On November 21, the Board of Governors of the Federal Reserve System, FDIC and OCC (Agencies) finalized transition rules (Transition Rules) that stay certain phase-in provisions of regulatory capital rules adopted by the Agencies in 2013 (2013 Rules). As previously reported in the Roundup, the 2013 Rules strengthened the capital requirements applicable to banking organizations by limiting (1) the amount of capital issued by a consolidated subsidiary and not owned by the banking organization that counts toward regulatory capital and (2) the amounts of mortgage servicing assets, deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks, and certain investments in the capital of unconsolidated financial institutions that are deductible from regulatory capital. The 2013 Rules included transition provisions phasing in such capital requirements over time. In response to concerns raised about the 2013 Rules, the Agencies are evaluating simplifications to the 2013 Rules and, as also previously reported in the Roundup, have published a notice of proposed rulemaking seeking public comment on such simplifications (Simplification NPR). The Transition Rules apply only to non-advanced approaches banking organizations. While the Simplification NPR is pending, the Transition Rules will become effective January 1, 2018, and will stay certain 2017 transition provisions currently in effect under the 2013 Rules, which otherwise would have become fully effective on January 1, 2018. The Transition Rules do not apply to advanced approaches banking organizations, which should continue to apply the 2013 Rules and their phase-in provisions.
On November 17, the Board of Governors of the Federal Reserve System (Federal Reserve) extended the comment periods on two recent proposals that were originally set to end on November 30. Comments on the Federal Reserve’s new proposed ratings system for large financial institutions and its proposed guidance on supervisory expectations for boards of directors will now be due on February 15, 2018.
On November 27, the U.S. Department of Labor (Department) announced an 18-month extension, from January 1, 2018, to July 1, 2019, of the special Transition Period for the Fiduciary Rule’s Best Interest Contract Exemption and the Principal Transactions Exemption, and of the applicability of certain amendments to Prohibited Transaction Exemption 84-24 (PTEs). According to the Department, the “extension gives the Department the time necessary to consider public comments submitted pursuant to the Department’s July Request for Information, and the criteria set forth in the Presidential Memorandum of Feb. 3, 2017, including whether possible changes and alternatives to exemptions would be appropriate in light of the current comment record and potential input from, and action by the Securities and Exchange Commission, state insurance commissioners and other regulators.” During the extended Transition Period, fiduciary advisers have an obligation to give advice that adheres to “impartial conduct standards.” These fiduciary standards require advisers to adhere to a best interest standard when making investment recommendations, charge no more than reasonable compensation for their services and refrain from making misleading statements. The Department also announced an extension of the temporary enforcement policy contained in Field Assistance Bulletin 2017-02 to cover the 18-month extension period. Thus, from June 9, 2017, to July 1, 2019, the Department will not pursue claims against fiduciaries working diligently and in good faith to comply with the Fiduciary Rule and PTEs, or treat those fiduciaries as being in violation of the Fiduciary Rule and PTEs.
On November 20, the CFPB approved the final redesigned Uniform Residential Loan Application (redesigned URLA), as issued by the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal National Mortgage Association (FNMA). The CFPB confirmed that the revised form is in compliance with Regulation B, the implementing regulation for the Equal Credit Opportunity Act. The redesigned URLA includes a question relating to the applicant’s language of preference. Lenders may begin to use the redesigned URLA in July 2019, and use of the form will be required for loans eligible for purchase by FHLMC and FNMA beginning in February 2020.
On November 20, the CFPB, the Federal Reserve and the OCC jointly announced an increase in the threshold for exempting loans from special appraisal requirements for high-priced mortgage loans during 2018. The 2018 threshold, which will go into effect on January 1, 2018, will be $26,000—a $500 increase from the prior threshold level. Annual adjustments to this threshold are required by the Dodd-Frank Act and are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers.
On November 17, the OCC issued a new version of the Comptroller’s Licensing Manual that included an important policy change on its consideration of comments received after the applicable public comment period has closed. Under previous policy, the OCC would consider comments filed after a comment period closed provided it would not “inappropriately delay” action on a filing. Under the new policy, the OCC will not consider comments received after the expiration of the public comment period, which is customarily the 30-day period following a filing. The revised manual also outlines circumstances under which the OCC may extend a public comment period.
On November 15, the OCC updated the “Branches and Relocations” booklet of the Comptroller’s Licensing Manual, which replaces the booklet of the same title issued in October 2009. The revised booklet incorporates branching and relocation procedures and requirements updated following the integration of the functions of the Office of Thrift Supervision into the OCC in 2011 and the issuance of revised regulations (12 CFR 5) that became effective July 1, 2015, addressing branching and relocations for both national banks and federal savings associations.
On November 8, the OCC issued guidance on the impact of less-than-satisfactory Community Reinvestment Act (CRA) ratings on subsequent licensing applications by financial institutions subject to the CRA. This new guidance follows on the heels of OCC guidance issued on October 12, on which LenderLaw Watch previously reported, which spelled out the factors that examiners should apply to determine whether to downgrade a financial institution’s CRA rating. The OCC’s November guidance is similar in spirit to its October guidance in that the OCC emphasizes financial institutions’ efforts to comply with the CRA in considering whether to approve applications. View the LenderLaw Watch blog post.
The FDIC will hold a free teleconference on December 12 at 2:00 p.m. EST to provide information for community banks on small business lending. Presenters will discuss FDIC resources and research relevant to small business, including Money Smart for Small Businesses, the FDIC’s small business lending survey and Community Reinvestment Act consideration for small business lending and investments. A Q&A period will follow the presentation.
On November 16, Institutional Shareholder Services (ISS) released the final changes to its 2018 U.S. voting policies, which will be effective for meetings on or after February 1, 2018. ISS’s final changes include all of the changes that it had previously proposed, which relate to non-employee director compensation, poison pills and gender pay shareholder proposals, as well as additional changes relating to ISS’s quantitative pay-for-performance test, say-on-pay responsiveness, director voting recommendations at companies that have opted into, or not opted out of, state laws mandating classified boards and other matters. For more information, read the client alert issued by Goodwin’s Public Companies and REITs and Real Estate M&A practices.
The SEC has proposed many amendments to its disclosure requirements for public company reports and offering documents, based in large part on the SEC staff study contained in its FAST Act Report. Although largely technical, the proposals would make a number of welcome changes, including potential simplification of disclosure in the MD&A section; streamlining and simplification of some current exhibit filing requirements and confidential treatment requests for exhibits; and elimination of immaterial property descriptions. For more information, read the client alert issued by Goodwin’s Public Companies practice.
Enforcement & Litigation
On November 15, the U.S. Attorney for the Southern District of New York announced that a jury has convicted the owner of an alleged fraudulent lending scheme (the “Defendant”) for one count of conspiracy to collect unlawful debts in violation of the Racketeer Influenced Corrupt Organizations Act (RICO); one count of collecting unlawful debts in violation of RICO; one count of conspiracy to commit wire fraud; one count of wire fraud; one count of aggravated identity theft; and one count of violating the Truth in Lending Act (TILA). The Defendant was convicted following a two-and-a-half week jury trial in the Southern District of New York. View the Enforcement Watch blog post.
On November 16, the Southern District of California dismissed TCPA claims on standing grounds, finding that the plaintiff had not alleged a concrete injury. In Selby v. Ocwen Loan Servicing, no. 3:17-cv-00973 (S.D. Cal), Judge Bencivengo concluded that the telephone calls the plaintiff allegedly received were not “telemarketing” calls and therefore did not implicate the statute. This decision is notable both because it bucks a trend of relatively easy determinations that standing exists in TCPA cases and because it raises another nuance to the standing analysis based on the type of calls received. View the LenderLaw Watch blog post.
On November 27, Goodwin announced that Anthony Alexis, the former Head of the Office of Enforcement at the CFPB, joined the firm’s Washington, D.C. office as a partner in the Financial Industry practice and as the head of the firm’s Consumer Financial Services Enforcement practice. Alexis’ practice will focus primarily on consumer financial services and government and regulatory investigations. In addition to direct representation in matters involving the government, Alexis will provide advice on regulatory compliance, conduct internal investigations and assist the firm’s clients in managing legal risk.
Join Goodwin on November 30 for the 6th Annual Banking Symposium, a forum for CEOs and senior management to discuss emerging issues in the financial industry. This year’s symposium, Innovation: The Great Equalizer, will feature entrepreneurs and disrupters, and highlight opportunities for innovation across the industry. Our keynote speaker, Brian Forde, is a Senior Lecturer for Bitcoin and Blockchain, MIT Sloan School of Management, and previously served as Senior Advisor for Mobile and Data Innovation for the White House. For more information, please visit www.bankingsymposium.com.
Hosted by the MIT Club of Northern California, the event will address important topics in the digital currency industry including: What is a cryptocurrency and why does it have value? What is an ICO and how have tech entrepreneurs raised billions of dollars in non-dilutive financing? Can existing startups add cryptocurrency to their business model? In this installment of our “View From The Top” series, you’ll hear answers to these questions and more from some of the key leaders in this fast-growing field. Grant Fondo, Chair of Goodwin’s Digital Currency + Blockchain Technology practice, will be a featured speaker.