On February 4, the SEC published a request for public comment regarding potential reform measures for money market funds, as highlighted in a recent report of the President’s Working Group on Financial Markets (PWG). The PWG report discussed the results of the PWG’s study on the effect of the COVID-19 pandemic on the short-term funding markets and, in particular, on money market funds, including the general stress experienced by prime and tax-exempt money market funds. The report concluded that the events of March 2020 show that more work is needed to reduce the risk that structural vulnerabilities in prime and tax-exempt money market funds will exacerbate or lead to stresses in short-term funding markets. The potential reform measures as outlined in the PWG report seek to: (i) address money market funds’ structural vulnerabilities that can contribute to stress in short-term funding markets; (ii) improve the resilience of money market funds and broader short-term funding short-term markets; and (iii) reduce the likelihood that official sector interventions and taxpayer support will be needed to halt money market fund runs. Some of PWG’s proposed policy measures include money market fund liquidity management changes, removing the tie between liquidity and the thresholds at which liquidity fees and redemption gates may be implemented, reform of conditions for imposing redemption gates, capital buffer and swing pricing requirements, and new requirements governing sponsor support.
Commenters are encouraged to discuss the effectiveness of the previously-enacted money market fund reforms, the implementation of potential policy measures and any other topics relevant to potential money market reforms. The public comment period will be open for 60 days following the publication of the request for public comment in the Federal Register.
On February 8, staff in the SEC Division of Corporation Finance (Corp Fin) issued a letter cautioning that market and stock volatility can create risk for companies and investors, especially when companies are raising capital during these periods. In the letter, Corp Fin staff identifies several examples of comments the staff may issue to companies seeking to raise capital in securities offerings amid market and price volatility. For additional insight on this development, please look for an upcoming blog post on Goodwin’s new FinReg + Policy Watch.
On February 9, the NYDFS issued an industry letter alerting banking institutions subject to the New York Community Reinvestment Act (New York CRA) that they may receive credit for financing activities that support the climate resiliency of low- and moderate-income (LMI) and underserved communities. In the letter, NYDFS provided examples of activities that may mitigate risks from climate change and may qualify for credit under the New York CRA. These activities include, but are not limited to, the financing of renewable energy, energy-efficiency and water conservation equipment or projects for affordable housing; certain community solar projects; microgrid or battery storage projects in LMI areas with high flood and/or wind risk; projects addressing flooding or sewer issues, or reducing stormwater runoffs, that primarily benefit LMI geographies; flood resilience activities for multifamily buildings offering affordable housing; and installation of air conditioning in multifamily buildings offering affordable housing.
On February 9, the Federal Reserve extended a temporary exemption from Regulation O permitting PPP lenders to make PPP loans to businesses owned by their directors and certain shareholders, subject to certain limits and without favoritism. The extension, which runs through March 31, 2021, will allow those individuals to apply for PPP loans, consistent with SBA's rules and restrictions.
On February 8, in response to changes made in the recent stimulus legislation, the SBA issued a procedural notice updating guidance on PPP processing fees and reporting requirements. For First Draw PPP Loans made on or after December 27, 2020, the SBA will pay PPP lenders fees for processing those loans in the following amounts: 50% or $2,500, whichever is less, for loans of not more than $50,000; 5% for loans of more than $50,000 and less than $350,000; 3% for loans of more than $350,000 and less than $2,000,000; and 1% for loans of at least $2,000,000. For Second Draw PPP Loans, the SBA will pay PPP lenders fees for processing those loans in the following amounts: 50% or $2,500, whichever is less, for loans of not more than $50,000; 5% for loans of more than $50,000 and less than $350,000; and 3% percent for loans above $350,000. Lenders should use SBA Form 1502 to report fully disbursed loans to the SBA within 10 calendar days after the disbursement of a PPP loan.
On January 18, President Biden announced that he will nominate Rohit Chopra, one of two Democratic commissioners at the Federal Trade Commission (FTC), as the next Director of the Consumer Financial Protection Bureau (CFPB). This announcement came just days before Kathleen Kraninger, the current CFPB Director who has led the agency since 2018, submitted her resignation. Given the Democrat’s control of the Senate, Mr. Chopra is likely to be confirmed, an appointment that could radically reshape the CFPB’s regulatory and enforcement agenda. This development will be discussed in further detail in Goodwin’s forthcoming 2020 Consumer Finance Year in Review. Read the LenderLaw Watch blog to learn more about the implications of Mr. Chopra’s nomination.
On January 13, the SEC’s Division of Investment Management (the Staff) issued no-action relief under Section 17(f) of the Investment Company Act of 1940 and Rule 17f-2 thereunder, allowing registered funds to engage in self-custody of interests in loans that are originated, negotiated and structured by one or more primary lenders such as banks, insurance companies or other financial institutions. In granting relief, the Staff recognized that Rule 17f-2 assumes actual physical possession of underlying securities (i.e., the certificates), and that, given the volume of transactions and frequency of loan refinancings and paydowns, it has become extremely burdensome to maintain copies of loan documentation, including related amendments, with fund custodians. The Staff noted that loan interests are not certificated, but are instead reflected on the records that are maintained, typically by an administrative agent, on behalf of the borrower. In addition to recognizing the practical implications of allowing funds to retain evidence of ownership of loan interests, the Staff granted relief in reliance on a representation that the funds relying on such relief are subject to an annual audit, during which independent public accountants confirm all of the funds’ investments, including their investments in loan interests, and reconcile the loan interests to the funds’ account records.
In January 2021, the new California Department of Financial Protection and Innovation (DFPI) entered into memorandums of understanding (MOUs) with five earned wage access fintech companies so that these companies can continue to operate in California while providing consumers with protection against abusive practices. The DFPI, often referred to as California’s “mini-CFPB,” described these MOUs as “the first agreements of their kind” between earned wage access fintech companies and a state regulator. Read the LenderLaw Watch blog to learn about the implications of the MOUs on the fintech companies, which were not regulated as financial service providers until the passage of the California Consumer Financial Protection Law (CCFPL).
Litigation and Enforcement
On January 29, the FTC announced that it filed a proposed settlement in the District of Nevada with two Nevada-based consulting companies, resolving claims that the companies violated the FTC Act, Telemarketing and Consumer Fraud and Abuse Prevention Act, Telemarketing Sales Rule, Credit Repair Organizations Act, and Consumer Review Fairness Act. The FTC alleged that, since 2013, the two companies charged consumers to obtain “funding” to pay for trainings offered by a number of third-party companies with whom the companies partnered. Read the Consumer Finance Enforcement Watch blog to learn more about the allegations and proposed settlement.
On February 4, the DFPI launched an investigation into whether four California-based student-loan debt-relief companies violated the new CCFPL and Student Loan Servicing Act. Read the Consumer Finance Enforcement Watch blog to learn more about the investigation.
On February 3, the DFPI announced its first formal enforcement action against an Irvine-based student debt relief company. According to the DFPI, which alleges that the company violated the CCFPL, for over three years the company and its affiliates ran a student loan debt relief scam from California, convincing over a dozen California residents and others nationwide to pay tens of thousands of dollars to “wipe away” their student loans by getting them “dismissed” or “discharged.” Read the Consumer Finance Enforcement Watch blog to learn more about the DFPI’s action.
On February 8, state Attorneys General for North Carolina, Iowa, Massachusetts, New Jersey, and Pennsylvania (State AGs) announced a $4.2 million settlement with a national bank to resolve allegations that it overcharged credit card interest for certain customers. By overcharging interest to consumers, the State AGs also allege that this violated their respective state consumer protection laws. Read the Consumer Finance Enforcement Watch blog to learn more about the settlement agreement.
On February 8, the Delaware Attorney General announced that it filed an administrative lawsuit against a California-based debt-management services company for allegedly violating the Delaware Uniform Debt-Management Services Act, the Delaware Consumer Fraud Act, and the Delaware Deceptive Trade Practices Act. Read the Consumer Finance Enforcement Watch blog to learn more about the allegations.
On February 5, a digital-payment company disclosed in a filing with the SEC that it received a Civil Investigative Demand from the CFPB on January 21, 2021. Read the Consumer Finance Enforcement Watch blog to learn more about the investigation.
The blockchain and digital asset landscape continued to evolve in 2020. Goodwin recently hosted a webinar to discuss the latest corporate and regulatory developments from the past year, specifically addressing the many issues to consider when deciding how to structure and finance a business, acquire a blockchain company or assess liability from investing in a blockchain project, as well as an overview of the regulatory environment. Watch the webinar recording to learn more.
The financial services industry is subject to a regularly changing landscape of regulations and laws, driven in part by shifts in policy from regulators and lawmakers. In light of this ever-changing environment, Goodwin launched its FinReg + Policy Watch, which provides real-time updates and analyses focusing on regulation and policymaking. Issues are framed in an easy-to-digest manner, providing insight gained from our experience serving in key roles in government and advising clients across the industry. Follow along as we deliver our take on the latest developments affecting the financial services community as well as the road ahead.
Goodwin is a sponsor at the ABA Conference for Community Bankers, taking place from February 16–17, 2021, which provides the banking community with the opportunity to forge and grow valuable connections across the industry. This highly interactive virtual event puts conversation at the forefront, with planned speaker Q&As, peer group exchanges and small-group video conversations. Goodwin lawyers Samantha Kirby and Matt Dyckman will be joined by OceanFirst Bank’s General Counsel for a discussion on “Lessons Learned from COVID-19: Perspectives from Inside and Outside the Bank.”
Goodwin is a sponsor at the Mutual Funds and Investment Management conference, sponsored by the Investment Company Institute and the Federal Bar Association and being held virtually on March 15, 17 and 19. Don’t miss the chance to learn from experts, earn CPE and CLE credits, and virtually network with peers.