Regulatory Developments
IM Information Update: Mid-Sized Adviser FAQs
In June 2017, the Securities and Exchange Commission (SEC) Division of Investment Management updated its guidance concerning when mid-sized investment advisers in Wyoming have to register with the SEC. The change follows a new Wyoming state statute that regulates investment advisers with a principal office and place of business in Wyoming that manage more than $25 million but less than $100 million in regulatory assets. Because such advisers are now regulated by state securities authorities, they may be prohibited from registering with the SEC. Due to the statute, as of July 1, 2017, investment advisers with a principal office and place of business in Wyoming may not register with the SEC unless they are managing more than $100 million in regulatory assets, advise a registered investment company, or are eligible to rely on one of the exemptions from the prohibition on registration contained in Rule 203A-2 under the Investment Advisers Act of 1940.
CFPB Releases Arbitration Rule
On July 10, the CFPB issued the highly anticipated final Arbitration Rule. The Arbitration Rule prohibits the use of mandatory arbitration clauses in contracts for consumer financial services that prohibit consumers from bringing or joining class action lawsuits in such contracts. The Arbitration Rule provides model language that companies must use if they wish to include an arbitration clause in such contracts. The Arbitration Rule also requires companies to submit certain arbitration records to the CFPB, including initial claims, counterclaims, answers, and awards issued in arbitration, to make the arbitration process more transparent and help the CFPB monitor the fairness of arbitration in consumer financial markets on an ongoing basis. The CFPB anticipates that the Arbitration Rule will deter companies from violating consumer financial law and causing harm to consumers because the companies will no longer be able to sidestep large class action lawsuits. The rule will be effective 60 days after it is published in the Federal Register, and applies to contracts for consumer financial services entered into more than 180 days after the effective date.
CFPB Finalizes TRID Amendments
On July 7, the CFPB issued a final rule related to integrated disclosures and other mortgage disclosure requirements. The final rule modifies the federal mortgage disclosure requirements under the Real Estate Settlement Procedures Act and the Truth in Lending Act that are implemented in Regulation Z. The final rule memorializes the CFPB’s informal guidance on various issues and makes additional clarifications and technical amendments. The final rule also creates tolerances for the total of payments, adjusts a partial exemption mainly affecting housing finance agencies and nonprofits, extends coverage of the TILA-RESPA integrated disclosure (integrated disclosure) requirements to all cooperative units, and provides guidance on sharing the integrated disclosures with various parties involved in the mortgage origination process. The final rule is effective 60 days after publication in the Federal Register, but its mandatory compliance date is October 1, 2018.
The CFPB also seeks comments on proposed amendments to federal mortgage disclosure requirements under RESPA and TILA as implemented in Regulation Z. The proposed amendments relate to when a creditor may compare charges paid by or imposed on the consumer to amounts disclosed on a closing disclosure, instead of a loan estimate, to determine if an estimated closing cost was disclosed in good faith. Specifically, the proposed amendments would permit creditors to do so regardless of when the closing disclosure is provided relative to consummation. Comments are due 60 days after publication in the Federal Register.
OCC Report Highlights Risks Facing National Banks and Federal Savings Associations
On July 7, the Office of the Comptroller of the Currency (OCC) issued its Semiannual Risk Perspective for Spring 2017. The report covers risks facing national banks and federal savings associations based on data for the 12 months ending December 31, 2016. The report presents data in four main areas: the operating environment, bank performance, trends in key risks and regulatory actions. It focuses on issues that pose threats to those financial institutions regulated by the OCC and is intended as a resource to the industry, examiners and the public. According to the report, the OCC is focusing on credit risk, compliance risk and strategic risk as its top supervisory priorities at community and midsize banks. For larger banks, compliance, governance and operational risks remain dominant concerns.
OCC Revises “General Policies and Procedures” Booklet
On July 5, the OCC released a revised “General Policies and Procedures” booklet of the Comptroller’s Licensing Manual, which supersedes the March 2008 version and reflects the integration of the Office of Thrift Supervision into the OCC and the issuance of revised regulations that became effective July 1, 2015 (i.e., 12 C.F.R. Part 5). The revised booklet addresses technology systems, general filing instructions, the filing review process, and post-decision issues related to applications and notices filed with the OCC. Among other things, it serves as a central reference point for sources and instructions related to confidential treatment requests, filing fees, sample forms, public notice requirements, weekly bulletins and public access requests.
FDIC and Fed Release Public Portion of Resolution Plans
On July 5, the Federal Reserve Board (the Fed) and the Federal Deposit Insurance Corporation (FDIC) posted the public portions of annual resolution plans for eight large financial firms. Resolution plans, required by the Dodd-Frank Act and commonly known as living wills, must describe the company’s strategy for rapid and orderly resolution under bankruptcy in the event of material financial distress or failure of the company. The firms required to submit resolutions plans were Bank of New York Mellon Corporation, Citigroup Inc., Goldman Sachs Group, JPMorgan Chase & Co., Morgan Stanley, State Street Corporation, and Wells Fargo & Company. To foster more transparency, each firm’s public section summarizes certain elements of the resolution plan, including the firm’s material entities and core business lines, and information helpful in understanding how the resolution plan would be executed. The public portions of these resolution plans are available on the FDIC and Fed websites.
President Trump Nominates Fed Vice Chairman of Supervision
On July 10, President Trump nominated Randal Quarles to be a member of the Fed for the remainder of a 14-year term expiring January 31, 2018, and for an additional 14-year term expiring January 31, 2032. More importantly, Mr. Quarles was nominated to be the Fed’s first ever official Vice Chairman for Supervision, a position established by the Dodd-Frank Act, for a term of four years. As Vice Chairman for Supervision, Mr. Quarles would be responsible for developing “policy recommendations for the Board regarding supervision and regulation of depository institution holding companies and other financial firms supervised by the Board” and overseeing “the supervision and regulation of such firms.” He will likely play an important role shaping the scope of the post, which has never been officially filled. Former Fed governor Daniel Tarullo, who unofficially took on the role during the Obama administration, stepped down in February, leaving three vacant positions on the Fed’s Board of Governors.
On July 6, the Fed announced the appointment of Mark E. Van Der Weide as its next General Counsel. A two-decade Fed veteran, Van Der Weide was previously deputy director of the Division of Supervision and Regulation. He will succeed outgoing general counsel Scott Alvarez later this summer.
CSBS Launches Fintech Advisory Panel to Help Modernize State Regulation
The Conference of State Bank Supervisors (CSBS) has launched a Fintech Advisory Panel and is seeking representatives from the financial technology sector who wish to serve on a new advisory panel with state regulators. The advisory panel will discuss existing pain points in multi-state licensing and supervision, brainstorm possible solutions, and provide feedback to ongoing state initiatives. The first meeting is anticipated to convene this fall. As discussed in the May 17 edition of the Roundup, the advisory panel is one part of CSBS’ Vision 2020, a series of initiatives designed to forge an integrated, 50-state licensing and supervision system that removes friction experienced by fintechs, while ensuring safety and soundness and strong consumer protections. For the advisory panel, CSBS seeks representatives from a wide range of industries, including but not limited to, money services businesses, consumer credit providers, mortgage loan originators, debt collectors, bank services companies and banks.
Client Alert: SEC Begins Accepting Nonpublic Draft IPO Registration Statements from All Filers
On July 10, the SEC began allowing all filers to voluntarily submit nonpublic, draft registration statements for initial public offerings and certain other registrations. This expands a popular provision of the JOBS Act that was previously available only to companies that qualified as an emerging growth company. The new SEC policy will streamline the filing process and reduce companies’ exposure to changes in market conditions during the IPO process. For more information, view the client alert issued by Goodwin’s Public Companies practice.
Enforcement & Litigation
Mortgage Lender Pays $4.157 Million to Settle False Claims Act Allegations Concerning FHA Loans
On July 3, the United States Department of Housing and Urban Development (HUD), the HUD Office of Inspector General (HUD-OIG), the U.S. Attorney’s Office for the Northern District of Georgia, and the U.S. Attorney’s Office for the Northern District of California announced that they had reached a settlement with a national mortgage lender, resolving allegations that the lender, who participated in the Direct Endorsement Lender (DEL) Program, had failed to comply with HUD guidelines in underwriting and endorsing mortgage loans insured by the Federal Housing Administration (FHA). View the Enforcement Watch blog post.
On June 27, the CFPB announced that it filed two complaints and proposed final judgments against four California-based credit repair companies for misleading consumers and charging illegal fees. The CFPB alleged that the companies charged illegal advance fees for credit repair services and misrepresented their ability to repair consumers’ credit scores. One of the proposed final judgments requires the companies to pay over $1.5 million in civil money penalties, while the second proposed final judgment requires the companies to pay $500,000 to the U.S. Treasury. View the Enforcement Watch blog post.
FTC Brings Suit Against Debt Collector for “Phantom Debts”
On June 23, the Federal Trade Commission (FTC) announced that it has filed a complaint in the U.S. District Court for the Western District of North Carolina against a North Carolina debt collection company and its owner, alleging that the defendants took money from consumers for fake or “phantom” debts they did not owe. View the Enforcement Watch blog post.
Home Financing Company Settles with State of New Jersey
On June 22, the New Jersey Office of the Attorney General (New Jersey AG) and the New Jersey Division of Consumer Affairs (New Jersey DCA) announced a settlement with a Georgia financing company that facilitates on-the-spot financing for home improvements through participating home improvement contractors. The New Jersey DCA opened an investigation to determine whether the company violated the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq., based on various consumer complaints. According to the New Jersey AG, consumers alleged that in some instances they were not aware the loan was taken out in their name, were not given an opportunity to read or sign loan documents, and/or were not provided a copy of loan documents. View the Enforcement Watch blog post.
Court Accepts $39 Million Settlement Between CFPB and Mortgage Relief Law Firm
On June 21, a federal judge in the Western District of Wisconsin accepted a Stipulated Final Judgment and Order (Stipulated Judgment) based on an agreement between the CFPB and the bankruptcy trustee of a now defunct mortgage relief law firm. The Stipulated Judgment comes three years after the CFPB filed its initial complaint against the mortgage relief law firm in July 2014, seeking injunctive and monetary relief. View the Enforcement Watch blog post.
Goodwin News
ACI’s 29th Consumer Finance Class Actions & Litigation Conference – July 24 – 25
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.
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.
This week’s Roundup contributors: Alexander Callen, Kimberly Monty Holzel, Justin Pierce, and Tierney Smith.