Weekly RoundUp May 17, 2017

Financial Services Weekly News

Editor's Note

The Dual Banking System is Working.  In the April 26 edition of the Roundup, we noted that the Conference of State Bank Supervisors (CSBS) had sued the Office of the Comptroller of the Currency (OCC), seeking declaratory and injunctive relief to stop the OCC from issuing special purpose national bank charters to non-depository financial technology (Fintech) companies (the Fintech Charter). As discussed in more detail below, on May 12, the New York State Department of Financial Services (NYDFS) filed its own lawsuit seeking to block the OCC’s plans for a Fintech Charter. But the OCC’s proposal to create a Fintech Charter has also prompted state banking regulators to reexamine the licensing process for nonbank Fintech companies to, among other things, reduce the “friction” between state regulators and Fintech companies. In this regard, on May 10, the CSBS announced Vision 2020, a series of initiatives designed to make supervision more efficient and to recognize standards across state lines – actions that the CSBS believes will better support start-ups and enable national scale while at the same time protecting consumers and the financial system. Additional details are below. The dual banking system in the United States is based on two important premises: first, that competition among regulators protects banks from the potential for unreasonable and excessive regulation; and second, that the existence of many different banking regulators promotes the financial innovation that has been critical to the success of the financial services industry. Whether or not the OCC proceeds with the Fintech Charter, banks, Fintech companies and consumers will all be better off if the controversy surrounding the Fintech Charter prompts state regulators to modernize the state licensing regime in a manner that reduces friction between regulators and Fintech companies, fosters innovation in the financial services industry, and enhances consumer access to a broader array of financial products and services. In other words, the dual banking system is working.

Editor's Note
Editor's Note
Editor's Note

Regulatory Developments

CSBS Announces Vision 2020 for Fintech and Nonbank Regulation

On May 10, the CSBS announced Vision 2020, a series of initiatives designed to modernize state regulation of nonbanks, including Fintech firms. According to the CSBS, Vision 2020 would result in an integrated, 50-state licensing and supervisory system that makes supervision more efficient and recognizes standards across state lines – actions that will better support start-ups and enable national scale while at the same time protecting consumers and the financial system. The initial set of actions that CSBS and state regulators are taking include:

  • redesigning the Nationwide Multistate Licensing System (NMLS)
  • harmonizing multistate supervision to include uniformity in examinations, national reporting of nonbank compliance violations and a common technology platform for state examinations
  • establishing a Fintech industry advisory panel to identify points of friction in licensing and multistate regulation
  • assisting state banking departments to update standards and analytics
  • making it easier for banks to provide services to nonbanks (avoid de-risking) by increasing industry awareness that strong regulatory regimes exist for compliance with laws for money laundering, the Bank Secrecy Act, and cybersecurity
  • making supervision more efficient for third parties by supporting federal legislation that would allow state and federal regulators to better coordinate supervision of bank third-party service providers

Client Alert: Proposed NYSE Amendments: Dividend Notices and Non-IPO Listings

The NYSE has recently proposed two notable amendments to its rules. The first proposal would require listed companies to notify the NYSE at least 10 minutes before the company announces any dividend or stock distribution, rather than the current policy that requires such notice only when the NYSE immediate release policy is in effect (generally between 7:00 a.m. ET and 4:00 p.m. ET). The second proposal would more broadly permit companies to list equity securities without a concurrent underwritten offering or sustained secondary trading history in a market for unregistered securities if they provide an independent third-party valuation evidencing a market value of publicly held shares of at least $250 million. For more information, view the client alert issued by Goodwin’s Public Companies practice.

State Regulation of Distributed Ledger Technology

While the federal government has taken a variety of different positions in regulating distributed ledger technology, there are several important trends that are emerging in states’ regulation of such technology. View the Digital Currency + Blockchain Perspectives blog post.

Mortgage Compliance Magazine: The CFPB’s Five-Year Mortgage-Rule Review: An Opportunity to Improve the Regulatory Landscape?

In March, the Consumer Financial Protection Bureau announced that it would be starting its five-year review of several of the major mortgage rules it has implemented. This review, which was mandated in the Dodd-Frank Act, could result in changes to several of the rules that have impacted the regulatory landscape of the mortgage market in the last several years. View the Mortgage Compliance Magazine article by Financial Industry practice partner Joe Yenouska.

Enforcement & Litigation

NYDFS Sues OCC Over Proposed Fintech Charter

On May 12, the NYDFS sued the OCC over its proposed Fintech Charter. The NYDFS argued that the Fintech Charter would allow Fintech companies, such as marketplace lenders, to “gouge New York borrowers by receiving an OCC special-purpose charter and locating in any number of other states that authorize interests rates considered usurious in New York,” and to skirt local consumer protection laws and capital standards. The NYDFS further argued that the Fintech Charter exceeds the authority granted to the OCC under the National Banking Act. In the lawsuit, the NYDFS characterized the Fintech Charter as “lawless, ill-conceived and destabilizing of financial markets.”

HUD Settles Fair Housing Act Claims Against California Credit Union

On May 10, the U.S. Department of Housing and Urban Development (HUD) announced a settlement with a California credit union concerning allegations that the credit union denied loan approval to a married couple because one spouse was on maternity leave, in violation of the Fair Housing Act (FHA). HUD alleged that the couple applied for a mortgage, but the credit union allegedly denied the application, and told the couple that the spouse on maternity leave would have to return to work before the credit union would approve the application. HUD became aware of the incident after the spouse filed a complaint alleging discrimination in violation of §§ 805, 804(a), and 818 of the FHA. Under the FHA, it is unlawful to discriminate in the context of the sale or rental of a dwelling on the basis of sex or familial status, which includes discrimination against pregnant women or those on parental leave. View the Enforcement Watch blog post.

Fourth Circuit Again Rejects Arbitration Request Under Payday Loan Agreement

On May 10, the Fourth Circuit affirmed the Middle District of North Carolina’s refusal to compel arbitration under the terms of a payday loan agreement. In Dillon v. BMO Harris Bank, N.A., BMO Harris attempted to compel arbitration pursuant to an agreement that would have required the arbitrator to employ the law of the Otoe-Missouria tribe to the exclusion of state and federal law. The Fourth Circuit held that the arbitration clause at issue was unenforceable because it was, effectively, a prospective waiver of the borrower’s federal law rights. The Fourth Circuit’s decision solidifies and extends a trend in the Fourth and Eleventh Circuits of rejecting such tribal-law arbitration provisions in payday loan cases. View the LenderLaw Watch blog post.

NC AG Obtains Judgment Against Auto Title Lender for Illegal Loans

On May 8, the North Carolina Attorney General (NC AG) announced that it had obtained a final judgment against an auto title lender and two of its employees in North Carolina State Court. The NC AG alleged that the lender solicited loans online, and required consumers to secure the loans with their vehicle titles. If a consumer missed a payment, the lender would repossess the consumer’s vehicle. However, the lender was not licensed to make loans in North Carolina, and did not disclose all of the loan terms until after a consumer had taken out the loan. The lender allegedly charged interest rates of 161 to 571 percent. The NC AG alleged that the lender made illegal loans to more than 700 individuals in North Carolina. Loan amounts ranged from $800 to $7,000. View the Enforcement Watch blog post

Goodwin News

Goodwin’s Fintech Bank Charter Symposium: Tips and Takeaways

On May 3, Goodwin’s Financial Industry and Technology practices hosted a symposium at its San Francisco office on the OCC’s proposed Fintech national bank charter. This new charter would be utilized to permit the chartering of national banks which have lending and payments-related powers but not the authority to take deposits. Goodwin partners Bill Stern and Mike Whalen were featured on a panel. For more information, view the Goodwin Insight.

American Bankruptcy Institute: 2017 NYC Bankruptcy Conference – May 18

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