InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
House Financial Services Committee Holds Hearing to Consider the “Unconstitutional Structure of the CFPB”
On March 21, the Oversight and Investigations Subcommittee of the House Financial Services Committee held a hearing entitled “The Bureau of Consumer Financial Protection's (CFPB's) Unconstitutional Design.” The majority staff memorandum issued prior to hearing stated that its purpose was to: (i) “examine whether the structure of the [CFPB] violates the Constitution,” and (ii) consider potential “structural changes to the Bureau to resolve any constitutional infirmities.”
Chairwoman Rep. Ann Wagner (R-Mo.) introduced the proceeding by describing the CFPB as a “an unconstitutional behemoth” with a 'Washington knows best' mindset,” that “side-steps accountability to Congress and the President.” Three of the four witnesses called to testify before the panel shared the general position that the CFPB is unconstitutional as currently structured.
- The Honorable Theodore Olson , a partner at Gibson, Dunn & Crutcher LLP and lead counsel for PHH in its suit against the CFPB, shared his personal opinion that the Bureau, “[m]ore than any other administrative agency ever created by Congress,” is “far outside of our constitutional structure, holds the potential for tyrannical governance, and obscures the lines of governmental accountability. [T]he CFPB’s structure is the product of aggregating some of the most democratically unaccountable and power-centralizing features of the federal government’s administrative state.” Particularly with respect to the President, Mr. Olson noted that “by preventing the President from removing the head of the Bureau except for very limited circumstances,” the President is effectively “stripped of the power to faithfully execute the laws in these circumstances.”
- Professor Saikrishna Prakash, a Law Professor at the University of Virginia School of Law questioned the Bureau’s constitutionality, characterizing the Director of the CFPB as “the second most powerful officer in the government for he serves under no one’s supervision, enjoys a vast budget not subject to the appropriations process, and exerts enormous influence over several prominent aspects of the economy.”
- Adam White, a Research Fellow with the Hoover Institution similarly urged Congress to reform the CFPB while also cautioning against allowing the “CFPB’s original structure to . . . become the new benchmark for the next generation of ‘independent agencies.’”
Meanwhile, offering several arguments in support of the Bureau’s current structure was Brianne Gorod – a public interest attorney who has helped prepare briefing in the PHH v CFPB matter on behalf of “current and former members of Congress, who were sponsors of Dodd-Frank” and “participated in drafting it,” and “serve or served on committees with jurisdiction over the [CFPB].” (See, e.g., Motion for Leave to Intervene in Support of the CFPB). Ms. Gorod argued, among other things, that “the President’s ability to remove the Director [of the CFPB] only for cause does not ‘impede the President’s ability to perform his constitutional duty[,]’” but rather, to the contrary, “provides the Executive with substantial ability to ensure that the laws are ‘faithfully executed.’” For this reason and others, Ms. Gorod argued that “the CFPB’s leadership structure . . . is consistent with the text and history of the Constitution, as well as Supreme Court precedent.”
French Financial Crimes Investigator Joins SFO Criminal Investigation of Aircraft Manufacturer
On Thursday, March 16, 2017, an aircraft manufacturer based in Toulouse, France, reportedly announced that a preliminary investigation has been opened by the Parquet National Financier, France’s financial crimes investigator, regarding the same fraud, bribery, and corruption allegations being probed by the UK Serious Fraud Office (SFO). The company stated that the investigations into the use of third party agents by the company’s civil aviation business are being conducted in tandem, and it plans to cooperate fully with both the PNF and SFO. This unusual cooperation between France and the UK could potentially lead to the first use of a deferred prosecution agreement following France’s November 2016 enactment of the Law on Transparency, the Fight against Corruption and Modernization of Economic Life, which was enacted in response to international pressure on the French government to strengthen its corruption laws following severe sanctions imposed by the U.S. Department of Justice on French companies in recent years.
For prior coverage of the SFO’s investigation, please click here.
Special Alert: OCC Issues Highly-Anticipated Guidance for Evaluating Charter Applications from Fintech Companies
On March 15, 2017, the Office of the Comptroller of the Currency (OCC) issued further guidance regarding how it will evaluate applications by fintech companies to become Special Purpose National Banks (SPNBs). In its release, the OCC summarized the more than 100 comments it received in response to its December 2016 white paper and provided a draft supplement to the OCC Licensing Manual outlining proposed requirements for fintech companies to become SPNBs.
Last week’s release is the latest in the OCC’s efforts to support the intersection between banking and technology companies. In August 2015, Comptroller Thomas Curry announced the OCC’s intent to assemble a team of policy experts, examiners, attorneys, and other agency staff to begin researching innovative developments in the financial services industry. In March 2016, the OCC published a summary of its initial research and plans to guide the development of responsible financial innovation. In September 2016, the OCC issued a notice of proposed rulemaking clarifying the framework and process for receiverships of national banks without FDIC-insured deposits. That proposal applied to all non-depository national banks, including those with special purpose national bank charters. In October 2016, the OCC detailed its plans to implement a responsible innovation framework and announced the establishment of the Office of Innovation, a dedicated, central point of contact for fintech companies as well as requests and information related to innovation. Finally in December 2016, the OCC published a white paper announcing its intent to create a SPNB charter for fintech companies and invited comments and posed discrete questions for consideration regarding the proposals.Click here to read full special alert
* * *
If you have questions about the guidance or other related issues, visit our Financial Institutions Regulation, Supervision & Technology (FIRST) and FinTech practice pages for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.
OFR Director Delivers “Reducing the Regulatory Reporting Burden” Remarks at the Financial Data Summit
On March 16, the Office of Financial Research (OFR) posted remarks made by Director Richard Berner at the third annual Financial Data Summit hosted by the Data Transparency Coalition. "Reducing the Regulatory Reporting Burden" outlines OFR’s mission to identify areas of “duplication, overlap, and inefficiency in regulatory reporting,” presents steps to be undertaken in partnership with the Financial Stability Oversight Council (and its member agencies) to “improve data quality and reduce the reporting burden [by] requiring standards, including precise and agreed-on definitions, identifiers, and formats; industry-regulator agreement on essential data elements; adherence to best practices in data collection; and more data sharing among regulators,” and seeks participation and input from the private sector.
Conference of State Bank Supervisors Releases Statement to Congress on OCC Fintech Charters
On March 15, the Conference of State Bank Supervisors released a statement from its president, John W. Ryan, in response to last December’s OCC white paper titled Exploring Special Purpose National Bank Charters for FinTech Companies (the Proposal). As previously covered in an InfoBytes Special Alert, the white paper outlines the authority of the OCC to grant national bank charters to FinTech companies and describes minimum supervisory standards for successful FinTech bank applicants. CSBS’s statement follows a comment letter submitted to the OCC in January (along with several other letters submitted by stakeholders—see previously posted InfoBytes summary) in which numerous concerns about the federal charters were raised. Ryan stated that the OCC’s Proposal "sets a dangerous precedent [by demonstrating that] the OCC has acted beyond the legal limits of its authority [and has] bypassed and ignored bipartisan objections from Congress, [thereby] creat[ing] new risks to consumers.” He asserted that the proposed charter would “preempt existing state consumer protections without a comparable mechanism to replace them. It also exposes taxpayers to the risk of inevitable [F]inTech failures." Furthermore, state regulators oversee "a vibrant system of non-depository regulation," he noted. Many mortgage, debt collection, and consumer finance companies operate under state charters, and non-banks have access to a streamlined process to obtain licenses to operate in more than one state via a nationwide licensing system. “State regulators continuously improve this process—having slashed approval times by half in recent years—and lead the way in developing model frameworks and consumer protections for cutting-edge areas like virtual currency. And by its very nature, state regulation limits systemic risk.”
FHFA Releases January 2017 “Refinance Report”
On March 16, the Federal Housing Finance Agency (FHFA) published the Refinance Report for January 2017. As highlighted in the report, mortgage interest rates continued to increase in December 2016, resulting in a decrease in total refinance volume, although the agency noted that interest rates declined in January 2017. Also included is an overview of the Home Affordable Refinance Program (HARP)—a program established in 2009 to assist homeowners unable to refinance due to home value declines by providing opportunities to refinance through “the transfer of existing mortgage insurance to their newly refinanced loan, or by allowing those without mortgage insurance on their previous loan to refinance without obtaining new coverage.” As reported by the FHFA, “[b]orrowers completed 4,553 refinances through [HARP], bringing total refinances from the inception of the program to 3,452,224 . . ., and borrowers who refinanced through HARP had a lower delinquency rate compared to borrowers eligible for HARP who did not refinance through the program.” HARP, originally scheduled to expire on December 31, 2015, has had its expiration date extended three times and is now set to expire September 30, 2017.
Treasury Department Releases Reports on “Troubled Asset Relief” and “Making Home Affordable” Programs
On March 10, the Treasury Department (Treasury) released the February 2017 edition of its Monthly Report to Congress on the status of its Troubled Asset Relief Program (TARP). Among other things, the report provides updates on TARP programs such as the Capital Purchase Program and the Community Development Capital Initiative, as well as administration obligations and expenditures, insurance contracts, and transaction reports.
That same day, Treasury also published its fourth quarter 2016 “Making Home Affordable” Program Performance Report. According to the report, the housing market has made "significant progress" towards recovery since the beginning of the financial crisis. From 2009 through 2016, the number of homeowners who are 30-plus days delinquent on mortgage loans decreased from 6.1 million to 2.7 million, and the number of reported homeowners underwater also dropped significantly from 10.2 million to 3.2 million. A decline was also seen in the number of initiated foreclosures. To date, “approximately 10 million homeowners have received help through government programs and additional private sector efforts,” and “more than 2.8 million Homeowner Assistance Actions have taken place under Making Home Affordable programs.” Also provided in the report are fourth quarter 2016 servicer assessment results.
FDIC Releases Presentation Materials Explaining New Streamlined “FFIEC 051 Call Report” for Eligible Small Institutions
Earlier this month, the FDIC released presentation materials used during a recent webinar hosted by the Federal Financial Institutions Examination Council (FFIEC) for the purpose of explaining the new streamlined “FFIEC 051 Call Report” for eligible small institutions. As previously covered by InfoBytes, the Federal banking agencies – including the FDIC, the Fed, and the OCC – are implementing a new Call Report for financial institutions with only domestic offices and less than $1 billion in total assets (see FIL-82-2016). The proposed changes – which go into effect on March 31 – modify the existing “FFIEC 041” and “FFIEC 031” versions of the Call Report as part of an ongoing initiative to reduce the burden associated with Call Report requirements for community banks. Among other things, the streamlined Call Report reduces the existing Call Report from 85 to 61 pages, resulting from the removal of approximately 950 (or about 40 percent) of the nearly 2,400 data items in the Call Report.
Federal Court in North Dakota Dismisses CFPB Complaint Against Payment Processor for Insufficient Factual Allegations
In an Order issued on March 17, a U.S. District Court for the District of North Dakota dismissed an enforcement action filed by the CFPB against a payment processor and its two top executives. The Bureau had filed the lawsuit last year against a Fargo-based third-party payment firm, and its co-owners, alleging that the firm had “ignored” warnings from financial institutions of possible unauthorized debits and other possibly suspicious activity, including the possibility that the firm was processing electronic funds transfers on behalf of payday lenders in states where payday loans are illegal.
In granting Defendants’ motion to dismiss without prejudice, the Court held, among other things, that the CFPB had failed to “plead[] facts sufficient to support the legal conclusion that consumers were injured or likely to be injured” by the actions attributed to the defendants in the complaint. As explained by the Court, "[a]lthough the complaint need not contain detailed factual allegations, it must contain 'more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” The Court emphasized both that (i) “[f]ormulaic recitations of the elements of a claim or assertions lacking factual enhancement are not sufficient,” and (ii) that “[t]he facts alleged in the complaint must be plausible, not merely conceivable.” Applying this standard, the Court ultimately held that the CFPB’s complaint “d[id] not contain sufficient factual allegations to back up its conclusory statements regarding Intercept’s allegedly unlawful acts or omissions.”
CFPB’s Credit Union Advisory Council to Hold Public Meeting on March 30; Will Discuss Alternative Data and Consumer Access to Financial Records
In a Notice of Public Meeting published in the March 14 Federal Register, the CFPB announced that its Credit Union Advisory Council will hold a public meeting on March 30 from 3:15 to 4:45 pm EDT. According to the Notice, the Advisory Council plans to focus on “alternative data and consumer access to financial records.” Attendees should RSVP by noon on March 29.