On March 14, the U.S. Senate passed S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, by a vote of 67-31 with 50 Republicans and 17 Democrats supporting the bill. The bill, which is substantially similar to the version agreed upon by members of the Senate Banking Committee and covered in the November 15 edition of the Roundup, is focused on providing regulatory relief for community banks and credit unions. Among other things, the bill would:
- raise the threshold for applying enhanced prudential standards from $50 billion to $250 billion of total consolidated assets, while permitting federal regulators to design tailored supervisory stress tests for banks between $100 billion and $250 billion;
- require the federal banking agencies to specify that riskless funds of a custodial bank that are deposited with a central bank will not dilute a bank’s capital when calculating the supplementary leverage ratio;
- direct the federal banking regulators to classify investment-grade municipal securities as high quality liquid assets under the Liquidity Coverage Ratio;
- exempt from the Volcker Rule banks and bank holding companies with (1) less than $10 billion in total consolidated assets and (2) total trading assets and trading liabilities that are not more than five percent of total consolidated assets;
- triple the threshold for well-managed and well-capitalized banks to qualify for an 18-month examination cycle from $1 billion to $3 billion in total consolidated assets;
- exempt institutions with less than $10 billion in total consolidated assets from the Basel III capital and liquidity requirements if they comply with a newly established community bank leverage ratio of between 8% and 10%;
- increase the total consolidated asset threshold of the Federal Reserve’s Small Bank Holding Company Policy Statement from $1 billion to $3 billion;
- help well-run smaller banks raise stable funding by providing an exception for reciprocal deposits from FDIC restrictions on acceptance of brokered deposits;
- deem certain mortgage loans that are originated and retained in portfolio by an insured depository institution or an insured credit union with less than $10 billion in total consolidated assets to be qualified mortgages under TILA;
- provide an exception to TILA escrow requirements for banks with less than $10 billion in assets that have originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year;
- remove the three-day waiting period required for the combined TILA/RESPA mortgage disclosure if a creditor extends a consumer a second offer of credit with a lower annual percentage rate;
- exempt certain mortgage loans with a balance of less than $400,000 from FIRREA’s appraisal requirements if the originator is unable to find a state-certified or state-licensed appraiser to perform an appraisal after a good faith effort to do so;
- exempt small depository institutions that have originated less than 500 closed-end mortgage loans or less than 500 open-end lines of credit in each of the two preceding calendar years from certain disclosure requirements under HMDA;
- permit depository institutions with less than $5 billion in total consolidated assets to file more streamlined call reports; and
- permit federal savings associations with less than $15 billion in total consolidated assets to elect to operate with the same powers and duties as national banks without being required to convert their charters.
The bill now goes to the House of Representatives, where House Financial Services Committee Chairman Jeb Hensarling has signaled the desire to add to the bill more than two dozen provisions previously agreed upon by a bipartisan group of members of that committee.
On March 20, the Federal Deposit Insurance Corporation approved a final rule raising the appraisal thresholds for commercial real estate (CRE) transactions from $250,000 to $500,000, an increase from the original proposal which called for the appraisal threshold to be raised to $400,000. The threshold for loans secured by one-to-four family residential properties will remain at $250,000; however, residential construction loans secured by multiple one-to-four family residential properties would be considered CRE transactions. Before becoming effective, the final rule must be approved by the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency, after which time it will be effective 30 days after publication in the Federal Register.
On March 14, the Consumer Financial Protection Bureau (CFPB) issued a request for information (RFI) seeking comments and information concerning whether it should amend any rules it has issued since its creation or issue rules under new rulemaking authority provided for by the Dodd-Frank Act. Comments will be accepted for 90 days following publication in the Federal Register. The CFPB also announced that it will be issuing additional RFIs concerning inherited rules, guidance and implementation support, consumer education and consumer inquiries in the coming weeks.
CFPB Issues Mortgage Servicing FAQs
On March 20, the CFPB released frequently asked questions regarding mortgage servicing topics in order to help financial institutions understand, implement and comply with the 2016 Mortgage Servicing Rule. The updates address certain bankruptcy-related topics.
On February 14, the Securities and Exchange Commission’s (SEC) Division of Investment Management issued a no-action letter (NAL) enabling Eagle Point Credit Company Inc. (Eagle Point), a registered closed-end fund, to file immediately effective post-effective amendments and issue securities pursuant to Rule 486(b) under the Securities Act of 1933 (Act). Rule 486 allows post-effective amendments that are filed for certain enumerated purposes, including updating financial statements, to become immediately effective. However, Rule 486(b) only applies to interval funds. The SEC staff reviews all post-effective amendments to shelf registration statements of closed-end funds, but has shown willingness in previous NALs to allow non-interval closed-end funds to rely on the rule’s provisions, but only for common stock. Importantly, this NAL relief goes further and applies to common stock and subscription rights. In its request for no-action relief, Eagle Point represented that each filing in reliance on the relief would be made in compliance with the Rule 486(b) conditions, that the fund will file a post-effective amendment containing a prospectus pursuant to Section 8(c) of the Act prior to offering any common stock at a price below, or any subscription rights exercisable at a price equivalent to or less than, the current net asset value per share, and that the fund will not sell any new securities (common stock or any subscription rights) at a lower price than the sum of the fund’s net asset value per share plus any per share commission or underwriting discount. Although this relief is expressly limited to Eagle Point, future similar relief would allow funds to take advantage of attractive markets when the timing is right and follows a recent trend of allowing closed-end funds readier access to the capital markets.
There is a compliance totem pole in financing. Consumer lending is at the top as most highly regulated and business lending is near the bottom. There are ordered slots in each spot along the pole. For example, mortgage lending is one of the more highly regulated forms of consumer lending, having a number of additional federal laws to contend with (e.g., Real Estate Settlement Procedures Act, Home Mortgage Disclosure Act, Fair Housing Act), as well as state licensing and compliance on a 50-state basis. High-cost mortgages are at the very top with additional Home Ownership and Equity Protection Act and other compliance. For more information, read the Fintech Flash issued by Goodwin’s Fintech practice.
On March 12, President Donald Trump issued an Executive Order blocking the proposed $117 billion takeover of Delaware corporation Qualcomm by Singapore chipmaker Broadcom due to national security concerns. The action highlights obstacles that foreign investors in U.S. technology companies are facing in the current environment. For more information, read the client alert issued by Goodwin’s Global Trade group.
Enforcement & Litigation
On March 15, the U.S. Court of Appeals for the Fifth Circuit issued a 2-1 decision vacating in toto the so-called “Fiduciary Rule” (Rule) promulgated by the Department of Labor (DOL) in April 2016. As presented in the opinion, the Rule proposed to “fundamentally transform over fifty years of settled and hitherto legal practices in a large swath of the financial and insurance industries” with respect to plans and individual retirement accounts (IRAs) under the Employee Retirement Income Security Act of 1974 (ERISA) by reinterpreting “investment advice fiduciary” in a broad manner and redefining exemptions to provisions concerning fiduciaries in ERISA. The court, having examined ERISA’s statutory text and longstanding historical evidence (including DOL’s own interpretations) regarding foundational understandings of the touchstones of a person’s fiduciary status and having determined that the DOL’s position relies “too narrowly on a purely semantic construction of one isolated provision and wrongly supposes [it] is inherently ambiguous,” held that the Rule conflicts with ERISA. The court also held that the Rule fails to pass the test of reasonableness under the Administrative Procedures Act and Chevron U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984). The court determined that the Rule is an example of arbitrary and unreasonable agency action for a variety of reasons, including the Rule’s illogic, internal inconsistency, encroachment on the authority of the SEC, and that “it took DOL forty years to ‘discover’ its novel interpretation.”
Only a few days earlier, on March 13, the Tenth Circuit had upheld the Rule. This circuit split raises the specter of a faceoff in the U.S. Supreme Court.
On March 12, the California Department of Business Oversight (California DBO) announced that it reached a settlement with a payday lender over allegations that the lender improperly raised the principal value of its vehicle-secured loans to avoid interest rate caps imposed by the California Finance Law, Fin. Code § 22000 et seq. (CFL). The CFL imposes interest rate caps that apply to loans with principal amounts up to $2,500. View the Enforcement Watch blog post.
While the rise of cryptocurrencies has highlighted the usefulness of blockchain technology, involving the creation of decentralized, electronic ledgers to track transactions, this technology is applicable to other fields, including financial services and pharmaceuticals. Contemporaneously, the number of pending U.S. patent applications that incorporate blockchain technology has increased dramatically. But questions remain regarding the patentability of blockchain claims in the U.S. View the full Intellectual Property Magazine article, authored by Goodwin’s Frederick Rein.
On March 27, Goodwin’s Labor & Employment practice will present a webinar on the amended Massachusetts Equal Pay Act (MEPA). In this webinar, we will cover topics including: understanding “comparable work,” wages under MEPA, factors that can justify pay differentials among those performing comparable work, important legal issues and business considerations associated with conducting a self-evaluation, changes in interview practices and confidentiality policies employers should make to comply with the amended MEPA. Please click here for registration information.
The International Association of Privacy Professionals’ annual signature event, the Global Privacy Summit, will once again bring together privacy professionals from all over the world, from DPAs and top regulators to newly minted privacy pros, for a comprehensive discussion of recent developments in privacy and cybersecurity and what’s ahead for 2018. Goodwin is a sponsor of the event. For more information, please visit the event website.
Lendit USA – April 9-11
LendIt USA is the world’s largest marketplace lending event, bringing together over 4,000 members of the global online lending ecosystem. Goodwin is a sponsor. For more information, please visit the event website.