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Wesley R. Bricker to Replace James Schnurr as SEC Chief Accountant
On November 22, the SEC announced that Wesley R. Bricker will become its Chief Accountant, succeeding James Schnurr who will be retiring this year. Mr. Bricker served under his predecessor as Deputy Chief Accountant since 2015 and has been Interim Chief Accountant since July of this year. As Chief Accountant, Mr. Bricker will be the principal advisor to the Commission on accounting and auditing matters and lead the Commission’s Office of the Chief Accountant. He also will be responsible for assisting the Commission with discharging its oversight of the Financial Accounting Standards Board and the Public Company Accounting Oversight Board.
Federal Judge Blocks Dept. of Labor Overtime Rule from Taking Effect Next Week
On November 22, a federal judge in Texas issued a nationwide preliminary injunction blocking the enactment of the Department of Labor's (DOL’s) new overtime salary threshold under the Fair Labor Standards Act. In his order—issued in response to a lawsuit brought by 21 states and several business groups—Judge Amos L. Mazzant, III noted that the DOL does not have the authority to utilize a salary-level test or an automatic updating mechanism. By granting the preliminary injunction, the judge has delayed the rule (which was set to take effect on December 1) from becoming effective until further legal proceedings may occur. Plaintiffs’ motion for summary judgment, which seeks to invalidate the final rule, has already been briefed.
CFPB Releases 2017 Lists of Rural, Underserved Counties
On November 20, the CFPB released the 2017 iteration of its annual lists of rural counties and rural or underserved counties for use in conjunction with the several CFPB rules that refer to “rural or underserved” and “rural” counties, including the balloon-payment qualified mortgage definition and the exemption from the escrow requirements for higher-priced mortgage loans. Rural counties were generally defined by using a U.S. Department of Agriculture classification system and under-served counties were defined by data collected under the Home Mortgage Disclosure Act. In addition to these lists, the bureau also directs lenders to use its Rural or Underserved Areas Tool to provide a safe harbor determination that a property is located in a rural or underserved area for purposes of Regulation Z.
Dept. of Energy Releases Updated PACE Loan Guidelines
On November 18, the Department of Energy released new best practices guidelines for residential Property-Assessed Clean Energy (PACE) mortgages, which provide homeowners a way to finance energy-efficient home improvements through property tax assessments. The new guidelines are intended to help state and local governments as they expand their PACE programs, and address the various problems that have emerged in the market since the PACE framework was first established in 2009. Among other things, the guidelines suggest that PACE programs confirm property owners’ ability to repay their assessments, and that state and local governments work with program administrators to establish underwriting guidelines and criteria for PACE programs.
Fed Extends Post-Employment Restrictions for Senior Examiners
In a press release on November 18, the Fed announced revised post-employment restrictions that more than double the number of senior staff examiners barred from leaving a Federal Reserve Bank and going right to work for a bank they had supervised. By law, senior bank examiners are prohibited for one year from accepting paid work from a financial institution that they had primary responsibility for examining in their last year of Reserve Bank employment. This post-employment restriction has previously applied only to central points of contacts (CPCs) at firms with more than $10 billion in assets. The revised policy expands this post-employment restriction to deputy CPCs, senior supervisory officers (SSOs), deputy SSOs, enterprise risk officers, and supervisory team leaders, which has the effect of more than doubling the number of senior examiners covered. The policy—which takes effect January 2, 2017—does not apply to senior examiners responsible for multiple unaffiliated banks.
In addition, another new Fed policy prohibits former Fed Bank officers from representing financial institutions and other third parties in matters before the Fed for one year after leaving their Federal Reserve position. This policy takes effect on December 5.
GAO Issues Report on Compliance with the SCRA Interest Rate Cap by Student Loan Servicers
On November 18, the GAO announced the release of its report and recommendations following the watchdog agency’s review of application of the SCRA’s rate cap by student loan servicers. According to the report, entitled Student Loans: Oversight of Servicemembers' Interest Rate Cap Could Be Strengthened, the number of servicemembers receiving the interest rate cap for their student loans has greatly increased since the Department of Education began requiring federal student loan servicers to automatically check the Department of Defense’s SCRA database to identify those who are eligible.
The report also identified several challenges commonly encountered by servicemembers seeking to take advantage of the rate cap, including: (i) inaccurate SCRA information from the database; (ii) lack of a requirement that private loan servicers use the automatic eligibility check to identify eligible servicemembers; and (iii) lack of routine oversight of SCRA compliance for nonbank private student loan lenders and servicers. The GAO recommended, among other things, that the DOJ require private loan servicers to use the automatic eligibility check to identify eligible borrowers. The report also highlighted an issue with the Department of Education’s new borrower complaint system, which lacks the ability to track SCRA complaints systematically.
Trump Nominates Jeff Sessions to be Next Attorney General
On November 18, President-elect Donald Trump announced that he has chosen Sen. Jefferson Sessions (R-Ala.), to become the next U.S. Attorney General. Sessions served as the U.S. Attorney for the Southern District of Alabama for 12 years and was the state's attorney general for two years. Trump also announced his intent to nominate U.S. Rep. Mike Pompeo (R-Kan.) as Director of the CIA and Lt. Gen. Michael Flynn as Assistant to the President for National Security Affairs.
CFPB Requests Rehearing of Decision Threatening Agency's Structure
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.
GOP Leaders Formally Request that Obama Administration Not Finalize Rules and Regulations in its Final Days
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.”
CFPB Launches Inquiry into Consumer Financial Data Access
On November 17, the CFPB formally announced the launch of an inquiry into the benefits and risks associated with consumers authorizing third-parties to access their financial and account information held by financial service providers. The CFPB has been investigating and assessing issues related to data access and technological innovation for some time, including through Project Catalyst.
As detailed in the Request for Information (Dkt No. CFPB-2016-0048) issued on November 17, the CFPB is focused on three main points of inquiry: (i) secure access for consumers – i.e., are consumers able to securely access, and authorize others to securely access, their financial records? Are there any “business burdens” that must be addressed to provide access and use of financial records?; (ii) third-party risk -- i.e., some financial institutions have expressed concern that providing third parties with access to records may compromise consumer privacy or put their funds at risk. The CFPB would like learn more about options for ensuring that financial records are securely obtained, stored and used; and (iii) consumer control -- i.e., to what extent are consumers able to control how shared data is being used by third-parties with authorized access? Are consumers able to limit the number of times those firms can access the data?
In prepared remarks delivered at a field hearing in Salt Lake City, UT, CFPB Director Richard Cordray explained: “The technology around digital financial records continues to develop and, so far, there are many unanswered questions about how the information is being shared, by and to whom, and how safely. As with any emerging industry, we are hearing about some bumps in the road. Both Fintech companies and financial institutions, as well as consumer groups, are describing to us the various challenges, risks and technological obstacles to further progress in this area.”