Weekly RoundUp May 15, 2019

Financial Services Weekly News: CFPB to Review Overdraft Rule

Editor's Note

In This Issue. The Consumer Financial Protection Bureau (CFPB or Bureau) announced a plan to review rules and regulations that have or will have a significant economic impact upon a substantial number of small entities, in accordance with Section 610 of the Regulatory Flexibility Act, and published a notice requesting public comment on the 2009 Overdraft Rule as its first review; the Securities and Exchange Commission (SEC) voted to propose amendments to the definitions of accelerated filer and large accelerated filer; the Financial Crimes Enforcement Network (FinCEN) issued guidance clarifying how its regulations apply to money transmission involving convertible virtual currencies; and the Board of Governors of the Federal Reserve System (Federal Reserve) repealed rules implementing the Secure and Fair Enforcement for Mortgage Licensing Act. These and other developments are discussed in more detail below.

Editor's Note

Regulatory Developments

CFPB Plans to Review Rules Under Regulatory Flexibility Act, Starting With 2009 Overdraft Rule

On May 13, the CFPB announced a notice on its plan to review rules and regulations that have or will have a significant economic impact upon a substantial number of small entities, in accordance with Section 610 of the Regulatory Flexibility Act. The Regulatory Flexibility Act requires each agency to consider the effects of its rules and regulations on small entities and make changes, amendments or rescind such rules to minimize the economic impact on small entities. Each year, the Bureau will perform an assessment of the economic impact of its rules in order to determine which rules will be reviewed. The Bureau will provide public notice and will publish in the Federal Register the list of rules the Bureau plans to review for the year. The Bureau intends to commence review of a final rule approximately nine years after the publication of each rule. Although not required, the Bureau is seeking public comment on its plan, which may be submitted 60 days after the date of publication in the Federal Register.

The Bureau additionally published a notice requesting public comment to the 2009 Overdraft Rule as its first review. The 2009 Overdraft Rule, issued by the Federal Reserve, limits the ability of financial institutions to assess overdraft fees for paying ATM and one-time debit card transactions that overdraw a consumer’s account. The Bureau’s notice requests comments on the economic impact of the 2009 Overdraft Rule on small entities. Comments must be submitted within 45 days after publication of notice in the Federal Register.

SEC Proposes Amendments to Accelerated Filer and Large Accelerated Filer Definitions

On May 9, the SEC voted to propose amendments to the definitions of accelerated filer and large accelerated filer. The proposed amendments would exclude some lower-revenue companies from accelerated or large accelerated filer status and increase the transition thresholds and conditions for entering or exiting accelerated filer and large accelerated filer status under SEC rules. These amendments would generally restore the historical relationship between status as a smaller reporting company (SRC) and status as a non-accelerated filer. This would allow a company that is both an SRC and an accelerated or large accelerated filer under the 2018 amendments to the SRC definition discussed in a prior Goodwin alert to avoid (1) the earlier filing deadlines for quarterly and annual reports that apply to accelerated and large accelerated filers and (2) the requirement to provide an attestation by the company’s independent auditor on the company’s internal control over financial reporting. The proposed amendments are subject to a 60-day public comment period after publication in the Federal Register. For additional information, please look for a more detailed client alert in the coming days.

FinCEN Issues Guidance on Convertible Virtual Currencies

On May 9, FinCEN issued guidance clarifying how its regulations apply to money transmission involving convertible virtual currencies. The guidance covers the application of FinCEN’s money transmission regulations to several business models involving convertible virtual currencies, including P2P exchangers, virtual wallets, various kinds of wallet providers, convertible virtual currency kiosks, decentralized applications, anonymity-enhanced transactions, payment processors and internet casinos. The guidance also lists specific business models involving virtual currencies that may be exempt from the definition of money transmission, including currency trading platforms, decentralized exchanges, initial coin offerings, virtual currency miners conducting transactions with their own currency, and transmission by mining pools and cloud miners.

On the same day, FinCEN issued an Advisory on Illicit Activity Involving Convertible Virtual Currency to assist financial institutions in identifying and reporting suspicious activity related to criminal exploitation of convertible virtual currencies for money laundering, sanctions evasion, and other illicit financing purposes. The advisory highlights prominent typologies, associated “red flags,” and identifies information that would be most valuable to law enforcement if contained in suspicious activity reports.

Federal Reserve Repeals Its S.A.F.E. Act Rules

On May 9, the Federal Reserve repealed the portions of Regulation H and Regulation K implementing the Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E. Act). The S.A.F.E. Act requires a national licensing and registration system for residential mortgage loan originators. Effective in 2011, the Dodd-Frank Wall Street Reform and Consumer Protection Act transferred rulemaking authority for the S.A.F.E. Act (and a number of other consumer financial protection laws) to the CFPB. In 2016, the CFPB finalized its own rules implementing the S.A.F.E. Act, which are substantially similar to the Federal Reserve’s rules. Accordingly, as previously reported in the Roundup, the Federal Reserve proposed this repeal in September 2018. The repeal will become effective 30 days after publication in the Federal Register.

Update: Comment Period Is Set for Federal Reserve’s Proposed Revisions to Its Control Regulations

On May 14, the Federal Reserve published in the Federal Register a notice of proposed rulemaking that would, as previously reported in the Roundup, revise the Federal Reserve’s regulations related to determinations of whether a company has the ability to exercise a “controlling influence” over another company for purposes of the Bank Holding Company Act or the Home Owners’ Loan Act. We recently published a detailed client alert describing key takeaways for investors from the Federal Reserve’s proposal. The Federal Register publication marks the commencement of a 60-day public comment period for the proposal, which will end on July 15, 2019.

Goodwin Alert: Proposed QOZ Regulations Offer Greater Clarity – But Significant Questions Remain

The Treasury Department and Internal Revenue Service recently issued a second round of proposed regulations (Proposed Regulations) providing additional guidance for Qualified Opportunity Fund (QOF) investors and sponsors, and supplementing the initial proposed regulations issued in October of 2018 (the Prior Proposed Regulations) under Sections 1400Z-1 and 1400Z-2 of the Internal Revenue Code of 1986, as amended (the QOF Statute and together with the Proposed Regulations, the Prior Proposed Regulations and other IRS guidance released to date, the QOF Rules). Subject to certain exceptions, taxpayers generally may rely on the Proposed Regulations as long as they follow the relevant section in its entirety in a consistent manner.

The Proposed Regulations clarify several significant points but leave many open questions. We expect that the Proposed Regulations will boost the confidence of sponsors and investors regarding the ability of funds intending to qualify as QOFs to satisfy the various QOF Rules and make investments in qualified opportunity zones (QOZs), and we hope that additional clarifications will be forthcoming. For some key takeaways that may be of interest to QOF sponsors, particularly with regard to QOF real estate funds, read the client alert issued by Goodwin’s Tax practice.

Goodwin News

Pennsylvania Bankers Association Annual Convention — May 15-18

Experience three days packed with dynamic speakers and lively discussions about the banking industry, and an inspirational program at the Pennsylvania Bankers Association Annual Convention. Goodwin will sponsor this event. For more information, please visit the event website.

Maryland Bankers Association 123rd Annual Convention – June 2-5

At the MBA Annual Convention, hundreds of bank CEOs, directors, and senior management decision-makers will gather for educational programs, networking events, and the annual election of association leadership. Goodwin is a sponsor and Samantha Kirby and Matt Dyckman will speak Monday, June 3. For more information, click here

This week’s Roundup contributors: Alex Callen and Jessica Craig.