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Financial Services Law Insights and Observations


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  • CFPB Requests Rehearing of Decision Threatening Agency's Structure

    Federal Issues

    Earlier today, the CFPB filed its much-anticipated response in PHH Corp. v. CFPB, requesting reconsideration by the full D.C. Circuit. As discussed in our special alert, on October 11, 2016, a three-judge panel of the D.C. Circuit vacated the CFPB’s $109 million penalty against PHH under the Real Estate Settlement Procedures Act (RESPA). In addition, a majority of the panel held that, to resolve a constitutional defect in the CFPB’s structure, the Director was removable by the President at will, meaning that President Trump could remove Director Cordray upon taking office. However, the panel’s decision is stayed until seven days after the court rules on the CFPB’s request.

    Rather than proceeding directly to the Supreme Court, the CFPB proceeded as expected by requesting rehearing en banc by the full D.C. Circuit, which is generally disfavored and granted only for matters of “exceptional importance.” Perhaps most significantly, the Bureau’s petition does not request rehearing of the panel’s conclusion that RESPA’s three-year statute of limitations applied to administrative as well as judicial actions brought under that statute. 

    The CFPB’s petition argues that the panel’s constitutional ruling on the CFPB’s structure should be reheard because it “sets up what may be the most important separation-of-powers case in a generation.” Specifically, the Bureau argues that the panel’s determination that a multi-member commission is an essential component of an independent agency runs contrary to Supreme Court precedent and “unduly limits Congress’s flexibility to respond to the various crises of human affairs … by creating independent administrative agencies headed by a single director.” The Bureau further states that the panel’s reasoning “may affect not only the Bureau but also other agencies headed by a single director removable only for cause,” such as the Social Security Administration, Federal Housing Finance Agency, and the Office of Special Counsel.

    The Bureau also asks the D.C. Circuit to rehear the panel’s determination that RESPA permits lenders and mortgage insurers to enter into tying arrangements under which the lender refers mortgage insurance businesses to the insurer in exchange for the insurer purchasing reinsurance from the lender’s affiliate. In support of this request, the Bureau argues that “the panel’s decision misinterpreted [RESPA] in a manner that so fundamentally defeats the statutory purpose [of prohibiting kickbacks] as to warrant rehearing en banc.” Specifically, the Bureau states that “[t]he panel’s reading of the statute would permit any mortgage lender to condition referrals on the purchase of goods or services in any related or unrelated business line. Such schemes flout the core purposes of RESPA.”

    Under the D.C. Circuit’s rules, PHH is not permitted to file a response to the CFPB’s petition unless ordered by the court to do so. However, the court will not modify the panel’s opinion without allowing PHH to respond to the petition. There is no deadline for action by the court.

    Federal Issues Consumer Finance CFPB RESPA FHA PHH v. CFPB Trump U.S. Supreme Court Single-Director Structure

  • GOP Leaders Formally Request that Obama Administration Not Finalize Rules and Regulations in its Final Days

    Federal Issues

    On November 15, GOP leaders sent a letter to “Secretaries, Administrators, Directors and Commissioners” within the Obama Administration caution[ing] [each] against finalizing pending rules or regulations in the administration’s last days.” The letter explains that by “refraining from acting with undue haste, . . . it [is] less likely that unintended consequences will harm consumers and businesses.”  In addition, “such forbearance is necessary to afford the recently elected administration and Congress the opportunity to review and give direction concerning pending rulemakings.”

    Federal Issues Consumer Finance Obama Agency Rule-Making & Guidance

  • SEC Hosts First Financial Technology (FinTech) Forum

    Federal Issues

    On November 14, the SEC hosted its first Fintech Public Forum at its Washington, DC headquarters to discuss FinTech and to evaluate how the current regulatory environment can most effectively address innovation in the financial services industry. The event was divided into four panels, which covered the following topic areas: (i) the impact of recent innovation in investment advisory services; (ii) the impact of recent innovation on trading, settlement, and clearance activities; (iii) the impact of recent innovation in capital formation; and (iv) investor protection in the FinTech era. The forum was open to the public and is also available on the SEC’s website.

    SEC Chair Mary Jo White opened the forum with introductory remarks. After explaining that “Fintech innovations have the potential to transform key parts of the securities industry,” Chair White highlighted several developments that are particularly important to the SEC, including: (i) automated investing advice; (ii) distributed ledger technology; and (iii) online marketplace lenders and crowdfunding portals. In describing the SEC’s role with respect to such innovations, Chair White noted that the Commission “must ensure new developments are not rushed to market or implemented in a way that facilitates a risk of fraud or harm to investors.” Ms. White explained that she had “directed the creation of a Fintech working group at the SEC earlier this year . . . to evaluate the emerging technologies,” and tasked the group to provide “specific, tailored recommendations . . . about what the SEC should do to provide clarity on existing regulatory requirements and help foster responsible innovation.” Chair White also clarified that the SEC was at an early stage in its outreach to investors, innovators and other stakeholders in new technologies, with the forum being an important part of SEC’s outreach.

    SEC Commissioner Michael Piwowar, who championed the idea of the Commission hosting a Fintech public forum, also spoke to attendees. “I believe the commission should take the lead regulatory role in the Fintech space,” Piwowar said in prepared remarks. “Many of the firms pursuing Fintech are already SEC registrants, and others are providing services that are squarely within the commission’s oversight, such as investment advice and trading and settlement functionalities.” Piwowar emphasized the need for clarity in the sector, but added that the SEC is “uniquely situated to determine whether and how Fintech currently fits, and ultimately should fit, within a financial regulatory structure.”

    Federal Issues Consumer Finance Digital Commerce SEC Financial Technology Fintech Virtual Currency Distributed Ledger

  • SEC Chair Mary Jo White Stepping Down

    Federal Issues

    After nearly four years as the head of the SEC, Chair Mary Jo White announced on November 14 that she intends to leave the position at the end of the Obama Administration. During her tenure, Chair White implemented the Commission’s first-ever policy to require admissions of wrongdoing in certain cases where heightened accountability and acceptance of responsibility is appropriate. To date, the Commission has required admissions from more than 70 defendants, including 44 entities and 29 individuals. Chair White’s departure affords President-elect Donald Trump the opportunity to name Chair White’s successor, subject to the Senate’s consent.

    Federal Issues Consumer Finance SEC Obama

  • FDIC Board Approves Final Rule on Deposit Account Recordkeeping Requirements to Facilitate Timely Payment of Insured Deposits in Large Bank Failures

    Federal Issues

    On November 15, the FDIC approved a final rule establishing systems and recordkeeping requirements for large FDIC-insured institutions to facilitate the prompt payment of insured deposits to customers upon the failure of any such depository institution. The final rule requires each insured depository institution that has two million or more deposit accounts to: (i) configure its IT system so that it is capable of calculating insured and uninsured amounts in each deposit account by ownership right and capacity; and (ii) maintain complete and accurate records with all information needed by the FDIC to determine deposit insurance coverage with respect to each deposit account. The final rule will become effective April 1, 2017.

    Federal Issues FDIC Banking Agency Rule-Making & Guidance

  • DOJ Announces SCRA Pilot Program Offering Dedicated Legal Support to Military Communities

    Federal Issues

    On November 2, the DOJ announced a new pilot program to provide military communities across the country with dedicated legal support as part of a broader effort by federal prosecutors to enforce the Servicemembers Civil Relief Act (SCRA). Under the program, the DOJ will fund assistant U.S. Attorney and trial attorney positions devoted to providing targeted support on SCRA-related cases in districts with major military bases. In addition, military judge advocate officers serving as legal assistance attorneys will be eligible for designation as “Special Assistant U.S. Attorney” for purposes of handling SCRA litigation matters.

    Federal Issues Consumer Finance SCRA DOJ

  • Release Updated FHA Guidance on State and Local Land Use Laws

    Federal Issues

    On November 10, DOJ and HUD issued a Joint Statement updating guidance on the application of the FHA to state and local land use and zoning laws. The guidance—which is provided in the form of frequently asked questions and answers thereto—is designed to help state and local governments better understand how to comply with the FHA when making zoning and land use decisions as well as to help members of the public understand their rights under the FHA. The first section of the Joint Statement, questions 1–6, describes generally the FHA’s requirements as they pertain to land use and zoning. The second and third sections, questions 7–25, discuss more specifically how the FHA applies to land use and zoning laws affecting housing for persons with disabilities, including guidance on regulating group homes and the requirement to provide reasonable accommodations. The fourth section, questions 26–27, addresses HUD’s and DOJ’s enforcement of the FHA in the land use and zoning context.

    Federal Issues Consumer Finance HUD DOJ FHA

  • GAO Report Recommends Additional Actions to Help Achieve Dodd-Frank Stress Test Goals

    Federal Issues

    On November 15, the GAO released its report entitled Federal Reserve: Additional Actions Could Help Ensure the Achievement of Stress Test Goals. The report had been requested in September 2014 by House Financial Services Committee Chairman Jeb Hensarling in order to determine the costs, benefits, effectiveness and transparency of the Fed’s stress tests. Highlights of the Report can be found here.

    The GAO was asked to review and assess the effectiveness of each of the Fed’s two stress test programs for certain banking institutions. Accordingly, the GAO analyzed Fed rules, guidance, and internal policies and procedures and assessed practices against federal internal control standards and other criteria. The GAO also interviewed Federal Reserve staff and officials at 19 banking institutions. The report sets forth 15 recommendations that the GAO believes will help improve the effectiveness of the Fed’s stress test programs. The recommendations include, among other things, improving disclosures and communications to firms, expanding model risk management, and reconsidering potential consequences of the Fed’s scenario design choices. The GAO has reported that the Fed “generally agreed with the recommendations and highlighted select ongoing and future efforts.”

    In a November 15 press release, House Financial Services Committee Chairman Jeb Hensarling used the GAO report to critique the Fed’s lack of transparency with regard to certain activities under the Dodd-Frank Act. Among other things, Rep. Hensarling stated, “[t]he GAO report confirms the secrecy surrounding the stress tests makes it almost impossible to measure the effectiveness of the Fed’s regulatory oversight or the integrity of the tests’ findings. When it comes to the Fed’s stress tests, not only are they not transparent, they are often duplicative and impose unnecessary costs and burdens on financial institutions that are ultimately passed on to consumers.” Rep Hensarling cautioned further that “[t]he changes recently proposed by the Federal Reserve to its stress testing process are inadequate,” and the GAO report “demonstrates the absolute need for the new President to designate a Vice-Chairman for Supervision at the Federal Reserve who will have the power to ‘oversee the supervision and regulation’ of financial firms supervised by the Federal Reserve.”

    Federal Issues Consumer Finance Dodd-Frank Federal Reserve GAO Stress Test

  • FDIC Vice-Chairman Speaks On Strengthening Global Capital

    Federal Issues

    FDIC Vice-Chairman Thomas M. Hoenig spoke at the 22nd Annual Risk USA Conference in New York on November 9. He delivered prepared remarks on “Strengthening Global Capital: An Opportunity Not To Be Lost.” Hoenig discussed his views on key factors at the core of the debate over what defines adequate capital. Specifically, he discussed the controversy over alternative measurements for judging adequate capital currently being considered by the Basel Committee, which he believes will weaken current standards and ultimately justify lower levels of capital. According to Hoenig, “[m]omentum is developing within the Basel Committee to undermine measures that could increase bank capital levels, and some jurisdictions are threatening to walk away if the measures are thought too strict.” Hoenig recommended that the United States “should avoid joining this race to the bottom.”

    Federal Issues FDIC Banking Basel Risk Management

  • OCC Proposes Revisions to Stress Test Information Collection

    Federal Issues

    On November 15, the OCC published a notice and request for comment on proposed changes to its rules requiring certain covered financial institutions, including national banks and federal savings associations with assets over $50 billion, to report certain financial information as part of stress testing. The proposed revisions to the OCC’s reporting requirements are “intended to promote consistency with” the Fed’s proposed changes to its form FR Y-14A, and consist generally of clarifying instructions, shifting the “as-of date”, adding data items, deleting data items, and redefining existing data items—including an expansion of the information collected in the scenario schedule. The proposed revisions also reflect the implementation of the final Basel III regulatory capital rule, which is set to revise and replace the OCC’s risk-based and leverage capital requirements to be consistent with agreements reached by the Basel Committee on Banking Supervision in ‘‘Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems’’ (Basel III). All comments must be received by January 19, 2017.

    Federal Issues Banking Federal Reserve OCC Basel Data Collection / Aggregation Stress Test Agency Rule-Making & Guidance