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  • FHFA releases comprehensive report of entire FHLBank system

    On November 7, the FHFA released a report titled “FHLBank System at 100: Focusing on the Future,” providing a comprehensive overview of the Federal Home Loan Banks (FHLBank) system in its entirety. The FHLBank system is comprised of domestic and small, community-focused lenders that are connected to the global capital markets, engendering lenders to “better support housing and community development” through liquidity. The FHFA’s report acknowledged that the banking sector volatility in March 2023 led to a “significant advance demand” and it “provided a record volume of advances” to their members.

    Furthermore, the report details the background of the FHLBank System, such as its history, member type, and business functions. The features from the FHLBank system’s mission are to provide liquidity to members, as well as support housing and community developments. The chapter on stable and reliable sources of liquidity confirms that the FHLBank system is not the lender of last resort due to its funding structure of bonds and short-term notes. In addition, the Moving Forward chapter offers a list of goals for the FHLBank system to adopt. Interestingly, Appendix 5 of the report highlights an analysis of four crises from the banking failures from March to May 2023.

    Special Alerts Federal Issues FHFA FHLB Banking Mortgage Lenders

  • Special Alert: Fifth Circuit finds CFPB funding unconstitutional — Now what?

    Courts

    The Fifth Circuit ruled last night in CFSA v. CFPB that the Consumer Financial Protection Bureau’s funding structure is unconstitutional, triggering a potential wave of implications discussed below.

    The holdings

    A panel of three Fifth Circuit judges unanimously held that the CFPB funding structure created by Congress violated the Appropriations Clause of the Constitution, which provides that “no money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” It ruled that, although the CFPB spends money pursuant to a validly enacted statute, the structure violates the Appropriations Clause because the CFPB obtains its funds from the Federal Reserve (not the Treasury), the CFPB maintains funds in a separate account, the Appropriations Committees do not have authority to review the agency’s expenditures, and the bureau exercises broad authority over the economy. The court rejected the bureau’s arguments that the funding structure was necessarily constitutional because it was created by and subject to Congress, and distinguished other agencies that are funded outside of the annual appropriations process.

    Courts CFPB Special Alerts Appellate Fifth Circuit Constitution Enforcement Payday Rule Funding Structure

  • Special Alert: New Fed guidelines clarify, but do not transform, master account and payment services access

    The Federal Reserve Board recently issued final guidelines for the Reserve Banks to use in reviewing requests from a range of financial services providers for access to Federal Reserve master accounts and payment services. Master account and Federal Reserve services allow institutions to transfer money to other master accountholders directly and hold funds in the Federal Reserve System, while others must go through third parties — which can add cost, delay, and further complication to transactions.

    The final guidelines are substantially similar to those proposed in 2021 and a supplement issued earlier this year. They make the application process more transparent by describing the risk factors that a Reserve Bank should take into consideration and by applying a three-tier approach regarding the intensity of a Reserve Bank’s review. However, the guidelines do not broaden the categories of entities that are eligible to apply in the first place, do not establish application processing timelines, and do not provide a clear path forward for entities that lack federal bank supervision, including novel charter types.

    Bank Regulatory Federal Issues Federal Reserve Fintech Federal Reserve Banks Payments Payment Systems Special Alerts

  • Special Alert: NYDFS fines trading platform for BSA/AML, transaction monitoring, and cybersecurity lapses

    State Issues

    The New York Department of Financial Services and a trading platform on Aug. 1 entered into a consent order to resolve deficiencies identified during a 2019 examination and a subsequent investigation by the department’s enforcement section. The consent order focused on deficiencies related to Bank Secrecy Act and anti-money-laundering compliance, transaction monitoring, cybersecurity, and related New York certifications of compliance. The company will pay a $30 million civil monetary penalty and retain an independent consultant that will assist with remediating the issues highlighted in the order and report to NYDFS on remediation progress.

    The consent order has far-reaching implications for all financial services companies that come under the jurisdiction of the NYDFS.

    The trading platform is a wholly owned subsidiary of a financial services company that offers U.S.-based retail investors the ability to trade stocks, options, and crypto currency on a commission-free basis through its broker-dealer subsidiary. The trading platform is licensed by the NYDFS to engage in virtual currency and money transmitter businesses in New York. Of primary concern for the NYDFS was the platform’s alleged reliance on its parent company’s compliance and cybersecurity programs through enterprisewide systems that the NYDFS found to be inadequate. Additionally, according to NYDFS, the platform allegedly had few to no qualified personnel or management involved in overseeing those programs, which NYDFS has implicitly indicated cannot be outsourced.

    State Issues Financial Crimes Special Alerts NYDFS Enforcement Examination Digital Assets Virtual Currency Money Service / Money Transmitters Bank Secrecy Act Anti-Money Laundering Privacy, Cyber Risk & Data Security Of Interest to Non-US Persons

  • Special Alert: House subcommittee hears testimony on privacy bill

    Privacy, Cyber Risk & Data Security

    The House Subcommittee on Consumer Protection and Commerce held a June 14 hearing, “Protecting America’s Consumers: Bipartisan Legislation to Strengthen Data Privacy and Security,” to listen to testimony from consumer advocates and industry representatives on the recently proposed American Data Privacy and Protection Act (ADPPA).

    The bipartisan initiative faces new headwinds following June 22 remarks by Senate Commerce Chair Maria Cantwell (D-WA), who cited “major enforcement holes” in the legislation on preemption issues — but expressed hope that the sponsors could offer revisions. 

    Privacy/Cyber Risk & Data Security Federal Issues Special Alerts Federal Legislation Consumer Protection FTC House Subcommittee on Consumer Protection and Commerce

  • Special Alert: DOJ settles claims of algorithmic bias

    Federal Issues

    On June 21,  the United States Department of Justice announced that it had secured a “groundbreaking” settlement resolving claims brought against a large social media platform for allegedly engaging in discriminatory advertising in violation of the Fair Housing Act. The settlement is one of the first significant federal actions involving claims of algorithmic bias and may indicate the complexity of applying “disparate impact” analysis under the anti-discrimination laws to complex algorithms in this area of increasingly intense regulatory focus.

    Federal Issues DOJ Special Alerts Fair Housing Act Algorithms Advertisement Enforcement Settlement Disparate Impact Discrimination

  • Special Alert: Congress releases draft privacy bill

    Federal Issues

    A comprehensive federal privacy law drew one step closer to reality earlier this month when a bipartisan group of representatives and senators released a draft of the proposed American Data Privacy and Protection Act.

    Passage of the ADPPA, which combines elements of prior proposals in an effort to reach a legislative compromise, is still far from assured. But it represents a meaningful starting point for further discussions, and is already shaping the long-running debate on national privacy standards. This alert looks closely at the proposed statutory text that seeks to define the breadth and scope of a federal privacy regime that policymakers have contemplated for years.

    Greater clarity about bill text and its overall prospects for passage are likely to emerge at the House Energy and Commerce Committee’s hearing scheduled for tomorrow at 10:30 a.m. ET.

    Federal Issues Federal Legislation Privacy/Cyber Risk & Data Security Special Alerts House Energy and Commerce Committee FTC Consumer Protection American Data Privacy and Protection Act

  • Special Alert: Fed finalizes rule for FedNow platform

    The Federal Reserve Board recently issued a final rule for its FedNow instant-payments platform that offers more clarity on how the new service will work while essentially adopting the proposed rule. FedNow will stand alongside private sector initiatives and, like more modern payments systems, will feature credit payments to push funds rather than debit payments to pull funds, offering faster processing.

    Highlights of the new rule and FedNow

    • Not yet open for business. The Fed continues to target release of FedNow for sometime in 2023. It will implement the 24x7x365 real-time payments service in stages, each with additional features and enhancements.
       
    • Not a consumer or business app or service. Depository institutions that are eligible to hold Reserve Bank accounts will be able to use FedNow, which will be administered by the 12 Reserve Banks. Consumers and businesses may not participate in FedNow directly, and therefore, could not send payment orders to a Reserve Bank through it. They would instead send instant payments through their depository institution accounts.
       
    • Bank vnonbank direct participation in FedNow. Eligible institutions include banks, savings associations, credit unions, U.S. branches and agencies of non-U.S. banks, Edge or agreement corporations, some systemically important financial market utilities, and government-sponsored entities (including Fannie Mae and Freddie Mac). We use the term “banks” throughout to simplify the discussion.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance Special Alerts Federal Reserve FedNow Payments Regulation J Bank Compliance

  • Special Alert: Eleventh Circuit upholds terms of arbitration agreement in challenge under Dodd-Frank

    Courts

    On May 26, 2022, the United States Court of Appeals for the Eleventh Circuit issued a published decision holding that the Dodd-Frank Act does not prohibit the enforceability of delegation clauses contained in consumer arbitration agreements “in any way.” This opinion is of potentially broad significance in the class action and arbitration space since it is one of the first appellate decisions in the country concerning Dodd-Frank’s arbitration provision and supports broad enforcement of delegation clauses even where a statute could allegedly prohibit arbitration of the underlying claim.

    In Attix v. Carrington Mortgage Services, LLC, the Eleventh Circuit reversed a decision of the United States District Court for the Southern District of Florida denying Carrington’s motion to compel arbitration that was based on the plaintiff’s argument that the anti-waiver provision in the Dodd-Frank Act, prohibited enforcement of the arbitration agreement.  The anti-waiver provision of the Dodd-Frank Act provides that “no other agreement between the consumer and the creditor relating to the residential mortgage loan or extension of credit . . . shall be applied or interpreted so as to bar a consumer from bringing an action in an appropriate district court of the United States.” The district court agreed with the plaintiff’s argument that the Dodd-Frank Act prohibited arbitration of the underlying dispute and in doing so, side-stepped the delegation clause that delegated such threshold determinations to an arbitrator.

    In a 52-page published opinion, the Eleventh Circuit reversed the decision of the district court, holding that the Dodd-Frank Act does not prohibit enforcing delegation clauses, such as the clause at issue, which “clearly and unmistakably” delegates to the arbitrator “threshold arbitrability disputes.”  The circuit court found that in such circumstances, all questions of arbitrability are delegated to an arbitrator “unless the law prohibits the delegation of threshold arbitrability issues itself.”

    The court went on to broadly hold that the Dodd-Frank Act does not prohibit the enforceability of delegation clauses “in any way.” In doing so, the Eleventh Circuit explained that if Dodd-Frank had been intended to prohibit the enforcement of delegation clauses, then it could have been drafted that way, but instead, “the actual statute is silent as to who may decide whether a particular contract falls within the scope of its protections.” While the Dodd-Frank Act prohibits arbitration agreements from being applied or interpreted in a particular manner, it does not prohibit the enforcement of delegation clauses, and as a result, the court held that under the terms of Carrington and the plaintiff’s agreement, the arbitrator (and not the court) must determine the threshold question of whether the Dodd-Frank Act prohibits enforcement of Carrington’s arbitration agreement since it is a “quintessential arbitrability question.” 

    Significantly, the court also held that a challenge to an agreement to arbitrate on the basis that a statute precludes its enforcement is not a “specific challenge” to a delegation clause found within the arbitration agreement, such that the court lacks jurisdiction to review the enforceability of the delegation clause. In other words, where a challenge “is only about the enforceability of the parties’ primary arbitration agreement” and there is a delegation clause, “an arbitrator must resolve it.” As the Eleventh Circuit explained, “when an appeal presents a delegation agreement and a question of arbitrability, we stop. We do not pass go.” 

    This case has significance for anyone considering drafting an arbitration agreement particularly in a class action context.  A threshold drafting question is whether or not to delegate issues of arbitrability to the arbitrator or allow a court to resolve the issue.  Under this decision, a question of whether a statute bars arbitration of claims is for the arbitrator to decide when there is a delegation clause, unless the statute also explicitly bars delegation clauses.  This decision reinforces that inclusion of a properly drafted delegation clause in an arbitration agreement can result in a case improperly filed in court being more quickly sent to arbitration, even where the dispute is whether a statute prohibits the claim from being arbitrated in the first instance.

    Buckley represented Carrington on appeal with a team comprising Fredrick Levin, who argued the appeal, Scott Sakiyama, Brian Bartholomay, and Sarah Meehan. For questions regarding the case, please contact one of the team members or a Buckley attorney with whom you have worked in the past.

    Courts Special Alerts Appellate Eleventh Circuit Dodd-Frank Arbitration

  • Special Alert: Breaking down the proposed CRA overhaul

    Federal Issues

    The federal banking agencies last week announced their highly anticipated proposal to revamp and modernize regulations implementing the Community Reinvestment Act. The proposal may significantly impact the compliance obligations of large banks, which the proposal generally defines as those with assets greater than $2 billion, while granting smaller banks the option of continuing to comply under the existing framework. The proposal aims to bring to a close the CRA reform process that began more than a decade ago, and was marked most recently by the OCC’s decision to pull back its 2020 regulatory overhaul (as covered by InfoBytes here).

    Federal Issues Bank Regulatory Special Alerts Federal Reserve OCC FDIC CRA Agency Rule-Making & Guidance

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