litigation Forum will address current and looming legal and business challenges faced by today’s Chief Litigation Officers, providing a one-of-a-kind opportunity to share best practices and strategies that will help lead their departments and companies in the right direction. Brenda Sharton, chair of Goodwin’s Business Litigation Practice as well as its Privacy and Cybersecurity Practice, will chair the Consero conference and speak on the panel “Data Breach & Privacy Litigation: Mitigating Enterprise Risk.” Brooks Brown, a partner in Goodwin's Financial Industry and Consumer Financial Services Litigation practices, will speak on the panel “A Good Defense: Best Practices In Class Action Litigation.”

ACI’s 28th National Consumer Finance: Class Actions & Litigation Conference – April 4 - 5

Consumer financial services companies are facing unprecedented regulatory and enforcement scrutiny and mounting litigation, 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 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 28th National Conference on Consumer Finance Litigation & Regulatory Enforcement returning to its New York City east coast location. Thomas Hefferon, chair of the firm's Consumer Financial Services Litigation Practice, will serve as co-chair of this conference and partner Sabrina Rose-Smith will be a speaker on the “Student Loans and PayDay Loans: Managing Increased Regulatory Scrutiny, Litigation, and Assessing Proposed Rules by the CFPB on Payday Loans” panel. For additional information, please visit the event website.

2017 Blockchain Technology and Digital Currency National Institute – April 10

The 2017 Blockchain Technology and Digital Currency National Institute will take place on April 10, 2017, in New York City. This special program is dedicated to in-depth analysis of the emerging legal issues and the latest legal events concerning digital currencies, like Bitcoin, and blockchain technology. It will be an informative and exciting opportunity for anyone interested in better understanding the interplay of the law, digital currencies and blockchain technology. The speakers and panels will explore topics including blockchain innovations and opportunities; emerging intellectual property issues; global regulatory efforts; and recent law enforcement actions. Grant Fondo, a chair of Goodwin’s Digital Currency and Blockchain Technology Practice and partner in Goodwin’s Securities Litigation and White Collar Defense Group, will be a featured speaker. For more information, please visit the event website.

Higher Education Symposium – April 13

Goodwin is pleased to present this event created specifically to address issues faced by trustees, officers and in-house counsel at colleges, universities and research institutions. We are delighted to present David Greene, President of Colby College, as our keynote speaker. David is a highly respected leader in education and business and will provide an inspiring perspective on his experience with public/private partnerships focused on revitalizing cities and neighborhoods where schools are located. The symposium will also feature a panel discussion with in-house counsel at higher education institutions concerning the relationships between schools and their students, as well as interactive sessions led by industry experts and thought leaders on privacy and cybersecurity and recent developments in 403(b) plan excessive fee litigation. For more information, please visit the event website.

This week’s Roundup contributors: George Schneider, Tierney Smith and David Solander