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Financial Services Law Insights and Observations


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  • Fannie Mae Postpones Effective Date for Servicer Insurance Requirements

    Consumer Finance

    On May 23, Fannie Mae announced the postponement of its June 1, 2012 effective date for lender-placed property insurance requirements applicable to servicers (Fannie Mae’s initial announcement was reported in InfoBytes, Mar. 16, 2012). The May 23 announcement does not provide a new effective date. Until Fannie Mae announces a new effective date, it is encouraging servicers to implement the requirements “as practically feasible.”

    Fannie Mae

  • CFPB Seeks Comments on GPR Prepaid Cards

    Consumer Finance

    On May 24, the CFPB made an advance notice of proposed rulemaking (ANPR) to solicit comments that it will use to evaluate general purpose reloadable (GPR) prepaid cards. According to the ANPR, the CFPB intends to issue a proposal to extend Regulation E requirements to GPR cards. This would mean that issuers of GPR cards would be subject to many of the requirements currently applicable to ATM transactions, POS terminal transfers, telephone bill-payment services, and other electronic fund transfer systems. Comments on the ANPR are due by July 23, 2012.

    CFPB Prepaid Cards

  • CFPB Proposes Rule for Supervising Nonbanks Posing Risks to Consumers

    Consumer Finance

    On May 24, the CFPB announced a proposed rule outlining procedures for establishing supervisory authority over nonbanks that it has “reasonable cause” to believe pose risks to consumers. According to the proposed rule, the CFPB’s determination regarding whether and when to issue a “Notice of Reasonable Cause” will be based on complaints “collected by the Bureau” or on information from “other sources.” The proposed rule outlines the procedures by which the CFPB will notify nonbanks that they are being considered for supervision and how they can respond to the CFPB’s notice. Once a nonbank is subject to supervision, it can petition to end the supervision after two years and annually thereafter, unless the CFPB and the nonbank agree to a longer term. Once supervised, the nonbank is also subject to the CFPB’s authority to require reports and conduct examinations. The comment period will be open for 60 days after the proposed rule is published in the Federal Register.


  • Spotlight on Auto Finance (Part 3 of 3): Expanded Coverage for Vehicle and Consumer Loans

    Consumer Finance

    Consumers have a larger platform to submit complaints against vehicle and consumer finance companies directly to regulators. The CFPB has set up an online database that allows the CFPB to receive consumers' complaints against their lenders and take action or transfer those complaints to another, appropriate regulator. "We are advising our clients to be aware of this increased focus on individual complaints," says John Redding, Counsel in BuckleySandler's Southern California office. "Because of this new database, companies need to be aware of their customer service response times and make each customer complaint a top priority." He suggests:

    1. Provide prompt responses to consumer complaints
    2. Work with consumers to resolve issues before they become complaints to the CFPB or other regulatory agencies
    3. Monitor social media outlets, but don't overreact to comments or complaints and use care when considering any type of response

    "Companies need to recognize that consumers have been given a new outlet that they have not had before," says Redding. "Consumers now have a greater voice with the regulatory agencies and, as a result, lenders have to be aware of all issues raised by their customers." Regulators have made it clear that  they are closely reviewing  consumer complaints and that they are likely to have a  strong impact on regulatory actions. "The CFPB is likely to focus on standards, like fairness and risk to consumers, as well as specific rules" says Redding. "The regulators are looking to address practices that may cause harm to consumers."

    CFPB Auto Finance John Redding

  • Two Largest U.S. Cities Adopt Responsible Banking Ordinances

    Consumer Finance

    On May 15, the cities of New York and Los Angeles adopted ordinances that will require banks doing business with those cities to report certain information about their banking and lending activities. In New York, the City Council adopted a Local Law that, once approved by the mayor or passed over the mayor’s veto, will establish a community investment advisory board comprised of city officials, banking industry representatives, community development or consumer protection groups, and small business owners. The board will assess the banking needs of the city and evaluate the performance of the city’s depository banks in meeting those needs. To conduct the assessment and evaluation, the board will collect from depository banks information regarding each institution’s efforts to, among other things, (i) meet small business credit needs, (ii) conduct consumer outreach and other steps to provide mortgage assistance and foreclosure prevention, and (iii) offer financial products for low and moderate income individuals throughout the city. The board will be required to publish the information collected and prepare an annual report, which city officials can consider in deciding with which institutions the city will place its deposits. The ordinance adopted by the Los Angeles City Council establishes a monitoring program headed by the City Treasurer. Under the program, a depository bank doing business with the city or wishing to do so will be required to report each year information regarding its small business, mortgage, and community development lending, as well as information about its participation in foreclosure prevention and principal reduction programs. Investment banks will be required to file a statement describing their corporate citizenship in areas such as participation in charitable programs or scholarships and internal policies regarding the utilization of subcontractors designated as women-owned, minority-owned, or disadvantaged businesses. The disclosures will be posted online for public viewing within 30 days of the beginning of each new fiscal year. The cities of Cleveland, Pittsburgh, Philadelphia, and San Diego already have laws in place designed for the same general purposes, and other cities are considering similar laws.

    Bank Compliance CRA Responsible Banking

  • Federal Prudential Regulators Issue Final Stress Test Guidance

    Consumer Finance

    On May 14, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation issued guidance on stress tests for banks with more than $10 billion in total consolidated assets. The final guidance provides, in a manner largely consistent with the proposed guidance, principles for banks to follow when conducting stress tests, including: (i) a stress testing framework, (ii) general stress testing principles, (iii) stress testing approaches and applications, (iv) the importance of stress testing in assessing the adequacy of capital and liquidity, and (v) the need for internal governance and controls over the stress testing framework. The regulators amended the final guidance to clarify certain issues raised during the comment period, including changes to (i) incorporate an additional principle for stress testing, (ii) clarify application of the guidance to U.S. branches and agencies of foreign banking organizations, (iii) clarify the role of a bank’s liabilities and operational risk in conducting a stress test, (iv) explain that senior management should have the primary responsibility for stress testing implementation and technical design, and (v) clarify that a banking organization’s minimum annual review and assessment should ensure that stress testing coverage is comprehensive, tests are relevant and current, methodologies are sound, and results are properly considered. In a separate announcement, the banking regulators explicitly addressed concerns raised by community bankers by explaining that community banks are neither required nor expected to conduct the stress tests described above. However, the statement stresses that all banking organizations, regardless of size, should have the capacity to analyze the potential impact of adverse outcomes on their financial condition.

    FDIC Dodd-Frank OCC Bank Compliance

  • Nationwide Class Certified in Overdraft Litigation

    Consumer Finance

    On May 16, the U.S. District Court for the Southern District of Florida certified a nationwide class of plaintiffs alleging breach of contract, breach of the duty of good faith and fair dealing, unconscionability, unjust enrichment, and violations of state consumer protection statutes with regard to the overdraft practices of a national bank. In re Checking Account Overdraft Litigation, MDL No. 2036, slip op. (S.D. Fla. May 16, 2012). The plaintiffs claim that the bank created a scheme in which it manipulated debit card transactions to increase the number of overdraft fees charged to customers by re-ordering daily transactions from highest to lowest dollar amount, resulting in a higher number of individual overdraft transactions. After a year of class discovery, the court held that the class meets the four prerequisites for certification under Rule 23(a)–numerosity, commonality, typicality, and adequacy. The defendant argued that the claims made by the plaintiffs were similar to questions raised in the Supreme Court’s decision in Walmart v. Dukes, 131 S. Ct. 2541 (2011), where the Court rejected class certification in an employment discrimination suit due to insufficient commonality. The district court disagreed, holding that because the plaintiffs all were subject to the same uniform corporate policy, the reason why each class member was harmed is not at issue, as it was in Dukes. Other bank defendants have faced and continue to face similar allegations in several other suits, including some that have been consolidated with the above action. Several of those defendants have settled, including most recently a $62 million agreement announced on May 11, 2012.


  • UK Upper Tribunal Finds Bank Executive's Compliance Actions Reasonable, Overturns FSA Decision

    Federal Issues

    Recently, the United Kingdom’s Upper Tribunal overturned a decision of the Financial Services Authority (FSA) that held a top bank executive liable for failure to take reasonable steps to adequately address certain regulatory compliance problems. Specifically, the FSA charged that the executive failed to take reasonable steps to identify and remediate serious flaws in the design and operational effectiveness of the firm’s governance and risk management frameworks and was too slow to initiate a comprehensive review of systems and controls across the business, which should have been conducted when he was appointed to lead the firm. The executive challenged the FSA penalty, arguing that his actions to investigate every specific compliance issue that arose and remedy problems in accordance with a defined plan were sufficient and reasonable and that he had undertaken efforts to strengthen his company’s compliance monitoring team. The Upper Tribunal agreed, holding that the FSA’s expectation that the executive institute a broad overhaul at an earlier date was beyond the bounds of reasonableness. The Upper Tribunal also noted that the majority of the compliance failures originated in one division, that the firm was addressing those issues, and that no one within that or other departments of the firm, nor anyone from the FSA, had ever suggested to the executive a need for a more comprehensive review. The Upper Tribunal directed the FSA to take no action against the executive.

    Financial Services Authority Bank Compliance

  • FHFA Seeks Public Comment on Strategic Plan


    On May 14, the Federal Housing Finance Agency released for public comment a draft strategic plan for fiscal years 2013-2017. The draft plan updates FHFA’s existing strategic plan document to incorporate a proposal sent to Congress in February 2012 that outlined FHFA’s plan to build a new infrastructure for the secondary mortgage market, contract Fannie Mae and Freddie Mac’s current market dominance, and maintain the Enterprises’ roles in foreclosure prevention activities and refinance initiatives. The draft plan sets forth four strategic goals: (i) Safe and sound housing GSEs; (ii) Stability, liquidity, and access in housing finance; (iii) Preserve and conserve Enterprise assets; and (iv) Prepare for the future of housing finance in the U.S.

    Freddie Mac Fannie Mae

  • CFPB To Collect Information on Compliance Costs, Hold Hearing on Prepaid Cards


    On May 15, the CFPB published a notice and request for comment regarding its collection of information concerning the costs expected to be incurred by institutions required to comply with CFPB rules. The notice identifies specifically the need to collect information about costs to mortgage and remittance industry participants in connection with upcoming CFPB rules. The notice further states that the CFPB seeks to understand the effect of compliance costs on financial service providers and consumers, but that it is particularly interested in the impact of regulations on the unit costs of delivering specific consumer products and services. The CFPB plans to use structured interviews, focus groups, written questionnaires, and other methods to collect the needed information, and will attempt to collect a representative sample of providers from affected markets. The public is invited to comment on the notice through June 19, 2012. On May 17, the CFPB announced that it will hold a public hearing to discuss issues in the prepaid cards market. The hearing is scheduled to take place on May 23, 2012 inDurham,NC, and will include remarks from Director Cordray.

    CFPB Prepaid Cards


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