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SEC Adopts New Rules, Regulatory Framework for Swap Data Repositories
On January 14, the SEC adopted new rules for security-based swap data repositories (SDRs), which store swap trading data. The rules require SDRs to register with the SEC and set reporting and public dissemination requirements for security-based swap transaction data. That reporting requirement, known as Regulation SBSR, outlines information that must be reported and publicly shared for each security-based swap transaction. The new rules are designed to increase transparency in the security-based swap market and are anticipated to reduce risks of default, improve price transparency, and hold financial institutions accountable for misconduct. The rules implement mandates under Title VII of the Dodd-Frank Act and will become effective 60 days after publication in the Federal Register. Persons subject to the new rules governing the registration of SDRs must comply with them by 365 days after they are published in the Federal Register.
SEC Fines Stock Exchanges
On January 12, the SEC fined two stock exchanges $14 million dollars for allegedly violating the Exchange Act by failing to accurately describe in their rules the order types being used on the exchanges. In its investigation, the SEC found that while operating under rules that described a single “price sliding” process for handling buy or sell orders, the exchanges actually offered three variations of “price sliding” order types. The SEC found that the “exchanges’ rules did not completely and accurately describe the prices at which those orders would be ranked and executable in certain circumstances, and they also failed to describe the execution priority of the three order types relative to each other and other order types.” Additionally, the SEC found that the exchanges disclosed certain information regarding how the order types operated to only some and not all of their members. The SEC determined that not all market participants were aware of how these order types operated. In addition to the $14 million penalty, the SEC order requires both exchanges, among other things, to (i) create and implement written policies and procedures related to the development of order types, and (ii) provide sufficient resources and regulatory staff to ensure regulatory functions are independent from their commercial interests. This is the SEC’s largest penalty against national securities exchanges.
NY AG Plans to Propose Bill that would Strengthen Data Security and Consumer Protection Laws
On January 15, New York AG Eric Schneiderman announced that he intends to propose legislation that would “overhaul New York State’s data security law and require new and unprecedented safeguards for the personal data of consumers.” Specifically, the bill would (i) make companies responsible for protecting a broader range of information by expanding the definition of “private information;” (ii) require better data security measures for entities that collect and/or store private information; and (iii) create a safe harbor for companies that would shield them from liability if they adopt heightened security practices. In addition, the proposal would incentivize companies to share forensic data with authorities in the event of a data breach by ensuring that disclosure does not affect the company’s privileges. The proposed legislation follows New York AG’s release of a July 2014 report, which examined the growing number of data breaches occurring within the state. Schneiderman expects the new law to be “the strongest, most comprehensive in the nation… [making] [New York] a national model for data privacy and security.”
Supreme Court Holds That Notice of Rescission Is Sufficient For Borrowers to Exercise TILA's Extended Right to Rescind
As previously reported in our January 15 Special Alert, the Supreme Court held in Jesinoski v. Countrywide Home Loans, Inc. that a borrower seeking to rescind a loan pursuant to the Truth In Lending Act’s (“TILA’s”) extended right of rescission need only submit notice to the creditor within three years to comply with the three-year limitation on the rescission right. TILA gives certain borrowers a right to rescind their mortgage loans. Although that right typically lasts only for three days from the time the loan is made, 15 U.S.C. § 1635(a), it can extend to three years if the creditor fails to make certain disclosures required by TILA, 15 U.S.C. § 1635(f). Petitioners in the case had mailed a notice of rescission to Respondents exactly three years after the loan was made and Respondents responded shortly thereafter by denying that Petitioners’ had a right to rescind. A year after submitting their notice of rescission—four years after the loan was made—Petitioners filed a lawsuit seeking a declaration of rescission and damages. In his opinion for the unanimous Court, Justice Scalia stated that the statutory language “leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. It follows that, so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely.” BuckleySandler submitted an amicus curiae brief in the case on behalf of industry groups, arguing that notice alone is insufficient to effectuate rescission under Section 1635(f).
District Court Rules Online Agreement Does Not Bind Customers to Unknown Future Contract Terms
On December 10, the U.S. District Court for the Northern District of California granted plaintiff’s motion for partial summary judgment in a class action suit filed against a large grocery chain. Plaintiff claims that the grocer’s online prices for groceries were approximately 10 percent higher than those in its stores and alleged causes of action for breach of contract and under California’s Unfair Competition Law, Consumer Legal Remedies Act, and False Advertising Law. A class was certified for the breach of contract claim on March 9, 2014. In granting summary judgment on the breach of contract claim, the Court found that the grocer breached its agreement with consumers because its terms of use promised that the online prices and in-store prices would be identical. Furthermore, the Court rejected the grocer’s claims that class members should not be allowed to recover damages for the period after it made revisions to its terms of use where it noted the pricing disparities. The Court stated, “even in light of [customer’s] agreement to the Special Terms at the time of registration, customers’ assent to the revised Terms cannot be inferred from their continued use of the [grocer’s online service] when they were never given notice that the Special Terms had been altered.” Rodman v Safeway Inc., No 11-cv-03003-JST (N.D. Cal. Dec. 10, 2014).
Software Company Releases New E-Signature Product
On January 8, Kofax Limited, a California-based software company, released SignDoc Enterprise, a product that allows lenders to capture and process electronic signatures. The software gives consumers the ability to sign and return documents securely from their personal computer or mobile device. The software also supports "click to sign" and handwritten signatures, and can capture biometrics at the time of signing for greater security and authentication.
Special Alert: Supreme Court Holds That Notice of Rescission is Sufficient For Borrowers to Exercise TILA's Extended Right to Rescind
The Supreme Court on January 13, 2015 held in Jesinoski v. Countrywide Home Loans, Inc. that a borrower seeking to rescind a loan pursuant to the Truth In Lending Act’s (“TILA’s”) extended right of rescission need only submit notice to the creditor within three years to comply with the three-year limitation on the rescission right. TILA gives certain borrowers a right to rescind their mortgage loans. Although that right typically lasts only for three days from the time the loan is made, 15 U.S.C. § 1635(a), it can extend to three years if the creditor fails to make certain disclosures required by TILA, 15 U.S.C. § 1635(f). Petitioners in the case had mailed a notice of rescission to Respondents exactly three years after the loan was made and Respondents responded shortly thereafter by denying that Petitioners’ had a right to rescind. A year after submitting their notice of rescission—four years after the loan was made—Petitioners filed a lawsuit seeking a declaration of rescission and damages.
The Court’s opinion resolved a circuit split over whether borrowers exercising their right to rescind certain loans pursuant to Section 1635(f) must file a lawsuit to rescind their loans within the three-year period set forth in that section or can satisfy the timing requirements by merely submitting notice of rescission to the creditor. In his opinion for the unanimous Court, Justice Scalia stated that the statutory language “leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. It follows that, so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely.” The Court rejected Respondents’ argument that a court must be involved in a rescission under Section 1635(f).
As a result of the Court’s decision, we now expect that a creditor receiving a post three-day notice of rescission from a borrower would immediately file a lawsuit against the borrower to address the validity of the purported rescission in order to avoid ongoing ambiguity regarding the status of the loan, and, if the rescission were validly noticed, to condition the rescission on the return of the loan principal.
BuckleySandler submitted an amicus curiae brief in the case on behalf of industry groups, arguing that notice alone is insufficient to effectuate rescission under Section 1635(f).
CFPB Appoints Former Assistant U.S. Attorney As Head of Enforcement
On January 6, the CFPB appointed former federal prosecutor Tony Alexis as the head of its enforcement division. Alexis has served as the acting Director for over a year while his predecessor, Kent Markus, has been on medical leave. Markus is expected to return later this month to the Bureau as a senior adviser to Deputy Director Steve Antonakes.
FHA Reduces Annual Insurance Premiums
On January 8, HUD announced that the Federal Housing Administration (FHA) will reduce the annual insurance premiums new borrowers pay by 50 basis points. This policy initiative is intended to boost FHA lending, and FHA projects that, as a result of the policy change, 250,000 new homebuyers will purchase their first home over the next three years.
President Obama Nominates Former Community Bank Chief to Fed Board
On January 6, President Obama announced his intent to nominate Allan R. Landon to serve on the Board of Governors of the Federal Reserve System. If confirmed by the U.S. Senate, Landon would serve out the remaining term of former Fed Governor Sarah Bloom Raskin, who departed to become Deputy Secretary of Treasury. Previously, Landon was a partner at Ernst & Young LLP and served as Chairman and CEO of Bank of Hawaii Corporation.