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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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  • House passes one marijuana banking bill while state AGs urge passage of another

    Federal Issues

    On September 25, the U.S. House passed the SAFE Banking Act (H.R. 1595) by a vote of 321-103. As previously covered by InfoBytes, in March, the House Financial Services Committee passed the bipartisan measure, which would provide a safe harbor for depository institutions that provide a financial product or service to a covered business in a state that has implemented laws and regulations that ensure accountability in the marijuana industry.

    Additionally, on September 23, a bipartisan group of 21 state attorneys general wrote to members of Congress to urge the advancement of a different piece of legislation that would allow banks to serve marijuana-related businesses in states and territories that have legalized certain uses of marijuana. Specifically, the letter expresses support for the Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act), which “would allow each [s]tate and territory to determine, for itself, the best approach to marijuana legalization within its borders, while at the same time creating protections to ensure that such regulation does not impose negative externalities on those states and territories that choose other approaches.” The AGs emphasize that neither the SAFE Act (S.B. 1028 and H.R. 2093) nor the letter serve as an endorsement of any “particular approach to cannabis policy,” but rather are intended to prevent residents of states and territories that have legalized some form of marijuana from being subjected to “a confusing and dangerous regulatory limbo.” The STATES Act would effectively exempt marijuana from the Controlled Substances Act (CSA) in states where the drug has been legalized. In addition to providing an exemption from the CSA, the STATES Act would reduce businesses’ reliance on cash-only models—which, the AGs argue, make it more difficult to track revenue for tax and regulatory compliance purposes—and provide certain protections for states that choose to operate in this industry.

    Federal Issues Federal Legislation State Attorney General Cannabis Banking

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  • Treasury, HUD release housing finance reform plans

    Federal Issues

    On September 5, the U.S. Treasury Department and HUD released complementary proposals in response to a presidential memorandum issued last March (previously covered by InfoBytes here) directing the departments to develop plans to end the conservatorships of Fannie Mae and Freddie Mac (GSEs) and reform the housing finance system.

    According to a press release released by the Treasury Department, the Treasury Housing Reform Plan outlines several broad goals and legislative and administrative reforms intended to protect taxpayers and assist homebuyers. Included in the Reform Plan are measures to privatize the GSEs, with the Treasury Department emphasizing that FHFA “should begin the process of ending” the conservatorships. “Central to this objective will be ensuring that the GSEs and their successors are appropriately capitalized to remain viable as going concerns after a severe economic downturn and also to ensure that shareholders and unsecured creditors, rather than taxpayers, bear losses.” Other notable agency and limited congressional action highlights include:

    • Congress should authorize an explicit, paid-for guarantee by Ginnie Mae on qualified mortgage-backed securities for single-family and multifamily loans.
    • Private sector participation should increase in the mortgage market to compete with the GSEs, and ensure a level playing field for lenders of all sizes.
    • Congress should replace GSEs’ statutory affordable housing goals with a “more efficient, transparent, and accountable mechanism” to support underserved borrowers and expand HUD’s affordable housing activities.
    • GSEs under FHFA’s capital rule should be required to maintain “capital sufficient to remain viable as a going concern after a severe economic downturn,” the cap on the GSEs’ investments in mortgage-related assets should be further reduced, and GSEs’ retained mortgage portfolios should be restricted to “solely supporting [the] business of securitizing mortgage-backed securities.”
    • Mortgages eligible for GSE guarantees should have to comply with strict underwriting requirements.
    • The Qualified Mortgage rule should be simplified and the so-called QM patch that allows GSEs to avoid certain regulations should be eliminated (see previous InfoBytes coverage on the CFPB’s advance notice of proposed rulemaking to allow the QM patch to expire here).
    • Access to 30-year fix-rate mortgages for qualified homebuyers should be preserved.

    HUD’s Housing Finance Reform Plan, released in conjunction with Treasury’s proposal, addresses the role of FHA and Ginnie Mae, and outlines steps to reduce risk in the FHA portfolio. According to HUD’s press release, the proposal focuses on four objectives: refocusing FHA to its core mission, protecting American taxpayers, providing tools to FHA and Ginnie Mae to appropriately manage risk, and providing liquidity to the housing finance system. Among other objectives, HUD’s plan (i) stresses that FHA, which serves low- and moderate-income borrowers, “must ensure that borrowers are creditworthy and that they have access to loans that meet their financial needs without creating undue risk”; (ii) recommends that FHA and FHFA establish a “formalized collaborative approach” to streamline government-supported mortgage programs to ensure they are “not competing and do not crowd private capital out of the marketplace;” (iii) encourages continued efforts to reduce loan churning; (iv) encourages a continued partnership between FHA and DOJ “to provide more clarity on how the agencies will consult on the appropriate use of the [False Claims Act]” to provide regulatory certainty to lenders; (v) encourages FHA to develop servicing standards for home equity conversion mortgage programs to reduce operational and financial burdens; and (vi) recommends that FHA develop a mortgage origination risk tool that integrates an automated underwriting system.

    Federal Issues Department of Treasury Fair Housing Federal Legislation GSE Fannie Mae Freddie Mac FHFA HUD FHA Mortgages Mortgage Origination

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  • Ginnie Mae VA loan eligibility requirements amended

    Agency Rule-Making & Guidance

    On July 25, President Trump signed the “Protecting Affordable Mortgages for Veterans Act of 2019,” Public Law No. 116-33, which amends the National Housing Act to revise Ginnie Mae loan seasoning requirements for Department of Veterans Affairs (VA) housing loans. Section 306(g)(1) now requires that, in order to be eligible for Ginnie Mae securities, the date of the VA refinance loan must be the later of (i) “the date on which the borrower has made at least six consecutive monthly payments on the loan being refinanced; and” (ii) “the date that is 210 days after the first payment due date of the loan being refinanced.” The amendment is effective immediately.

    Agency Rule-Making & Guidance Federal Legislation Ginnie Mae Department of Veterans Affairs Mortgages Refinance

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  • State AGs support safe harbor for marijuana banking

    Federal Issues

    On May 8, a bipartisan group of 38 state and territorial Attorneys General wrote to congressional leaders to urge the advancement of legislation that would allow banks to do business with marijuana-related businesses in states and territories that have legalized certain uses of marijuana. Specifically, the letter expresses support for the SAFE Banking Act (HR 1595), which “would provide a safe harbor for depository institutions that provide a financial product or service to a covered business in a state that has implemented laws and regulations that ensure accountability in the marijuana industry.” The letter notes that banks providing services to state-licensed cannabis businesses, or even to their vendors, could find themselves subject to criminal and civil liability under the federal Controlled Substances Act and certain federal banking statutes because the federal government classifies marijuana as an illegal substance. Because the revenues of the legalized marijuana industry are currently handled outside of the banking system, the letter argues that it is difficult to track revenues for taxation and regulatory compliance purposes, and further contributes to potential public safety issues as “cash-intensive businesses are often targets for criminal activity.” Emphasizing that the support of the SAFE Banking Act is not an endorsement for the legalization of marijuana-related transactions, the letter notes that allowing banks the safe harbor provided in the legislation would bring billions of dollars into the banking industry and would render state and federal regulatory bodies more effective in monitoring and taxing marijuana businesses.

    Federal Issues State Issues Safe Harbor Federal Legislation Medical Marijuana

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  • Kraninger tells Hill CFPB will emphasize supervision rather than enforcement

    Federal Issues

    On March 7, Director of the CFPB, Kathy Kraninger, testified at a hearing held by the House Financial Services Committee entitled “Putting Consumers First? A Semi-Annual Review of the Consumer Financial Protection Bureau.” Pursuant to the Dodd-Frank Act, the hearing covered the semi-annual report to Congress on the Bureau’s work from April 1, 2018 through September 30, 2018. Kraninger was confirmed as Director in December 2018, and this was her first testimony before the Committee in that role. In her opening remarks, Chairwoman Maxine Waters expressed concern with the changes that took place at the Bureau under former acting Director Mick Mulvaney’s time in office and announced a draft bill titled the “Consumers First Act,” which directs the Bureau to, among other things, “promptly reverse all anti-consumer actions taken during Mr. Mulvaney’s tenure.” In her opening testimony, Kraninger emphasized that she is committed to “stability, consistency, and transparency” in the Bureau’s actions and believes the Bureau’s focus should be on the prevention of harm, specifically emphasizing the importance of the Bureau’s mission to educate consumers. Additionally, highlights of Kraninger’s testimony include:

    • Supervision and Enforcement. Kraninger repeatedly emphasized that supervision is an important tool in the Bureau’s toolkit to assist companies working to comply with laws and regulations. She asserted that enforcement is a tool that should only be used for bad actors who have “no intention” to comply with the law, and should not be used against entities seeking to comply and self-report compliance concerns. When asked to discuss the Bureau’s reported 35 open enforcement investigations, which include investigations opened under former Director Richard Corday, Kraninger noted that she reviews the actions as they come to a decision point but believes that the Bureau’s enforcement staff is carrying out the agency’s mission and following her guidance on how to proceed.
    • Office Reorganizations. Kraninger fielded a number of questions regarding former acting Director Mick Mulvaney’s actions, including the reorganization of the Office of Fair Lending and Equal Opportunity and the dismantling of the Office of Students and Younger Consumers. As for fair lending, Kraninger emphasized that moving the office to be part of the Office of the Director helps to facilitate its policy interests across the Bureau and enhances the mission of fair lending. Concerning the Bureau’s work regarding student loans, Kraninger noted that there is still dedicated staff working on student loan issues in the Bureau’s Consumer Education and Engagement section and that they are currently looking to fill the vacant role for the Student Loan Ombudsman.
    • Military Lending Act (MLA). Kraninger reiterated her position that she does not believe Dodd-Frank gives the Bureau the authority to supervise for compliance with the Act under Section 1024(b)(1)(C)—which many state Attorneys General and Democratic congressional leaders have contended it does—and repeated her request for Congress to grant the Bureau with the clear authority to do so (previously covered by InfoBytes here).
    • UDAAP. Kraninger noted that the Bureau’s regulatory agenda includes a consideration of a pre-rulemaking activity covering the definition of “abusive,” stating that while the current statute has a definition that prevents companies from taking “unreasonable advantage” of a consumer, she believes there should be clarity on what is considered a “reasonable” advantage.
    • Congressional Changes to CFPB. Kraninger stated that she will continue to undertake the responsibilities allocated to the Director under Dodd-Frank but welcomes Congressional action that would provide additional “accountability and transparency” to the agency.

    The second part of the hearing consisted of testimony from industry and consumer group representatives in which they discussed the CFPB’s previous actions and their suggestions for actions Bureau leadership should take going forward. Copies of each witnesses’ testimony are available here.

    Federal Issues CFPB House Financial Services Committee Federal Legislation Enforcement Supervision

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  • Proposed legislation introduced to streamline fintech regulation

    Fintech

    On March 4, proposed legislation, H.R. 1491, was introduced by its co-sponsors in the U.S. House of Representatives to provide federal financial regulatory clarity for fintech startups. According to a press release issued by Congressman David Scott (D-GA), the FINTECH Act of 2019 would: (i) mandate U.S. federal financial regulators harmonize and coordinate conflicting regulations that would cover fintech operations; and (ii) establish a Fintech Council to serve as a “single point of entry” for approving fintech charters before assigning approved fintechs to one or more designated U.S. regulators. The bill's co-sponsors are members of the House of Representatives' Financial Services Committee and co-chair the Fintech and Payments Caucus. 

    Fintech Federal Issues Federal Legislation U.S. House House Financial Services Committee Of Interest to Non-US Persons

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  • State AGs support bipartisan bill to combat illegal robocalls

    Privacy, Cyber Risk & Data Security

    On March 5, Attorneys General from all 50 states, as well as from the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands, sent a letter to the Senate Committee on Commerce, Science, and Transportation supporting a recently introduced bipartisan bill to combat illegal robocalls. Among other things, S. 151, the Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (TRACED Act), would: (i) grant the FCC three years to take action against robocall violations, instead of the current one-year window; (ii) authorize the agency to issue penalties of up to $10,000 per robocall; and (iii) require service providers to implement the FCC’s new call authentication framework. The AGs state that they “are encouraged that the TRACED Act prioritizes timely, industrywide implementation of call authentication protocols,” and note their support for an interagency working group that the bill would establish consisting of members from the DOJ, FCC, FTC, CFPB, other relevant federal agencies, state AGs, and non-federal stakeholders.

    Privacy/Cyber Risk & Data Security State Attorney General State Issues Consumer Complaints FCC Federal Legislation Robocalls Consumer Protection

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  • Waters releases expansive credit reporting legislation

    Federal Issues

    On February 21, Maxine Waters released a discussion draft version of the “Comprehensive Consumer Credit Reporting Reform Act of 2019,” which would significantly amend the FCRA. The draft legislative proposal was released as supporting material for the February 26 House Financial Services Committee hearing titled, “Who's Keeping Score? Holding Credit Bureaus Accountable and Repairing a Broken System.” The CEOs of the three major credit reporting agencies and a panel of officials from major consumer groups testified at the hearing.

    The draft bill— versions of which Waters has also introduced in previous Congressional sessions—includes (i) significant changes to the dispute process, such as allowing consumers to appeal determinations; (ii) banning the use of credit information for certain employment decisions; (iii) removing adverse information for certain private education loan borrowers who demonstrate positive payment history; (iv) shortening the time period that most adverse credit information stays on a credit report from seven to four years; and (v) establishing federal oversight over the development of credit scoring models.

    Federal Issues House Financial Services Committee Federal Legislation Credit Report FCRA

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