Weekly RoundUp October 25, 2017

Financial Services Weekly News

Editor's Note

CFPB Outlines Principles for Consumer-Authorized Financial Data Sharing and Aggregation. How companies share consumer data, and how much they tell consumers about their information sharing practices, has long been of interest to federal regulators, including the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB). Just last week, the CFPB issued consumer protection principles addressing consumer-authorized financial data sharing and aggregation that it believes are important best practices for companies that share, or access, consumer financial data with consumer consent. Notably, the principles suggest that financial services companies should not deter consumers from authorizing trusted third parties to access and use their data and further note that access does not require consumers to share their account credentials with third parties. While these concepts are likely to be embraced by Fintech companies that provide a range of services, they may not accord with current terms for many products provided by more traditional financial institutions, and also raise questions about additional steps financial institutions may need to take to implement the principles. Although the principles were likely long in the works, the timing of the rollout now is perhaps not surprising given recent events such as the Equifax breach, which has drawn attention not just to cybersecurity generally but specifically to that portion of the financial services industry that compiles large amounts of consumer financial data. The CFPB principles, which include access, consent and security, among others, ultimately center around transparency and choice to consumers, with the goal of giving consumers a say into practices that for a long time have been difficult to understand. And although the CFPB is careful to note that the principles are not intended to be formal guidance or a statement of its enforcement priorities, they could act as a road map for where the CFPB may dedicate future resources. At a minimum, given the worldwide trend toward greater transparency and choice in consumer privacy, companies should pay close attention to the principles as they evaluate their own data sharing practices.

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

Regulatory Developments

Senate Votes to Repeal CFPB Arbitration Rule

On October 24, by a 51-50 vote, the U.S. Senate voted to repeal the CFPB’s controversial rule prohibiting mandatory arbitration clauses in financial services contracts (Arbitration Rule). Vice President Pence cast the tiebreaking vote. The vote ends a successful effort by Republicans to repeal the Arbitration Rule through the Congressional Review Act, which gives Congress the power to nullify an agency rulemaking if the president signs a joint “disapproval” resolution that requires a simple majority vote from both the House of Representatives and the Senate. The House voted on party lines to repeal the rule in July. The Arbitration Rule will be repealed once the joint disapproval resolution is signed by President Trump.

The effort to repeal the Arbitration Rule in the Senate was likely bolstered by a scathing report released on October 23 by the U.S. Department of the Treasury (Treasury) criticizing both the Arbitration Rule and the study commissioned by the CFPB to support the rule. The report concluded that the Arbitration Rule “does not satisfy the statutory prerequisites for banning the use of arbitration agreements under the Dodd-Frank Act” and that the “CFPB has not made a reasoned showing that increased consumer class action litigation will result in a net benefit to consumers or to the public as a whole.” The report also concluded, based on the CFPB’s own data, that “it is far more likely that the [Arbitration] Rule will generate massive economic costs—borne by businesses and consumers alike—that dwarf the speculative benefits of the [CFPB’s] theorized increase in compliance.” 

After failing to repeal the CFPB’s prepaid account rule and successfully repealing the Arbitration Rule, Republicans may now seek to repeal the CFPB’s small dollar loan rule, commonly referred to as the “payday lending rule,” which was recently finalized by the CFPB and is likely to be the CFPB’s last major rulemaking initiative under Director Cordray’s leadership.

FINRA Requests Comment on Arbitration Proposals

On October 19, the Financial Industry Regulatory Authority (FINRA) issued regulatory notices requesting comment on two proposals related to its arbitration program. The first proposal would amend the Code of Arbitration Procedures for Customer Disputes (Code) to, among other things, expand a customer’s options to withdraw an arbitration claim if a firm or an associated person became inactive before a claim was filed or during a pending arbitration. In the second proposal, FINRA is conducting a review of the efficacy of continuing to allow compensated non-attorney representatives (NAR firms) to represent clients in securities arbitration and mediation under its Codes of Arbitration and Mediation Procedure at the forum. FINRA is seeking responses to questions related to forum users’ experience with NAR firms. The deadline for comments to both proposals is December 18, 2017.

OCC Provides Guidance for Downgrading Banks’ CRA Ratings

On October 12, the Office of the Comptroller of the Currency (OCC) published the section of its policy and procedures manual, PPM 5000-43, entitled “Impact of Evidence of Discrimination or Other Illegal Credit Practices on Community Reinvestment Act Ratings.” The policy’s purpose is to provide guidance to OCC examiners in determining whether (and by how much) to lower a national bank, federal savings association, or insured federal branch’s (collectively referred to here as “banks”) Community Reinvestment Act (CRA) rating upon finding that a bank committed discriminatory or other illegal credit practices. The policy directs its examiners to take a holistic approach, and to take into consideration a bank’s CRA compliance efforts in its entirety—and not just the egregiousness of a particular offense—in determining whether to downgrade the bank’s CRA rating. View the LenderLaw Watch blog post

House Prioritizes Housing Finance Reform

On October 3, the U.S. House of Representatives’ Financial Services Committee conducted a hearing on possible housing finance reform measures titled “Sustainable Housing Finance: An Update from the Director of the Federal Housing Finance Agency.” The hearing specifically addressed housing finance reform as it pertains to government-sponsored entities (GSEs) Fannie Mae and Freddie Mac and their controversial conservatorships. The Federal Housing Finance Agency (FHFA) regulates and supervises Fannie and Freddie, in addition to the Federal Home Loan Banks. The FHFA is also Fannie’s and Freddie’s conservator and has been since September 6, 2008. View the LenderLaw Watch blog post.

Acting Comptroller Discusses Innovation and Fintech

On October 19, in a speech before Georgetown University’s Institute of International Economic Law’s Fintech Week in Washington, D.C., Acting Comptroller of the Currency Keith Noreika reiterated his support for the OCC’s proposed special purpose nondepository national bank charter for financial technology companies (Fintech Charter) and embraced the evolving technological landscape of the banking industry. Mr. Noreika stated that he was encouraged by what he believes to be a change in tone in this country toward greater openness to rethinking its approach to regulation in a manner that would promote economic opportunity while ensuring a safe and sound financial system that protects consumers. Mr. Noreika also highlighted the OCC’s responsible innovation initiatives, and indicated that the OCC is in the early stages of developing a framework for OCC participation in bank-run pilot programs for the development and testing of new products. Such pilot programs, he asserted, would accomplish the same goals as what others call “sandboxes,” while also granting the OCC insight into such products and related risk controls. Mr. Noreika observed that recent shifts in the financial marketplace are the “natural evolution of banking itself,” and he cautioned that we must be “careful to avoid defining banking too narrowly or in a stagnant way that prevents the system from taking advantage of responsible advances in technology and commerce.” As previously reported in the Roundup, the Conference of State Bank Supervisors and the New York State Department of Financial Services have filed lawsuits challenging the OCC’s authority to issue Fintech Charters on such definitional grounds, among others. Mr. Noreika indicated that the OCC would “vigorously” defend its authority to issue Fintech Charters, but also signaled that the OCC has not decided whether it will exercise that authority.

Client Alert: CFTC Reaffirms Stance on Digital Currencies; Expresses Views on DLT and ICOs 

Pursuant to its LabCFTC initiative, the regulator issued a Fintech Primer on virtual currencies, including addressing the jurisdictional reach of the CFTC and the SEC (and potential overlap). Several questions remain regarding the already uncertain status of ICOs under the federal securities and commodities laws and regulations. For more information, read the client alert issued by Goodwin’s Digital Currency and Blockchain Technology practice. 

Enforcement & Litigation

FTC Obtains $4.1 Million Judgment Against Seller of Fake Payday Loans

On October 17, the FTC announced that it obtained a $4.1 million default judgment from the U.S. District Court for the District of Kansas against a phony debt collection operation that sold lists of fake payday loan debts to debt collectors. According to the FTC, the operation harassed consumers for debts they did not owe and successfully persuaded some to pay the fake debts. View the Enforcement Watch blog post

CFPB Files Complaint Alleging Debt-Relief Providers Misrepresented Affiliation With U.S. Government

On October 12, the CFPB announced that it filed suit against two debt-relief companies and their owners, and a third company that processed payments for and provided other services in connection with the debt-relief providers. The complaint alleges violations under the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. §§ 5531(a), 5536(a), 5564 & 5565, and the Telemarketing Sales Rule (TSR), 16 C.F.R. pt. 310. View the Enforcement Watch blog post

Goodwin News

Massachusetts Bankers Association Seminar: Pearl Meyer Compensation Survey – November 1

Join the Massachusetts Bankers Association for their annual Pearl Meyer Compensation Survey seminar. We are pleased to announce the results from Pearl Meyer’s 2017 Director Compensation Survey. You need to bring on board new directors with critical emerging skills required to ensure that your bank remains relevant and successful in today’s environment. What is the board’s role beyond CEO succession planning? How are boards identifying and mentoring the development of leaders from within? What key questions should boards and compensation committees be asking in order to ensure that a strong bench of leadership talent is being developed at the bank? What are best practices in board governance? Partner Bill Mayer, co-chair of the Goodwin’s Financial Industry practice, will speak on strategies to develop leadership talent among officers and senior management.

Expert Institute’s Best Legal Blog Contest: Voting Open Through November 3

Goodwin’s Enforcement Watch and Digital Currency + Blockchain Perspectives blogs were recently nominated for The Expert Institute’s Best Legal Blogs Hall of Fame. We want to thank all of our Roundup readers who participated in the nomination process. Each blog will now compete for rank within its category, while the three blogs that receive the most votes in any category will be designated overall winners. Voting will remain open until 12:00 AM on November 3, at which point the votes will be tallied and the winners announced. Please note that you can only cast one vote in this competition. To vote for Enforcement Watch, please click here. To vote for Digital Currency + Blockchain Perspectives, please click here.

ABA Briefing: Regulators’ Changing Views on Bank Boards of Directors and Governance – November 15

Corporate governance is evolving and is increasingly relevant to complying with regulatory requirements, managing risk and creating a foundation for a bank's success. The Federal Reserve Board has released proposed supervisory expectations for banks and boards of directors, which give hope that regulators will accept a return to the core mission of bank directors, rather than the post-crisis narrow focus on compliance issues. This briefing/webinar will discuss recent and emerging trends in corporate governance and how banks can alter their governance structure in a way that better manages risk and positions the bank for future growth. Bankers can be proactive and use the Federal Reserve's stated new approach in current examinations. For more information, please visit the event website

This week’s Roundup contributors: Alex Callen, Angela Clark, Courtney HaydenJustin Pierce, George Schneider and Tierney Smith.