As previously reported in our January 11 Roundup, a new streamlined quarterly consolidated report of condition and income (a.k.a., a call report) is available for use for the quarter ended March 31, 2017, by certain eligible banks. Generally, banks with domestic offices only and total assets of less than $1 billion are eligible to use this new streamlined form of call report. Eligible banks have the option to file either the new streamlined call report form or to continue using the older, more comprehensive call report form and wait until a subsequent quarter in 2017 to start using the new form. Beginning in 2018, eligible small banks will be expected to file the same call report form for each quarterly report date during that year. Call report forms are available on the FFIEC’s website and on the FDIC’s website.
On April 7, as part of the Comptroller’s Licensing Manual, the Office of the Comptroller of the Currency (OCC) issued a new booklet entitled “National Bank Director Waivers,” which replaces the 2008 “Directors Waivers” booklet. The document summarizes the citizenship and residency requirements for national bank directors and outlines the application process for a national bank to request a waiver of specific provisions from the OCC Licensing Office. Overall, the booklet instructs national banks to seek waivers before appointing directors who do not meet the citizenship and/or residency requirements and to notify the OCC if a waiver is already in place but the conditions under which the waiver was granted change. According to the booklet, the OCC responds to waiver requests within 30 days and evaluates them based on whether the request is complete, the waiver complies with applicable laws and regulations, and the waiver would support the safety and soundness of the bank. The booklet specifies that its requirements do not apply to federal savings associations.
On April 6, the Federal Deposit Insurance Corporation (FDIC) released the third part of its Affordable Mortgage Lending Guide (Guide), which collects information about programs to expand access to affordable mortgage credit to low- and moderate-income communities. The Affordable Mortgage Lending Guide, Part III: Federal Home Loan Banks describes many of the products and services offered by FHLBs, including the Affordable Housing Program, the Community Investment Program, advances, the Mortgage Purchase Program and the Mortgage Partnership Finance® program. The Guide also describes FHLB products that support single-family home purchases, such as down payment and closing cost assistance, many of which can be used in conjunction with programs offered by other federal and state housing finance agencies and government-sponsored enterprises. The Guide also describes alternatives for selling mortgages on the secondary market.
On April 4, the Department of Labor (the DOL) finalized a 60-day delay to the applicability date of its final regulation redefining the term “fiduciary” and issuing new exemptions and related amendments (Fiduciary Rule). As discussed in our prior client alert, the Fiduciary Rule was scheduled to be generally effective on April 10, 2017; however, the new applicability date will be June 9, 2017. For more information, view the client alert issued by Goodwin’s ERISA and Executive Compensation Practice.
The Securities and Exchange Commission (SEC) has adopted a number of amendments to its forms and rules to reflect changes that resulted from the JOBS Act. The amendments will affect all public companies, including EGCs, as follows: All Domestic Public Companies: after effectiveness of the amendments, filings on certain Securities Act and Exchange Act forms must include the two new EGC-related check boxes (including Form 8-K, 10-Q and 10-K reports and Form S-1, S-3, S-4, S-8 and S-11 registration statements). Emerging Growth Companies: after effectiveness of the amendments, filings on the forms described above must include the new check boxes, and EGCs should check the applicable boxes to indicate (1) EGC status under the amended EGC definition and (2) the company’s election with respect to the extended transition period for complying with any new or revised financial accounting standards. For more information, view the client alert issued by Goodwin’s Public Companies Practice.
Enforcement & Litigation
On April 4, a dually registered investment adviser and broker dealer (the Adviser) and one of its former investment adviser representatives (the IAR) offered to settle charges that they improperly invested clients in more expensive Class A shares of mutual funds rather than less expensive institutional class shares for which they were eligible. Unlike the institutional share class, Class A shares included a charge for marketing and distribution expenses, known as 12b-1 fees, which are paid out of the mutual fund assets to the Adviser. The Adviser then shared a portion of the 12b-1 fees with the IAR. The SEC alleged that from 2009 to early 2014, the Adviser collected approximately $3.2 million in avoidable 12b-1 fees, and approximately $2.5 million of that amount was generated from the IAR’s advisory clients. The SEC found that the Adviser and the IAR breached their fiduciary duties by buying and holding the more expensive share class in client accounts. The SEC also found that the Adviser failed to adequately disclose conflicts of interest presented by the IAR’s share class selection process, namely that many mutual funds offered a variety of share classes, including some that did not pay 12b-1 fees, or that investment adviser representatives received 12b-1 fees from the sale of mutual funds, which created an incentive for those individuals to recommend the more expensive Class A shares. Furthermore, the SEC found that the Adviser had not updated its policies and procedures to require personnel specifically to identify or evaluate available institutional share classes or enhanced its policies to address instances in which investment adviser representatives were purchasing and holding Class A shares when less costly institutional shares were available. Without admitting or denying the SEC’s findings, the Adviser and IAR consented to a cease and desist order, censure and disgorgement, interest and penalties totaling almost $8 million.
On March 31, the Federal Trade Commission (FTC) announced that it had agreed to settle charges with a prepaid debit card provider for $53 million in monetary relief applied to balances and fees in customers’ accounts. According to the complaint brought by the FTC in the Northern District of Georgia, the company was alleged to have violated section 5 of the FTC Act, 15 U.S.C. § 45, through false and deceptive marketing. The company allegedly targeted consumers who have difficulty obtaining regular banking services, marketing that its prepaid cards, and the funds placed on them, could be used immediately. According to the FTC, consumers experienced unexpected delays in accessing their funds and the company froze access to funds when there were unauthorized charges. The FTC also accused the company of being unresponsive to consumer complaints, with the delays causing consumers to face hardship, such as evictions, repossessions of property and late fees. View the Enforcement Watch blog post.
On March 29, the Massachusetts and Delaware Attorneys General (AGs) announced settlements with a national bank, resolving allegations that the bank originated unfair and usurious automobile loans in violation of Massachusetts and Delaware consumer protection law. According to the AGs, the bank originated subprime loans to more than 2,000 Massachusetts and Delaware consumers despite knowledge that the income reported on the loan applications was fraudulent. View the Enforcement Watch blog post.
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.
Marshall Fishman, litigation partner in Goodwin’s Financial Industry Practice and Practice Head of New York Commercial and Financial Litigation, is speaking at the NYSBA’s Commercial Litigation Academy 2017 NYC Live & Webcast. He will be participating on the “Pleadings in State Court, Federal Court, and Arbitration” panel. For more information, please visit the event website.
The Financial Research Associates Bank/Alternative Lender Strategic Partnership Summit will take a deeper look at partnership strategy for banks and alternative lenders, especially in the small business lending space. The agenda consists of both bankers and alternative lending professionals who provide a wide range of experienced voices to weigh-in on the many challenges facing both sides of the industry. Mike Whalen, a partner in Goodwin’s Financial Industry Practice, will be speaking on a panel at the summit. For more information, please visit the event website.
Jim McGarry, partner in Goodwin’s Financial Industry and Consumer Financial Services Litigation practices and Kimberly Monty Holzel, associate in Goodwin’s Financial Industry, Consumer Financial Services and Fintech practices will be panelists on Knowledge Group’s live webinar, “CFPB’s Final Prepaid Card Rule: Maximizing Opportunities and Minimizing Risks.”
Bill Weintraub, partner in Goodwin’s Financial Industry Practice and co-chair of its Financial Restructuring Practice, will be a speaker at the American Bankruptcy Institute’s 2017 New York City Bankruptcy Conference. He will be speaking on the “Equitable Mootness” panel which will focus on the current state of the doctrine and recent criticisms, especially from the Third Circuit (Philadelphia Newspapers, SemCrude, One2One Communications), and its applications (City of Detroit (invoking the doctrine to reject the attempted restoration of pension benefits in the city’s bankruptcy)). Goodwin is a sponsor. For more information, please visit the event website.