On June 20, the Securities and Exchange Commission (SEC) announced that Robert Evans III was named Deputy Director in the agency’s Division of Corporation Finance, joining Deputy Director Shelley Parratt as a senior adviser to the division’s director, William H. Hinman; Kelly L. Gibson was named the Associate Regional Director for Enforcement in the SEC’s Philadelphia Office; and Kathryn A. Pyszka was named an Associate Regional Director for Enforcement as a co-leader in the SEC’s Chicago Office. Robert Burson serves as the office’s other Associate Regional Director for Enforcement. Both report to David Glockner, the office’s Regional Director. On June 15, the SEC announced that Keith E. Cassidy was named Associate Director, Technology Controls Program, in the Office of Compliance Inspections and Examinations.
Community banks need regulatory relief, according to Charles G. Cooper, Commissioner of the Texas Department of Banking, who testified on behalf of the Conference of State Bank Supervisors (CSBS) and its state banking regulator members at a hearing of the U.S. Senate Committee on Banking, Housing and Urban Affairs on June 22, 2017. The Commissioner observed a post-Dodd Frank uptick in consolidation among community banks, as well as a consolidation of assets among large banks. These trends, coupled with a lack of de novo institutions, are impacting competition, credit availability and small-business growth as the number of community banks shrinks. The Commissioner’s testimony criticized the effects of regulations that are “inappropriate” for the size, business model, or activities of community banks and “disproportionately burden” them. He also advocated reforms intended to alleviate the regulatory pressures community banks face, including:
- Adoption of a uniform, activities-based definition for community banks, which would be paired with a process allowing institutions to petition their chartering authority for the community bank designation to account for both quantitative and qualitative factors;
- Simplification of the revised Basel III capital regime designed for internationally active, complex organizations, and the regime’s treatment of certain activities, such as risk weightings for (and lack of definitional clarity of) high volatility commercial real estate and mortgage servicing assets;
- Granting community banks relief from qualified-mortgage rules, especially for loans held in a community bank’s portfolio, and from Home Mortgage Disclosure Act (HMDA) reporting requirements under a tiered approach to HMDA, as well as similar data reporting requirements; and
- Ensuring that state regulators and local communities are represented in the national policy development process.
The Commissioner also suggested ways to address the ongoing appraiser shortage in many areas of the country; encouraged the reevaluation of the use of the Herfindahl-Hirschman Index (HHI) in competitive analyses, since its reliance on deposits does not accurately consider the market-share of credit unions or a variety of non-depository competitors of community banks; supported changes to the Bank Service Company Act to expressly authorize state regulators to examine technology service providers; and requested clarity surrounding the models and methodologies used in federal consumer compliance examinations.
As discussed in the June 14 edition of the Roundup, on June 12, the U.S. Department of the Treasury issued a 150-page report called for by President Trump’s Executive Order 13772 on Core Principles for Regulating the United States Financial System. The Report, entitled “A Financial System that Creates Economic Opportunities: Banks and Credit Unions,” is the first in a series of four reports requested by President Trump that will be focused on potential changes to the existing regulatory environment governing the financial industry. According to the Secretary of the Treasury, Steve Mnuchin, the Treasury focused its recommendation on ways to make changes to the federal regulatory system for depository institutions through executive financial agencies and executive orders; he estimated that only 20 percent of the report recommendations would require Congress to enact legislation. For additional information, view the LenderLaw Watch blog post.
Enforcement & Litigation
The Supreme Court has agreed to decide whether the Securities Litigation Uniform Standards Act of 1998 abolishes state court jurisdiction over class action lawsuits that allege only claims under the Securities Act of 1933. The Court’s ultimate decision could have a significant impact on the future of securities class action litigation, as in recent years a substantial percentage of such cases have been filed in state court. The Court will receive briefing over the summer, hear argument in the fall, and likely render a decision on this issue in early 2018. An amicus brief supporting the defendants’ side would be due August 18, 2017, on the current schedule, but that time may be extended. For more information, view the client alert issued by Goodwin’s Securities and Shareholder Litigation Group.
On June 26, the Supreme Court issued a decision in the closely watched case of California Public Employees’ Retirement System v. ANZ Securities, Inc., holding that claims under Section 11 of the Securities Act of 1933 must be brought within three years of the securities’ public offering, even if the plaintiffs were previously members of a timely filed class action. In a 5-4 decision, the Court distinguished between statutes of limitations, which are designed to encourage plaintiff diligence and may be tolled for fairness reasons, and statutes of repose, which effect a legislative judgment that a defendant should be free from liability after the legislatively determined period of time and may not be tolled. The Court held that the 1933 Act’s statute of repose is not subject to tolling under the class-action tolling rule adopted by the Supreme Court in American Pipe Construction Co. v. Utah, and that putative class members who opt out and pursue individual claims must do so within three years of the securities’ offering to the public. The Court’s holding ensures that Section 13 of the 1933 Act and other statutes of repose will function as intended, providing defendants greater certainty about the scope of their potential liability. For more information, view the client alert issued by Goodwin’s Securities and Shareholder Litigation Group.
The Department of Justice has reversed its stance and now urges the Supreme Court to enforce class action waivers in employment-related arbitration agreements. This increases the likelihood that the Supreme Court will side with the now employer-friendly DOJ when it resolves the split among the federal Courts of Appeals during its October 2017 term. In light of the DOJ’s reversal of position, some commentators have expressed the belief that the Supreme Court will resolve this dispute by enforcing class waivers. For more information, view the client alert issued by Goodwin’s Labor and Employment Practice.
On June 16, the New Jersey Office of the Attorney General (New Jersey AG) and the New Jersey Division of Consumer Affairs announced a settlement with a for-profit student loan consolidation service that allegedly operated in the State of New Jersey without a debt-adjuster license. The New Jersey AG brought the action alleging a violation of the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq. In New Jersey, only certain nonprofit companies are permitted to act as debt adjusters under the Debt Adjustment and Credit Counseling Act, N.J.S.A. 17:16G-1 et seq. For-profit companies cannot obtain a license. View the Enforcement Watch blog post.
The consumer finance industry is heading toward uncertainty with the current administration promising to loosen regulation. ACI’s 29th Consumer Finance Class Actions & Litigation conference will address the uncertainties by providing new and emerging trends as well as topics affecting consumer finance litigation and class actions. Sabrina Rose-Smith, partner in Goodwin’s Financial Industry and Consumer Financial Services Litigation practices, will serve as co-chair of this conference and will be a speaker on the “Consumer Finance Class Action Litigation and Settlement Trends and New and Emerging Procedural Consideration Including Ascertainability of Class and Class Members, Offers in Judgment, and More” panel. For additional information, please visit the event website.
Jamie Fleckner, partner in Goodwin’s Financial Industry practice and Chair of its ERISA Litigation practice, will be speaking in an upcoming Strafford live webinar, “ERISA Breach of Fiduciary Duty Class Actions: Avoiding and Defending Claims Against Companies and Fiduciaries.” The panel will provide guidance to counsel for plan fiduciaries and companies on avoiding and defending ERISA class claims that allege breach of fiduciary duty related to the selection and administration of investment plans.