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CFPB Proposes Changes to Qualified Mortgage and Mortgage Servicing Rules
On April 19, the CFPB proposed a rule to amend and clarify certain provisions of its final qualified mortgage rule and final mortgage servicing rule. The proposal addresses (i) preemption issues with regard to Regulation X’s servicing provisions, (ii) the small servicer exemption from certain of the new servicing standards, (iii) the use of government-sponsored enterprise and federal agency purchase, guarantee, or insurance eligibility for determining qualified mortgage status, and (iv) the determination of debt and income for purposes of originating qualified mortgages. With regard to small servicers, the proposal would clarify which mortgage loans to consider in determining small servicer status and the application of the small servicer exemption to servicer/affiliate and master servicer/subservicer relationships. It would exclude from consideration mortgage loans voluntarily serviced for an unaffiliated entity without remuneration, reverse mortgages, and mortgage loans secured by a consumer’s interest in timeshare plans. With regard to debt-to-income ratio assessments for purposes of offering qualified mortgages, the rule would amend language related to employment record and income, obtaining business credit reports and other issues related to self-employed borrowers, and the treatment of Social Security and rental income.
CFPB Announces Organization, Senior Personnel Changes
On April 22, the CFPB announced the creation of the Office of Financial Institutions and Business Liaison, which will interface with bank and nonbank trade associations, financial institutions, and other businesses. The new office will be led by Dan Smith, who previously served as the Director for Industry and State Relations at Freddie Mac. The CFPB also announced that Catherine Galicia will serve as Assistant Director for Legislative Affairs. Ms. Galicia most recently served as Senior Counsel for the Senate Committee on Banking, Housing and Urban Affairs, where she helped draft the consumer protection provisions of the Dodd-Frank Act. She replaces Lisa Konwinski, who will become Deputy Associate Director for External Affairs. In addition, Hubert “Skip” Humphrey will transition from his role as Assistant Director in the Office of Older Americans to Senior Liaison Officer, focusing on expanding the Office’s efforts to build strong working relationships with state, local, public and private organizations.
CFPB Issues Final Preemption Determination for Maine, Tennessee Unclaimed Gift Card Laws
On April 19, the CFPB issued a final preemption determination regarding whether the Electronic Fund Transfer Act (EFTA) and Regulation E preempt certain unclaimed gift card laws in Maine and Tennessee. The EFTA, as implemented by Regulation E, generally prohibits any person from issuing a gift certificate, store gift card, or general-use prepaid card with an expiration date, though under certain conditions, the card may have an expiration date so long as it is at least five years after the date of issuance (or five years after the date that funds were last loaded). The CFPB determined that the Maine law does not interfere with a consumer’s ability to use a gift cards at point-of-sale for at least as long as guaranteed by the EFTA and Regulation E because it requires the issuer to honor the gift card on presentation indefinitely even if the unused value has been transferred to the state. For Tennessee, the CFPB reached the opposite conclusion because the Tennessee provision permits issuers to decline to honor gift cards as soon as two years after issuance. According to the CFPB, the Tennessee law is inconsistent with federal law because, in effect, the provision allows funds to expire sooner than is permitted under EFTA and Regulation E.
Senators Raise Concerns about CFPB's Data Collection
On April 23, the Senate Banking Committee held a hearing during which CFPB Director Richard Cordray testified on the CFPB’s semiannual report to Congress. A substantial portion of the hearing focused on the CFPB’s collection and use of data. Republican committee members led by Ranking Member Mike Crapo (R-ID) criticized the CFPB’s data collection efforts and its developing ability to “watch” consumers, and questioned the CFPB’s legal authority to collect data that could be reverse engineered to connect with specific consumers. Mr. Cordray explained that “big data” is the cutting edge of research in every field and that the CFPB needs to keep pace with financial institutions. According to Mr. Cordray (i) the CFPB’s data are not connected to individuals (aside from complaint data) and are “anonymized”, (ii) much of the data come commercial resources already accessible to firms, (iii) the CFPB obtains certain data from the same sources other regulators have in the past, and (iv) all of the data are essential to the CFPB’s ability to carry out its congressionally mandated work, including rulewriting, reporting to Congress, and undertaking other studies. The hearing also covered numerous other topics including (i) the impact of CFPB’s mortgage rules on small institutions, (ii) the CFPB’s collection and assessment of consumer complaints, (iii) coordination of examinations and information requests among federal and state regulators, and (iv) the status of the CFPB’s arbitration study, portions of which the CFPB may release this year.
House Committee Refuses to Allow CFPB Director to Appear
On April 22, House Financial Services Committee Chairman Jeb Hensarling (R-TX) sent letters to CFPB Director Richard Cordray and CFPB General Counsel Meredith Fuchs stating that the House Financial Services Committee cannot allow Director Cordray to testify on the CFPB’s semiannual report, as the Committee has in the past, because no nominee for CFPB Director has been confirmed. Citing the D.C. Circuit’s January 2013 decision in Noel Canning v. NLRB, which invalidated three presidential appointments to the NLRB, Mr. Hensarling asserted that “[a]bsent contrary guidance form the United States Supreme Court, Mr. Cordray does not meet the statutory requirements of a validly-serving Director” and the committee cannot legally accept testimony from him. Mr. Hensarling further indicated that the committee is not relinquishing its oversight role and expects the CFPB to make other employees and information available upon request. Committee Ranking Member Maxine Waters (D-CA) sent a letter one day later to the Chairman, stating that she will use the rules of the committee to allow Director Cordray to testify if the Chairman does not reverse his position.
CSBS Seeks Comment on NMLS Licensing Forms, Mortgage Call Report
Earlier this month, the CSBS sought comment on potential revisions to (i) the uniform NMLS company, branch, and individual licensing forms and (ii) the quarterly NMLS Mortgage Call Report. The forms create a national standard of information collection for entities licensed through NMLS, while the quarterly call reports provide comprehensive and uniform information concerning the financial condition of licensed mortgage companies, their mortgage loan activities, and the production information of their mortgage loan originators. The state regulators are seeking comment on, among other things, potential improvements to form changes made in 2012. With respect to the call reports, the state regulators are seeking input on (i) the definition of “application” in the call report, (ii) criteria to be used when determining which companies file the different versions of the report, (iii) whether any policies, requirements, data fields, or definitions should be amended, and (iv) which aggregate call report data should be publicly reported. Comments are due by June 11, 2013.
OCC Seeks Reconsideration of Order Requiring Disclosure of Non-Public Documents related to Bank's AML/CTF Compliance
On April 24, the U.S. District Court for the Southern District of New York stayed an order that would have required a bank to disclose non-public supervisory information subject to the bank examination privilege. Wultz v. Bank of China, No. 11-1266 (S.D.N.Y. Apr. 24, 2013). The case was brought by the family of victims of a suicide bombing attack who claim that failures in the bank’s anti-money laundering and counter-terrorism financing compliance program aided and abetted international terrorism. On April 9, 2013, the court compelled the bank and the OCC to produce various investigative files and regulatory communications over their objection that the bank examination privilege protected such production. The court relied in part on a recent and unrelated Senate investigative report’s description of the OCC oversight process. The court reasoned that the OCC’s ideal supervision process, on which it based its claim of privilege, diverges from the actual process described in the Senate report, and that the actual process undermines assumptions on which other courts have relied about the likely effects of overriding the bank examination privilege. The court added that “the OCC’s supervisory mission might in some cases be helped as much as hindered by the intervention of private litigants.” In support of its motion to reconsider, the OCC argued that the court failed to properly weigh long-standing principles and that its decision “will be construed as an erosion of the bank examination privilege that ultimately will undermine the bank supervisory process.” The OCC also asserted that it never waived the privilege and appropriately and in good faith relied upon the procedures set forth under its Touhy regulation, which is designed to provide the OCC with the opportunity to review non-public OCC information in the possession of regulated entities prior to production. The OCC asked the court to vacate its prior order and order the plaintiffs to submit a Touhy request for all materials withheld on the groups of bank examination privilege. The court agreed to stay its prior order and established a briefing schedule on the motion for reconsideration, which will be completed by May 10, 2013.
SEC Fills Enforcement Director, General Counsel Positions
On April 22, the SEC announced that George Canellos and Andrew Ceresney will share responsibilities as co-directors of the SEC’s Division of Enforcement. Mr. Canellos has been serving as Acting Enforcement Director since January. He previously had been the division’s Deputy Enforcement Director since June 2012, prior to which he served as Director of the SEC’s New York Regional Office. Mr. Ceresney previously served as a Deputy Chief Appellate Attorney in the United States Attorney's Office for the Southern District of New York, where he was a member of the Securities and Commodities Fraud Task Force and the Major Crimes Unit. Most recently, he was in private practice with recently-confirmed SEC Chairman Mary Jo White. On April 23, the SEC named Anne Small as General Counsel. Ms. Small is a former Special Assistant to the President and Associate Counsel in the White House Counsel’s Office where she advised on legal policy questions with a focus on economic issues. She previously worked at the SEC as Deputy General Counsel for Litigation and Adjudication and now becomes the first woman to be named General Counsel.
Federal Authorities Announce FCPA Action, First SEC Non-Prosecution Agreement
On April 22, the DOJ and the SEC announced parallel actions against a clothing company to resolve allegations that a subsidiary of the company paid bribes to Argentine officials over a several-year period to obtain improper customs clearance of merchandise. The SEC action included the agency’s first non-prosecution agreement (NPA) related to FCPA misconduct, which the SEC determined was appropriate given “the company's prompt reporting of the violations on its own initiative, the completeness of the information it provided, and its extensive, thorough, and real-time cooperation with the SEC's investigation.” According to the SEC’s NPA, the company’s cooperation involved (i) reporting preliminary findings of its internal investigation to the staff within two weeks of discovering the illegal payments and gifts, (ii) voluntarily and expeditiously producing documents, (iii) providing English language translations of documents to the staff, (iv) summarizing witness interviews that the company's investigators conducted overseas, and (v) making overseas witnesses available for staff interviews and bringing witnesses to the U.S. The SEC agreement also required the company to pay over $700,000 in disgorgement and prejudgment interest, while the DOJ required the company to pay a nearly $900,000 penalty.
Obama Administration Seeks Supreme Court Review of Recess Appointment Decision
On April 25, the DOJ and the National Labor Relations Board (NLRB) filed a petition seeking U.S. Supreme Court review of the D.C. Circuit Court’s January 25, 2013 decision invalidating the appointment of three NLRB members. Nat’l Labor Rel. Bd. v. Noel Canning, No. 12-1281 (cert. pet. filed, Apr. 25, 2013). The D.C. Circuit held that appointments to the NLRB made by President Obama in January 2012 during a purported Senate recess were unconstitutional. CFPB Director Richard Cordray was appointed in the same manner and on the same day as the NLRB members, and his appointment is the subject of a lawsuit currently pending in the U.S. District Court for the District of Columbia. The petition asks the Court to resolve two questions: (i) whether the President’s recess appointment power may be exercised during a recess that occurs within a session of the Senate, or is instead limited to recesses that occur between enumerated sessions, and (ii) whether the President’s recess appointment power may be exercised to fill vacancies that exist during a recess, or is instead limited to vacancies that first arose during that recess. If the Court accepts review of the case, it likely would be heard during the Court’s next session, which begins in October 2013.