Weekly RoundUp March 14, 2018

Financial Services Weekly News

Editor's Note

Judge Rules for Defendants in Mutual Fund Excessive Fee Lawsuit. On March 9, the U.S. District Court for the Southern District of Ohio entered summary judgment for defendants in an action brought under Section 36(b) of the Investment Company Act of 1940. The plaintiffs in the action had alleged that an investment adviser and an affiliated fund administrator had violated their fiduciary duties by charging excessive advisory and administration fees to seven affiliated mutual funds. In reaching its decision, the court addressed a number of issues arising out of the Supreme Court’s 2010 decision in Jones v. Harris and under the Gartenbergfactors in ways favorable for fund advisers, fund administrators and fund boards. For more information, read the client alert issued by Goodwin’s Investment Management Litigation practice. Other recent developments are covered below.

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

Regulatory Developments

SEC Proposes to Amend Liquidity-Related Disclosure Requirements

On March 14, the Securities and Exchange Commission (SEC) approved, by a 3-2 vote, a proposal to amend the liquidity-related disclosure requirements. Under the proposal, mutual funds would discuss in their annual report the operation and effectiveness of their liquidity risk management program, replacing a pending requirement that funds publicly provide the aggregate liquidity classification profile of their portfolios on Form N-PORT on a quarterly basis. To be clear, the amendments would not change the data that will be required to be collected and reported to the SEC on Form N-PORT. The amendments, if adopted, would simply make the aggregate classification data confidential when filed with the SEC (i.e., not available to the public). The amendments would also allow mutual funds to report on Form N-PORT multiple liquidity classification categories for a single position under certain specified circumstances. Comments to the proposal must be received by the SEC within 60 days after the publication in the Federal Register.

CFPB Finalizes Changes to Servicing Rule

On March 8, the Consumer Financial Protection Bureau (CFPB) issued a final rule to help mortgage servicers communicate with certain borrowers facing bankruptcy. The final rule gives mortgage servicers more latitude in providing periodic statements to consumers entering or exiting bankruptcy, as required by the CFPB’s 2016 mortgage servicing rule. Currently, servicers are required to immediately transition from sending standard statements to sending modified statements when consumers enter into bankruptcy. The final rule replaces the single-billing-cycle exemption with a single-statement exemption, granting servicers more leeway when making this transition. The effective date for the rule is April 19, 2018, the same date that the other sections of the 2016 rule relating to bankruptcy-specific periodic statements and coupon books become effective.

CFPB Issues RFI on Rulemaking Processes

On March 7, the CFPB issued a Request for Information (RFI) about its rulemaking processes. The CFPB is seeking comments and information from interested parties to help assess the overall efficiency and effectiveness of its rulemaking processes. This is the seventh in a series of RFIs announced as part of Acting Director Mick Mulvaney’s call for evidence to ensure the CFPB is fulfilling its proper and appropriate functions to best protect consumers. This RFI will provide an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities. The CFPB began accepting comments on March 9. The RFI will be open for comment for 90 days.

Federal Reserve Proposes Amendments to Regulation J

On March 6, the Board of Governors of the Federal Reserve System announced a proposed rulemaking that would amend Regulation J (Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers Through Fedwire) to align it with Regulation CC (Availability of Funds and Collection of Checks). Regulation CC was amended in 2017 to reflect the reality that virtually all check collections and returns are conducted electronically, rather than by paper. The proposed amendments include a number of definitional and other changes similarly intended to remove obsolete materials from Regulation J, update it, and align it with Regulation CC. The amendments would also clarify that financial messaging standards for Fedwire Fund Service transfers do not confer or connote legal status or responsibilities. The proposed effective date is July 1, 2018. Comments will be due 60 days after publication of the proposal in the Federal Register.

Client Alert: FinCEN States Sellers of Tokens Are MSBs; FinCEN Registration May Be Required for ICOs

FinCEN has taken the position that a person or developer that sells convertible virtual currency, including in the form of tokens sold in an ICO, in exchange for real currency or a substitute for currency, is a money services business (MSB) that must register with FinCEN and comply with anti-money laundering (AML) requirements. This raises the question as to whether companies that have had ICOs need to immediately register with FinCEN. For more information, read the client alert issued by Goodwin’s Digital Currency + Blockchain Technology practice.

Client Alert: NYSE Eliminates Proxy Statement Paper Filing Requirement for Proxy Materials

The SEC has approved a New York Stock Exchange proposal to eliminate the requirement to send hard copies of proxy materials to the NYSE if the proxy materials are available on the SEC’s EDGAR system. For more information, read the client alert issued by Goodwin’s Public Companies practice.

Enforcement & Litigation


FDIC Reaches $2 Million Settlement With Bank for Charging Allegedly Excessive, Undisclosed Fees

On March 7, the Federal Deposit Insurance Corporation (FDIC) announced that it reached a settlement with a Delaware bank, resolving allegations that the bank engaged in unfair and deceptive practices in violation of Section 5 of the Federal Trade Commission Act (the FTC Act) and violated the Electronic Funds Transfer Act, the Truth in Savings Act, and the Electronic Signatures in Global and National Commerce Act. View the Enforcement Watch blog post.

Virginia AG Reaches $243,000 Settlement With Online Payday Lenders and Servicers

On February 23, the Office of the Attorney General of Virginia (Virginia AG) announced that it had entered into a settlement agreement with several affiliated online payday lenders and debt collection companies (the “Defendants”). According to the Virginia AG, the Defendants, all out-of-state organizations, provided short-term, small-dollar loans to borrowers in Virginia over the internet and, if necessary, implemented debt collection procedures. The Virginia AG alleged that, in making loans to borrowers, the Defendants imposed “service fees” that, when combined with the contractual interest rate, resulted in effective interest rates higher than the statutory limit of 12%. The Virginia AG also alleged that the Defendants charged finance fees within a statutory “grace period” during which such fees may not be charged. View the Enforcement Watch blog post.

DOJ Settles $2 Million SCRA Action With Auto Lender

On February 22, the Department of Justice (DOJ) announced that it had entered into a settlement with an auto financial services company for alleged violations of the Servicemembers Civil Relief Act (SCRA), 50 U.S.C. § 3955(f), relating to upfront leases. In its complaint, filed the same day in the United States District Court for the District of New Jersey, the DOJ alleged certain violations of the SCRA’s requirements to rebate upfront expenses for servicemembers who are deployed abroad. The DOJ claimed that servicemembers had paid upfront fees or received credits for traded-in vehicles, and that those funds would be applied to reduce their overall monthly payments. However, according to the DOJ, when the servicemembers were deployed abroad, the financial services company cancelled the lease as required under the SCRA, but refused to refund the prorated upfront fees and credits paid by the servicemembers as required under the statute. According to the DOJ, it conducted an investigation that uncovered a total of 492 servicemembers for whom these funds had not been refunded. View the Enforcement Watch blog post.

Goodwin News

Token Fest – March 15-16

Token Fest is an exclusive, two-day networking event focused on the business and technology of tokenization. Attendees will gain a wealth of insights and information about the state of the token-based economy while networking with over 700 senior level thought leaders. Token Fest brings together business professionals from blockchain-based enterprises including CEOs, end users, entrepreneurs, venture capitalists, investors, regulators, attorneys and developers to network and collaborate on relevant industry topics. Goodwin is a sponsor of the event. For more information, please visit the event website

2018 Computational Law & Blockchain Festival: New York Node – March 16-17

The first annual Computational Law & Blockchain Festival (#clbfest2018) is a three-day global event bringing together coders, designers, lawyers, policymakers, researchers and students to co-create the future of law, legal practice and policy. In the spirit of decentralization, the festival will be hosted at independent, self-organized nodes in cities around the world. Meghan Spillane, a partner in Goodwin’s Securities Litigation and White Collar Defense group, and in its Digital Currency and Blockchain Technology practice, will be a featured speaker. For more information, please visit the event website.

2018 Mutual Funds and Investment Management Conference – March 18-21

The Mutual Funds and Investment Management Conference, sponsored by ICI and the Federal Bar Association, is the fund industry’s premier legal conference. Spanning three days, the conference offers panel discussions and keynote speakers addressing a wide range of regulatory and legislative issues affecting the fund industry. The conference also is designed to offer numerous opportunities for networking, through conference receptions and outside firm-sponsored events. Mark Holland, partner in Goodwin’s Financial Industry and Securities Litigation and SEC Enforcement practices, will be speaking at the conference.

5K Good Run in Conjunction With 2018 ICI Mutual Funds & Investment Management Conference – March 19

Goodwin’s Investment Management practice is hosting its 10th Annual Good Run in conjunction with ICI’s 2018 Mutual Funds & Investment Management Conference. In recognition of the participants, Goodwin will make a donation to Expect Miracles, a leading advocate in the fight against cancer within the financial services industry.

SIFMA C&L Annual Seminar – March 18-21

SIFMA’s C&L Annual Seminar is the premier event for compliance and legal professionals working in the financial services industry. Celebrating its 50th anniversary, the 2018 Annual Seminar provides a unique opportunity for industry leaders and regulators to gather for three days of information sharing, collaboration and networking. Goodwin is a sponsor of the event. For more information, please visit the event website.

Boston Bar Association Blockchain and Cryptocurrency Forum – March 28

Want to know the latest in blockchain and cryptocurrency? This forum is a chance for beginners and experts alike to learn about the applications of this technology and where it may be going in the near future. The program will include breakout sessions about securities, finance and intellectual property considerations. For more information, please visit the event website.

This week’s Roundup contributors: Alex Callen and Tucker DeVoe.