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Financial Services Law Insights and Observations


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  • President Obama Re-nominates Richard Cordray for CFPB Director, Nominates Mary Jo White for SEC Chair


    On January 24, President Obama announced his re-nomination of current CFPB Director Richard Cordray. Mr. Cordray has led the Bureau since January 2012 when President Obama used his recess appointment authority to install the CFPB director. Absent Senate confirmation, Mr. Cordray’s recess appointment expires at the end of this year. Further, the constitutionality of that appointment may be called into question by a recent federal appellate court decision addressing other recess appointments. Also on January 24, President Obama nominated Mary Jo White for Senate confirmation to serve as Chairman of the SEC. Ms. White is a former U.S. Attorney for the Southern District of New York, during which time she led high-profile prosecutions of organized crime members and terrorists. Most recently she was in private practice.

    CFPB SEC Single-Director Structure

  • California County Drops Consideration of Eminent Domain Proposal


    On January 24, a Joint Powers Authority established by San Bernardino County decided not to pursue a proposal under which the County would use eminent domain power to seize underwater mortgages from private trusts and provide principal reduction for the borrowers. In announcing the decision, the chairman of the Authority explained that the decision was based on warnings from experts about the destabilizing effect on the housing market such a policy would have, and noted that county residents did not favor the proposal. Instead, the Authority approved an agreement to work with banking, mortgage, real estate, and investment firms to connect homeowners with appropriate mortgage assistance programs. San Bernardino had been closely watched since it began pursuing the concept last year. Its decision could portend how other localities will proceed. At least one recent report indicates that several other localities that have been considering eminent domain proposals already were wary of the concept even before San Bernardino’s decision.

    Eminent Domain

  • FHFA Settles One of Many Pending MBS Suits


    On January 23, the FHFA settled and voluntarily dismissed one of the lawsuits it initiated in 2011 as conservator for Fannie Mae and Freddie Mac, alleging against many parties that billions of dollars of MBS purchased by the GSEs were based on offering documents that contained materially false statements and omissions. FHFA v. Gen. Elec. Co., No. 11-7048, Notice of Dismissal (Jan. 23, 2013). This is the first settlement to be announced in connection with this series of cases; the lead case currently is on appeal to the U.S. Court of Appeals for the Second Circuit. Although the FHFA did not release any details related to the settlement, in reports the FHFA’s general counsel described the resolution as “consistent with FHFA’s responsibilities as conservator.”


  • Federal Regulators Propose Guidance for Social Media Use


    On January 22, the FFIEC proposed guidance on the applicability of consumer protection and compliance laws, regulations, and policies to activities conducted via social media by federally supervised financial institutions, as well as nonbanks supervised by the CFPB. With regard to compliance and legal risks, the guidance addresses (i) the applicability of existing federal laws and regulations to the use of social media for marketing and originating new deposit and lending products and the use of social media to facilitate consumer use of payment systems; (ii) the need to apply BSA/AML internal controls to customers engaging in electronic banking through the use of social media, and e-banking products and services offered in the context of social media, as well as BSA/AML risks emerging through the growing use of social media; (iii) CRA monitoring of social media sites run by an institution; and (vi) customer privacy issues associated with social media. The guidance also reviews reputational risks related to social media, including risks related to (i) fraud and brand identity; (ii) social media vendor monitoring; (iii) privacy; (iv) consumer complaints; and (v) employee use of social media. Finally, the guidance addresses the vulnerability of social media to malware and the resultant operational risk. The FFIEC is accepting comments for 60 days after publication in the Federal Register. After the comment period, the agencies will issue supervisory guidance and will urge state regulators to follow. 


    Nonbank Supervision Mobile Banking Bank Secrecy Act FFIEC Mobile Payment Systems Social Media Privacy/Cyber Risk & Data Security

  • Senator Urges Federal Regulators to Sync QRM Rule with CFPB's QM Standard


    On January 22, Senator Bob Corker (R-TN) sent a letter to federal regulators responsible for finalizing the Dodd-Frank Act mandated “qualified residential mortgage” (QRM) standard, urging that the final QRM definition mirror the “qualified mortgage” (QM) definition recently promulgated by the CFPB. The QRM rule will define those loans exempt from the Act’s risk retention requirements for mortgage securitizers, a requirement that also will be set by the rule though it cannot be less than the statutory floor of five percent of the credit risk for any asset that is not a QRM. The Act also prohibits the QRM standard from being broader than the QM definition. Senator Corker maintains that, because the QRM rule will exempt loans sold to federal government sponsored enterprises and government agencies, “if the QRM rule is written differently than the QM rule, most financial institutions will only originate loans intended for sale to” those entities and as a result the return of private capital to the secondary market will be limited.

    CFPB Dodd-Frank Federal Reserve RMBS U.S. Senate Qualified Mortgage Qualified Residential Mortgage

  • CFPB Delays Remittance Rule Effective Date

    Consumer Finance

    On January 22, the CFPB announced that the effective date for its international remittance transfer rule, originally set for February 7, 2013, is delayed, and that a new effective date will be announced later this year. The CFPB recently proposed making the rule effective 90 days after proposed revisions to the rule are finalized.

    CFPB Remittance

  • House Financial Services Committee Membership, Subcommittees Finalized

    Consumer Finance

    On January 22, House Financial Services Committee Chairman Jeb Hensarling (R-TX) announced the subcommittee assignments for the committee’s Republican members. Rep. Garrett (R-NJ) will again lead the subcommittee on Capital Markets and Government Sponsored Enterprises, while Rep. Capito (R-WV) remains as head of the subcommittee on Financial Institutions and Consumer Credit. Ranking Member Maxine Waters (D-CA) also recently announced as Ranking Members of those subcommittees Rep. Maloney (D-NY) and Rep. Meeks (D-NY), respectively, and released the full roster for each subcommittee. The subcommittee rosters reflect the new members joining the committee, including Reps. Barr (R-KY), Cotton (R-AR), Hultgren (R-IL), Mulvaney (R-SC), Pittenger (R-NC), Ross (Fla.), Stutzman (R-IN), and Wagner (R-MO) for the majority; and on the minority side Reps. Beatty (D-OH), Delaney (D-MD), Heck (D-WA), Foster (D-IL), Kildee (D-MI), Murphy (D-FL), Sewell (D-AL), and Sinema (D-AZ). Finally, earlier this month Chairman Hensarling announced majority staff positions, and followed with additional staff announcements on January 25, 2013.

    U.S. House

  • Virginia Publishes Electronic Notarization Standard


    On January 21, the Virginia Secretary of the Commonwealth released the Virginia Electronic Notarization Assurance Standard. Citing challenges faced by notaries to “preserve and strengthen the role of the notary in the rapidly emerging digital economy and to ensure reliability and cross-border recognition of notarized electronic documents in a global economy,” the standards are intended to support transition of notaries in Virginia to performing electronic notarizations that have the same legal effect as traditional notarizations. They set forth registration and performance requirements, electronic signature and seal requirements, online notarization procedures, and notarized electronic document requirements. According to the Secretary, the Virginia standards (i) reflect the National Association of Secretaries of State Electronic Notarization Standard for Document Security; (ii) incorporate aspects of standards previously adopted by seven other states; and (iii) are consistent with the federal ESIGN Act, the UETA, and the Uniform Real Property Electronic Recording Act.

    ESIGN Electronic Signatures UETA Notary

  • CFPB Addresses Use of Electronic Periodic Statements for Residential Mortgage Loans


    The CFPB’s recent rule amending Regulation Z (TILA), issued on January 17, included, among other changes, the requirement that mortgage servicers provide consumers with periodic billing statements. As required by the Dodd-Frank Act, the rule explicitly allows electronic distribution of the statements. However, the Bureau restricted the use of electronic statements only to instances where “the consumer agrees.” In describing the process through which this agreement must be obtained, the rule departs from the formal requirements of the federal ESIGN Act’s consumer consent process, authorizing instead a “simpler process” which requires only the consumer’s “affirmative consent.” The CFPB staff, in the accompanying Official Interpretations, indicates that consent may be presumed for consumers who are currently receiving electronic account disclosures from their servicer for any type of account, mortgage or otherwise. In light of concerns about information security, the Official Interpretations also indicate that mortgage servicers may make electronic periodic statements available on a secure website and notify the consumer that the statement is available, rather than delivering the statement directly to the consumer. Recognizing that some consumers may not desire regular notification emails, the Official Interpretations also allow a consumer who has demonstrated the ability to access statements online to opt out of receiving such notifications. Neither the rule nor the Official Interpretations address how the rule relates to other laws that may affect when an electronic communication is delivered, such as the sending or receipt requirements of state UETA statutes.

    CFPB Mortgage Servicing ESIGN Electronic Records

  • NCUA Eases Regulatory Requirements for Certain Small Credit Unions; Finalizes Rule Regarding Troubled State Credit Unions

    Consumer Finance

    On January 18, the NCUA published a final rule to amend the definition of “small entities” from those with less than $10 million in assets to those with less than $50 million in assets. The change will allow more credit unions to be considered for relief from NCUA rules. The Regulatory Flexibility Act requires federal agencies to consider the impact of their rules on small entities and allows federal agencies to determine what constitutes a small entity. The NCUA proposed a $30 million threshold, which it adjusted upward following review of comments received on the proposal. The NCUA declined to adopt the $175 million threshold sought by some commenters and used by the Small Business Association and the CFPB. In addition to requiring the NCUA to assess the impact of future proposed and final rules on more small credit unions, the new threshold has the immediate effect of excluding more credit unions from certain requirements under NCUA’s Prompt Corrective Action rule and the requirement to implement interest rate risk policies. The rule requires the NCUA to review the threshold in two years, and every three years thereafter. The new threshold takes effect on February 19, 2013.

    On the same day, the NCUA published a final rule to allow the agency to determine whether a state-chartered credit union is in “troubled condition.” Under current law, only a state supervisory authority is permitted to declare a federally insured, state-chartered credit union to be in troubled condition. The NCUA believes that the change will help protect the National Credit Union Share Insurance Fund by leveraging the federal regulator’s resources to increase the likelihood that problems at covered credit unions are addressed. The rule goes into effect on February 19, 2013.

    NCUA Community Banks


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