Regulatory Developments
On August 22, the Board of Governors of the Federal Reserve System (Federal Reserve), the Office of the Comptroller of the Currency (OCC) and the FDIC issued a proposed rule that would delay the transition to the Basel III capital framework for banks not using the Basel III advanced approaches. “As part of the recent review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act, the agencies announced that they are developing a proposal that would simplify the capital rules to reduce regulatory burden, particularly for community banks,” the agencies said. “That proposal would simplify the capital rules’ treatment of mortgage servicing assets and other items. However, under the current capital rules, the transitional treatment for those items is scheduled to be replaced with a different treatment on January 1, 2018.” The proposed rule would extend the existing transitional capital treatment for certain regulatory capital deductions and risk weights and delay the full transition to the Basel III treatment of mortgage servicing assets, certain deferred tax assets, investments in the capital of unconsolidated financial institutions and minority interests pending a new rulemaking addressing these topics. Because advanced approaches are principally used by banking organizations with over $250 billion in assets or foreign bank subsidiaries with over $10 billion in assets, the delay would apply to all community and midsized banks. Comments on the proposed rule will be accepted for 30 days after publication in the Federal Register.
FINRA Proposes to Apply Pay-to-Play Rules to CABs
On August 17, the Financial Industry Regulatory Authority (FINRA) filed with the Securities and Exchange Commission (SEC) proposed amendments to the Capital Acquisition Broker (CAB) Rules that would apply FINRA Rule 2030, the Pay-to-Play Rule, and Rule 4580, providing record-keeping requirements related to the Pay-to-Play Rule, to CABs. The CAB rules, 203 and 458, would provide that all CABs are subject to FINRA Rules 2030 and 4580. This change, in addition to imposing limitations on the ability of CABs to make political contributions to the officials of government entities with whom they do business, will enable investment advisers to pay CABs for soliciting government entities to become investors in collective funds. SEC Rule 206(4)-5, addressing the pay-to-play practices of investment advisers, among other things prohibits an investment adviser from providing payments to any person to solicit a government entity for investment advisory services on behalf of the investment advisory unless the person is a “regulated person.” The term “regulated person” is defined for purposes of this prohibition to include a FINRA member subject to rules that impose substantially similar or more stringent restrictions than those imposed by Rule 206(4)-5. FINRA Rule 2030, which imposes substantially similar standards to Rule 206(4)-5, became effective on August 20. As noted in the article below (“SEC Provides Guidance Delaying Application of SEC Pay-to-Play Rule on CABs until Effectiveness of FINRA’s CAB Rules 203 and 458”), guidance published by the SEC will permit investment advisers to make payments to CABs for soliciting government entities in the interim period until the effective date of CAB Rule 203 and 458. Comments on the rule proposal are due 21 days after publication in the Federal Register.
On August 18, the SEC updated its Responses to Questions About the Pay-to-Play Rule to add question and answer 1.5, providing that, until the effective date of any rules subjecting CABs to the FINRA pay-to-play rules, the Division of Investment Management will not recommend enforcement action to the Commission against an investment adviser or its covered associates under Rule 206(4)-5(a)(2)(i) for payment to any person that is a CAB to solicit a government entity for investment advisory services on behalf of the investment adviser or its covered associates. See the related article above (“FINRA Proposes to Apply Pay-to-Play Rules to CABs”).
FHFA Modifies High LTV Streamlined Refinance Program and Extends HARP
On August 17, the Federal Housing Finance Agency (FHFA) announced an extension to the Home Affordable Refinance Program (HARP) through December 31, 2018. After multiple prior extensions, the HARP program was finally scheduled to sunset next month. The termination of HARP was scheduled to coincide with the planned launch of Fannie Mae and Freddie Mac’s streamlined refinance programs for borrowers with little equity in their homes. However, the FHFA decided recently that these refinance programs will only be made available to borrowers who obtained loans on or after October 1, 2017, a change which the agency stated was necessary to protect taxpayers and preserve credit loss protection objectives of a credit risk transfer program under which the GSEs have transferred a portion of risk on $1.6 trillion of unpaid principal balances. As a result of this change to the eligibility requirements of the refinance programs, the FHFA believes HARP will remain an important option for borrowers who obtained loans prior to that date. HARP has been used since 2009 to refinance more than 3.47 million mortgage loans.
Future of CFPB’s Arbitration Rule in Hands of Senate
On July 25, the U.S. House of Representatives voted to block the Consumer Financial Protection Bureau’s (CFPB) Arbitration Rule from becoming effective with a vote of 231 to 190. The vote was mostly down party lines and paves the way for the Senate to act to impose its own legislative veto to block the Rule. As LenderLaw Watch previously reported (here and here), the CFPB’s Arbitration Rule prohibits financial institutions from including arbitration clauses precluding consumers from filing class action lawsuits in consumer financial services and products contracts. While both the U.S. House of Representatives and U.S. Senate filed Congressional Review Act challenges to the Rule, the House was the first to act. The Congressional Review Act permits Congress to effectuate a legislative veto of an agency rule, such as the Arbitration Rule, by issuing a resolution of disapproval with a simple majority vote. 5 U.S.C. § 802. House Republicans filed their Congressional Review Act challenge to the Rule on July 20, 2017, and passed its resolution of disapproval of the Rule only five days later. If not blocked, the Rule is slated to become effective on September 18, 2017. View the LenderLaw Watch blog post.
CFPB Deploys Web-Based Form for Regulatory Inquiries
On August 17, the Consumer Financial Protection Bureau (CFPB) launched a web-based input form to replace its email address (CFPB_RegInquiries@cfpb.gov), which was used for the submission of regulatory inquiries. The new form asks submitters of regulatory inquiries to identify an applicable regulation from a drop-down menu, provides space for free-form questions, and collects contact information. Submitters of questions pertaining to multiple regulations are instructed to submit them separately. The new form indicates that responses can generally be expected within 10-15 business days. The new form is available on the CFPB’s website.
On August 21, the OCC issued a bulletin providing guidance for managing risks associated with programs in which residential mortgage loans are originated when the loan-to-value ratio (LTV) at origination exceeds 100 percent (higher-LTV loans). The OCC stated that it recognizes that “supporting long-term community revitalization may necessitate responsible, innovative lending strategies” and that “in some circumstances, a bank also can design a program to offer higher-LTV loans in communities targeted for revitalization in a manner consistent with safe and sound lending practices and current regulations and guidelines.” The bulletin provides guidance regarding the circumstances under which banks may establish a program to originate certain higher-LTV loans and the OCC’s supervisory considerations regarding such programs.
OCC Bank Accounting Advisory Series Updated
On August 15, the OCC released an annual update to its Bank Accounting Advisory Series (BAAS). This edition of the BAAS reflects accounting standards issued by the Financial Accounting Standards Board on topics such as the recognition and measurement of financial instruments, leases and revenue recognition. Additionally, this edition includes recent answers to frequently asked questions from the industry and examiners. The BAAS does not represent official rules or regulations of the OCC. Rather, it represents the OCC’s Office of the Chief Accountant’s interpretations of generally accepted accounting principles and regulatory guidance based on the facts and circumstances presented. National banks and federal savings associations that deviate from these stated interpretations may be required to provide justification to the OCC.
Client Alert: Revised NYSE Dividend Notification Requirements
The New York Stock Exchange has amended its Listed Company Manual to require listed companies to notify the NYSE at least 10 minutes before the company announces any dividend or stock distribution or the fixing of a record date for any dividend or stock distribution, even if the announcement is made outside of market hours. The NYSE adopted these amendments on August 14, 2017. For more information, read the client alert issued by Goodwin’s Public Companies and REITs and Real Estate M&A practices.
Enforcement & Litigation
Spokeo Resurfaces: Ninth Circuit Holds FCRA Plaintiff Has Standing to Sue
On August 15, the Ninth Circuit issued its opinion in Robins v. Spokeo, finding that plaintiff Thomas Robins has standing to continue his Fair Credit Reporting Act (FCRA) suit against Spokeo, Inc. In its opinion, a unanimous panel of the Ninth Circuit articulated a two-part concreteness test to determine standing. The court concluded that Robins’ allegations satisfied the test because the FCRA provision at issue was designed to protect a concrete interest and the alleged violation of that protection presented a material risk of harm to Robins. The court also rejected Spokeo’s argument that Robins’ injury was only speculative. The Ninth Circuit’s Spokeo decision is noteworthy not only because of the case’s protracted history in the Ninth Circuit and the Supreme Court, but because it shows the evaluation of individual claims that courts must undertake in determining whether plaintiffs have standing. View the LenderLaw Watch blog post.
Goodwin News
Goodwin Joins Ethereum Enterprise Alliance Legal Industry Working Group
Goodwin recently joined the Enterprise Ethereum Alliance (EEA) Legal Industry Working Group alongside 13 other leading law firms and academic institutions, bringing together top global law firms and leading legal minds to explore building enterprise-grade applications on Ethereum. The rapid growth of the EEA Legal Industry Working Group is emblematic of the increased interest by legal professionals in blockchain technology, and the EEA believes that the Legal Working Group will prove foundational to the success of various efforts taking place within the organization. The Enterprise Ethereum Alliance is an industry-supported, not-for-profit established to build, promote and broadly support Ethereum-based technology best practices, open standards and open source reference architectures. Formed earlier this year, the EEA is helping to evolve Ethereum into an enterprise-grade technology, providing research and development in a range of areas, including privacy, confidentiality, scalability and security. Read more about the Ethereum Enterprise Alliance Legal Industry Working Group.
At a time of substantial regulatory action in the area of consumer financial protection, there has also been significant judicial activity. Hear from legal experts as they examine and discuss recent major decisions at the Supreme Court and appellate courts which will affect consumer protection generally and impact the mortgage finance arena specifically. Please join MBA Compliance Essentials for an important, informative program on the current state of consumer protection law, as well as what might be coming from the courts in the not too distant future. Goodwin partners Willy Jay, Matthew Sheldon and Laura Stoll will be speaking at this webinar.
This week’s Roundup contributors: Alex Callen, Courtney Hayden, Kimberly Holzel and Bill McCurdy.