Regulatory Developments
House Votes to Repeal OCC True Lender Rule
On June 24, the US House of Representatives voted 218-208 along party lines to pass a Congressional Review Act resolution repealing the OCC’s “true lender” rule, which was finalized in October of last year. The Senate passed the resolution in May and it now goes to the desk of President Biden, who is expected to sign it and complete the repeal. Democrats had excoriated the rule as promoting predatory lending, while Republicans had defended it, arguing that the rule created a regulatory framework that provided certainty as to the validity of loans originated by responsible bank-fintech partnerships, which in turn would have tangible benefits for borrowers seeking affordable access to credit and to market participants.
CFPB Issues Final Rule to Protect Mortgage Borrowers as They Exit Forbearance
On June 28, the CFPB issued the 2021 Mortgage Servicing COVID-19 Rule (2021 Rule) – a final rule amending Regulation X to assist borrowers affected by the COVID-19 emergency. The 2021 Rule establishes temporary provisions that (1) require special COVID-19 loss mitigation procedural safeguards to ensure that a borrower has a meaningful opportunity to apply for loss mitigation before the mortgage account is referred to foreclosure after national foreclosure moratoria have ended; (2) provide servicers the ability to offer borrowers certain COVID-19-related streamlined loan modifications without a complete loss mitigation application; (3) require the provision of additional information promptly after early intervention live contacts are established with certain delinquent borrowers; and (4) establish timing requirements for when servicers must renew reasonable diligence efforts to obtain complete loss mitigation applications from certain borrowers.
Servicers will still be permitted to initiate foreclosures if the borrower (1) has abandoned the property; (2) was more than 120 days behind on their mortgage before March 1, 2020; (3) is more than 120 days behind on their mortgage payments and has not responded to specific required outreach from the mortgage servicer for 90 days; or (4) has been evaluated for all options other than foreclosure and there are no available options to avoid foreclosure.
The 2021 Rule applies to a mortgage loan secured by the borrower’s principal residence but does not apply to reverse mortgages and generally excludes small servicers. Although the 2021 Rule becomes effective August 31, 2021, the CFPB does not intend to take action against servicers that choose to implement it sooner.
CFPB Releases Supervisory Highlights from 2020 Examinations
On June 29, the CFPB released the 24th edition of its Supervisory Highlights. The findings included in the report cover examinations in the areas of auto servicing, consumer reporting, debt collection, deposits, fair lending, mortgage origination, mortgage servicing, payday lending, private education loan origination and student loan servicing that were completed between January 1, 2020 to December 31, 2020.
“The Enforcement Division has a critical role to play in finding and punishing violations of the law. I'm excited to get to work with the talented team of public servants to uncover and prosecute misconduct and protect investors.”
– SEC Director of Division Enforcement Gurbir S. Grewel
SEC Appoints New Director of Enforcement
On June 26, the SEC announced that Gurbir S. Grewal has been appointed Director of the Division of Enforcement. Mr. Grewal currently serves as Attorney General for the State of New Jersey, a role he has held since January 2018. He will assume the leadership role from Melissa Hodgman, who has served as the Enforcement Division's Acting Director since the unexpected resignation of Director Alex Oh days after her appointment amid criticism of her work as a private practice corporate defense attorney. Mr. Grewal’s appointment becomes effective on July 26, 2021.
Federal Regulators Issue Interagency Statement on AML/Countering the Financing of Terrorism National Priorities
On June 29, the Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System (Federal Reserve), OCC, National Credit Union Administration, state bank and credit union regulators, and US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a statement to provide clarity regarding the Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) national priorities (Priorities) implementation.
The Anti-Money Laundering Act of 2020 (AML Act) requires the Secretary of the Treasury to establish and make public AML/CFT Priorities. The AML Act also requires FinCEN to promulgate regulations regarding the AML/CFT Priorities, which it published on June 30, 2021. The publication of the AML/CFT Priorities does not create an immediate change to BSA requirements for banks. Although not required by the AML Act, the federal banking agencies plan to amend their BSA compliance program rules, as necessary, to incorporate the AML/CFT Priorities. The statement confirms that examiners will not examine banks for the incorporation of the AML/CFT Priorities into their risk-based BSA programs until the effective date of final revised regulations.
FinCEN to Move Forward with No-Action Letter Rulemaking
On June 28, FinCEN completed a report on its assessment of whether to establish a process for the issuance of no-action letters in response to inquiries concerning the application of the Bank Secrecy Act and other anti-money laundering and countering the financing of terrorism laws to specific conduct. In the report, which is required by Section 6305 of the Anti-Money Laundering Act of 2020, FinCEN concluded that it should propose rules to create a process for issuing no-action letters in addition to its current forms of regulatory guidance and relief, with the timing subject to resource limitations and competing priorities. In a statement, FinCEN said "A no-action letter process would be a useful complement to its current forms of regulatory guidance and relief. FinCEN looks forward to continuing to engage with our government partners and the public during a future rulemaking process to ensure all constructive feedback is considered on this important issue.”
Agencies Release List of Distressed or Underserved Nonmetropolitan Middle-Income Geographies
On June 25, the Federal Reserve and FDIC announced the availability of the 2021 list of distressed or underserved nonmetropolitan middle-income geographies. These are geographic areas where revitalization or stabilization activities are eligible to receive Community Reinvestment Act (CRA) consideration under the community development definition.
MDOB Publishes 2020 Annual Report of the Commissioner of Banks
On June 24, the Massachusetts Division of Banks published the 2020 Annual Report of the Commissioner of Banks. The report denotes agency achievements, provides a snapshot of the financial industry regulated by the Division, and showcases the Division’s response to the COVID-19 pandemic.
Litigation and Enforcement
The Supreme Court Provides Guidance on the Standard for Deciding Price Impact at Class Certification in Securities Fraud Cases
In Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, the US Supreme Court answered two important questions regarding the standards that govern class certification in securities fraud actions, affirming the majority views of courts below. Those questions relate to proving whether alleged misrepresentations affected the defendant’s stock price, a concept known as price impact. The Court held that (1) the generic nature of the alleged misrepresentations should be considered in deciding price impact, even though that evidence also is relevant to the subsequent merits stage of the case; and (2) a defendant opposing class certification bears the burden of proving by a preponderance of the evidence a lack of price impact of the alleged misrepresentations.
Read the client alert for additional background on the case and the impact of the Goldman decision.
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