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Financial Services Law Insights and Observations


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  • House hearing addresses diversity and inclusion accountability

    Federal Issues

    On September 8, the House Financial Services Subcommittee on Diversity and Inclusion held a hearing entitled “Holding Financial Regulators Accountable for Diversity and Inclusion: Perspectives from the Offices of Minority and Women Inclusion.” Two panels consisting of Office of Minority and Women Inclusion directors and acting directors from the OCC, Federal Reserve Board, Federal Reserve Bank of New York, FDIC, NCUA, Treasury Department, SEC, FHFA, and CFPB answered questions posed by subcommittee members on strategies taken to promote diversity and inclusion (D&I) in the industries they regulate as well as within the agencies themselves. Panelists discussed in-house D&I areas of focus, such as improving minority recruitment and retention in the workforce and increasing diversity in leadership teams, vendor and contractor relationships, and hiring panels. Panelists also discussed efforts for mitigating unconscious bias. While the majority of the hearing focused on in-house strategies, some panelists also touched upon key steps their agencies are taking to promote D&I at regulated entities. For example, NCUA’s representative stated that it is committed to improving workforce diversity in the broader financial services sector and ensuring credit unions are offering products and services that reflect the communities they serve. FDIC’s representative noted that the agency is trying to get capital into the hands of minority small businesses, while Treasury’s representative discussed efforts taken during the Covid-19 pandemic to ensure minority depository institutions’ participation in the Paycheck Protection Program. Some of the panelists raised concerns about the low number of diversity self-assessments that lenders voluntarily provide to regulators, however they noted that there has been an increase in submissions over the past few years and that providing more information to the institutions has been beneficial. Subcommittee members also discussed proposed legislation to address D&I problems—including H.R 8160, the “Promoting Diversity and Inclusion in Banking Act,” which would require regulators to examine D&I at regulated entities to promote equality under the law.

    Federal Issues U.S. House Diversity Hearing Prudential Regulators

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  • House approves resolution to reverse OCC’s CRA rule

    Federal Issues

    On June 29, the U.S. House of Representatives approved resolution H.J. 90, along party lines, which would reverse the OCC’s final rule (covered by a Buckley Special Alert) to modernize the regulatory framework implementing the Community Reinvestment Act (CRA). As previously covered by InfoBytes, Chair of the House Financial Services Committee, Maxine Waters (D-CA) and Chair of the Subcommittee on Consumer Protection and Financial Institutions, Gregory Meeks (D-NY) introduced the resolution, with Waters criticizing the OCC’s decision to move forward with the rule “despite the Federal Reserve and the FDIC—the other regulatory agencies responsible for enforcing CRA—declining to join in the rulemaking.” While the resolution is unlikely to pass the Senate, the White House released a Statement of Administration Policy, which opposes the resolution and states that the President’s advisors will recommend he veto the action.

    Federal Issues House Financial Services Committee CRA Congressional Review Act OCC Agency Rule-Making & Guidance U.S. House White House

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  • Bill overturning Department of Education’s 2019 Borrower Defense Rule sent to president

    Federal Issues

    On March 11, the U.S. Senate, in a 53-42 vote, joined the House in passing H.J. Res. 76, which provides for congressional disapproval of the Department of Education’s 2019 Borrower Defense Rule (the Rule). As previously covered by InfoBytes, the Rule, published last September and set to take effect July 1, revises protections for student borrowers that were significantly misled or defrauded by their higher education institution and establishes standards for “adjudicating borrower defenses to repayment claims for Federal student loans first disbursed on or after July 1, 2020.” If signed by the president, H.J. Res. 76 would undo changes made by the Rule that, among other things, would have required individuals to apply to the Department for a defense to repayment (under the 2016 Rule, applications could be submitted on behalf of an entire group). H.J. Res. 76 would also undo the Rule’s elimination of automatic closed-school discharges and its ban on pre-dispute arbitration and class action waivers that were previously contained within the 2016 Rule.

    Federal Issues Federal Legislation U.S. Senate U.S. House Department of Education Student Lending Debt Relief

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  • Senate Democrats ask Office of Civil Rights to address student lending racial disparities

    Federal Issues

    On February 27, Senators Elizabeth Warren (D-MA), Kamala Harris (D-CA), and Cory Booker (D-NJ) sent a letter to the Department of Education’s Office of Civil Rights (OCR) asking how the office plans to address reports of racial disparities within the federal student loan industry. The letter discusses OCR’s responsibility for enforcing civil rights laws that prohibit discrimination in Department-funded programs and activities, including student aid funding, and notes that OCR also bears the responsibility for examining the role federal student loan contractors may play in racial disparities faced by students of color after they leave their institution of higher learning. The Senators claim that for-profit colleges “disproportionately target students of color and often leave them deep in debt while providing little education value in return.” The Senators also cite new Department data, which shows that “despite using [income-driven repayments] at a much higher rate than other borrowers with the same level of education, Black student borrowers continued to have a higher default rate than their peers, regardless of the type of institution they attended.” Latino and Native student borrowers are also affected by these racial disparities, the letter notes.

    Among other things, the Senators request the following from OCR by March 26:

    • Provide a summary of all current and ongoing actions, including enforcement actions, that OCR has taken since January 2017 to address racial disparities in student loan borrowing and outcomes;
    • Conduct a comprehensive investigation into the ways predatory colleges and the student loan industry contribute to racial disparities, such as through servicing and debt collection practices, access to repayment plans, and debt cancellation options for borrowers of color; and
    • Develop a plan to address racial disparities in the student loan industry, including legislative recommendations and new policy guidance to entities involved in the industry.

    Federal Issues U.S. House Student Lending Department of Education Fair Lending

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  • Representatives hold hearing on “rent-a-bank” schemes

    Federal Issues

    On February 5, the House Financial Services Committee held a hearing titled “Rent-A-Bank Schemes and New Debt Traps: Assessing Efforts to Evade State Consumer Protections and Interest Rate Caps” to discuss policies relating to state interest rate caps and permissible interest rates on small dollar loans such as payday and car-title loans. As previously covered by a Buckley Special Alert, in November, the OCC and the FDIC proposed rules meant to override the 2015 Madden v. Midland funding decision from the U.S. Court of Appeals for the Second Circuit, and reinforce that when a national bank or savings association, or state chartered bank, transfers a loan, the permissible interest rate after the transfer is the same as it was prior to the transfer. In January, however, a group of attorneys general from 21 states and the District of Columbia submitted a comment letter to the OCC claiming the proposed rule would encourage predatory lending through “rent-a-bank schemes.” (Covered by InfoBytes here.) During the hearing, Committee Chairwoman Maxine Waters (D-CA), expressed concern that the two agency proposals would harm consumers by allowing non-banks to partner with banks and enable non-bank lenders to “peddle harmful short-term, triple-digit interest rate loans.” Representative Rashida Tlaib (D-MI) echoed that concern when she suggested that “rent-a-bank” schemes allow non-banks to dodge state interest rate laws. Many Republicans had views differing from those expressed by Tlaib and Waters. North Carolina Representative Patrick McHenry remarked that the proposals from the OCC and the FDIC merely formalized the “valid when made” rule that had been in use for over a century. At the hearing, HR 5050, which would cap federal interest rates on certain small loans at 36 percent, was also discussed, with several Democrats stressing that the cap may negatively affect credit availability to some consumers.

    Federal Issues FDIC Supervision Nonbank Supervision Bank Supervision Valid When Made OCC Interest Rate Usury House Financial Services Committee Madden Predatory Lending U.S. House

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  • Parties file amicus briefs in CFPB constitutionality challenge


    On January 22, a coalition of attorneys general from 23 states and the District of Columbia filed an amicus brief in Seila Law LLC v. CFPB arguing that the U.S. Supreme Court should preserve the CFPB and other consumer protections provide under Title X of Dodd-Frank. Last October the Court granted cert in Seila to answer the question of whether an independent agency led by a single director violates the Constitution’s separation of powers under Article II. The Court also directed the parties to brief and argue whether 12 U.S.C. §5491(c)(3), which sets up the CFPB’s single director structure and imposes removal for cause, is severable from the rest of the Dodd-Frank Act, should it be found to be unconstitutional. (Previous InfoBytes coverage of the parties’ submissions available here.) In their amicus brief, the AGs argue that the Bureau’s structure is constitutional, and that—even if the for-cause removal provision is deemed invalid—the Bureau and the rest of Title X should survive. The brief highlights joint enforcement actions and information sharing between the states and the Bureau, and emphasizes the importance of Title X provisions that are unrelated to the Bureau but provide states “powerful new tools” for combating fraud and abuse. “These provisions are entirely independent of the provisions governing the CFPB, and they serve distinct policy goals that Congress would not have wanted to abandon even if the CFPB itself were no longer operative,” the AGs write. While the AGs support the U.S. Court of Appeals for the Ninth Circuit’s decision that the Bureau’s single-director structure is constitutional (previously covered by InfoBytes here), they stress that should the leadership structure be declared unconstitutional, the specific clause should be severed from the rest of Dodd-Frank. According to the AGs, “[s]everability is supported not only by [Dodd-Frank’s] express severability clause, but also by Congress’s strongly expressed intent to create a more robust consumer-protection regime to avert another financial crisis.” Moreover, the AGs assert that the states would suffer concrete harm if the Court decides to eliminate the Bureau or rule that the entirety of Title X should be invalidated.

    The same day the U.S. House of Representatives filed an amicus brief arguing that the Court should resolve Seila without deciding the constitutionality of the Bureau director’s removal protection because the removal protection has no bearing on the issue in the case, which is an action addressing whether the Bureau’s civil investigative demand should be enforced. However, should the Court take up the constitutionality question, the brief asserts it should uphold the removal protection. “In establishing the CFPB, Congress built upon its long history of creating, and this Court’s long history of upholding, independent agencies.” The brief states that the “CFPB performs the same functions independent regulators have long performed, and it does so under the same for-cause standard this Court first blessed 85 years ago. The CFPB’s single-director structure does not transform that traditional standard into an infringement on the President’s authority.”

    Earlier on January 21, Seila Law filed an unopposed motion for divided argument and enlargement of time for oral argument, which states that all parties “agree that divided argument is warranted among petitioner, the government, and the court-appointed amicus.” The brief suggests a total of 70 minutes, with 20 minutes for the petitioner, 20 minutes for the government, and 30 minutes for the court-appointed amicus, and notes that any time allotted to the House of Representative should come from the court-appointed amicus’ time. (The House filed a separate brief asking to be allotted oral argument time.)

    A full list of amicus briefs is available here. Oral arguments are set for March 3.

    Courts U.S. Supreme Court CFPB Single-Director Structure Seila Law Dodd-Frank U.S. House State Attorney General

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  • Representatives urge financial regulators to strengthen cyber infrastructures

    Federal Issues

    On January 7, Representatives Emanuel Cleaver II (D-MO) and Gregory Meeks D-NY) sent a letter to nine federal financial regulators urging them to strengthen their financial infrastructures against possible cyber-attacks in the wake of recent threats against the U.S. from Iran and its allies following the killing of Iranian official Qasem Soleimani. The letter also requests that the regulators coordinate with law enforcement and regulated entities to increase information sharing surrounding cyber threats, and “communicate a strategy to further mitigate existing cyber vulnerabilities within [the U.S.] financial infrastructure by March.” The letter was sent to the Federal Reserve Board, Treasury Department, SEC, FDIC, CFPB, Federal Housing Finance Agency, Commodity Futures Trading Commission, National Credit Union Administration, and the OCC.

    As previously covered by InfoBytes, NYDFS separately issued an Industry Letter on January 4 warning regulated entities about the “heightened risk” of cyber-attacks by hackers affiliated with the Iranian government. The letter provides recommendations for ensuring quick responses to any suspected cyber incidents, and reminds entities they must inform NYDFS “as promptly as possible but in no event later than 72 hours’ after a material cybersecurity event.”

    Federal Issues U.S. House Federal Reserve Department of Treasury SEC FDIC CFPB FHFA CFTC NCUA OCC Privacy/Cyber Risk & Data Security

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  • House passes bill to let SEC go back 14 years on disgorgement

    Federal Issues

    On November 18, the U.S. House passed the Investor Protection and Capital Markets Fairness Act (H.R. 4344) by a vote of 314-95. The bill, which was received in the Senate, would overturn the U.S. Supreme Court’s 2017 decision in Kokesh v. SEC, which limits the SEC’s disgorgement power and subjects the agency to the five-year statute of limitations applicable to penalties and fines. (Previously covered by InfoBytes here.) As discussed in a recent Buckley article, in Kokesh’s wake, H.R. 4344 would amend the Securities Exchange Act of 1934 by specifically authorizing the SEC to seek disgorgement and restitution, putting to rest the threshold question of whether the SEC has the authority to seek disgorgement. Notably, on November 1, the Court granted certiorari in Liu v. SEC to answer this very question. If signed into the law, H.R. 4344 would allow the SEC 14 years to pursue disgorgement in federal court under the statute of limitations.

    Federal Issues U.S. House SEC Federal Legislation Disgorgement U.S. Supreme Court Liu v. SEC

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  • House passes AML/Bank Secrecy Act modernization bill

    Federal Issues

    On October 22, the U.S. House passed the Corporate Transparency Act of 2019 (H.R. 2513) by a vote of 249-173. The bill, which now heads to the Senate, would, among other things, update anti-money laundering (AML) rules, and direct the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to collect and retain beneficial ownership information for corporations and limited liability companies for law enforcement agencies to access. Additionally, H.R. 2513 would update and revise the existing AML/Bank Secrecy Act framework to facilitate information sharing between law enforcement and regulators to prevent illicit activity such as terrorist financing and money laundering. The White House issued a statement of administration policy after the bill’s passage to commend the measure, emphasizing, however, that additional steps must be taken to improve H.R. 2513 as it moves along the legislative process: “These include aligning the definition of ‘beneficial owner’ to the [FinCEN’s] Customer Due Diligence Final Rule, protecting small businesses from unduly burdensome disclosure requirements, and providing for adequate access controls with respect to the information gathered under this bill’s new disclosure regime.”

    Federal Issues Federal Legislation U.S. House Anti-Money Laundering FinCEN Beneficial Ownership Bank Secrecy Act Of Interest to Non-US Persons

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  • OCC suggests “administrative solutions” may be available for Madden fix

    Agency Rule-Making & Guidance

    On October 9, the OCC responded to a letter written by 26 Republican members of the House Financial Services Committee urging the agency to update its interpretation of the definition of “interest” under the National Bank Act (NBA) to limit the impact of the U.S. Court of Appeals for the Second Circuit’s 2015 decision in Madden v. Midland Funding, LLC (covered by a Buckley Special Alert here). The representatives’ letter (covered by InfoBytes here) argued that Madden deviated from the longstanding valid-when-made doctrine—which provides that if a contract that is valid (not usurious) when it was made, it cannot be rendered usurious by later acts, including assignment—and has “caused significant uncertainty and disruption in many types of lending programs.” The representatives urged the OCC to prioritize a rulemaking to address the issue. In response, the OCC agreed with the letter’s concerns, and stated that “administrative solutions to mitigate the consequences of the Madden decision may be available.” The OCC noted that it has filed amicus briefs in the past, reiterating the view that Madden was wrongly decided, but did not elaborate any further on potential plans for a rulemaking to address the issue.

    Agency Rule-Making & Guidance OCC Federal Issues House Financial Services Committee U.S. House Madden Valid When Made Appellate

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