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  • Small Banks and Marketplace Lenders: Unions in Waiting
    October 14, 2016
    David Baris

    The community banking model has worked for many years. For many, the model continues to work. But for others, it needs an overhaul given accelerating compliance costs and burdens and tech advancements.

    According to the Independent Community Bankers of America, community banks represent 14% of banking assets in the United States. And yet, they make about 46% of small loans to farms and businesses – a key component to creating jobs and a vibrant economy. Furthermore, community banks hold the majority of banking deposits outside of large cities. For residents of 600 rural or micropolitan counties, community banks are the only banks that serve them.

    But there are also hundreds of community banks – often located in small towns – that are unprofitable or barely profitable. These small banks cannot fully serve their communities because of their difficulty or inability to attract capital coupled with their increasing compliance burdens and limited resources.

    It's time for some small banks to consider merging with marketplace lenders in appropriate circumstances.

    Marketplace lending partnerships could expand a community bank's geographical reach to customers anywhere. The partnerships can also let banks offer customers new financial products and deliver those products in new ways, and potentially put them in a better position to attract capital and better afford escalating compliance costs.

    Click here to read the full article on www.americanbanker.com.

  • Validating the Validation Set
    October 1, 2016
    Elizabeth E McGinn, Adam Miller, & Nadav Ariel

    Predictive coding is becoming increasingly prevalent in fulfilling discovery obligations in litigation and in response to regulatory inquiries. As the process gains acceptance, parties, regulators and courts debate whether producing parties should be required to disclose documents and coding decisions used to “train” the predictive coding software.

    However, the focus on these training materials, known as the “seed set,” has shifted attention away from the more important subset of documents known as the “validation set.” The validation set, which essentially functions as an answer key, ultimately ensures the quality of the predictive coding results and should be the focus of parties, courts and regulators in determining whether a party utilizing predictive coding has satisfied its discovery obligations.


    Predictive coding relies on an algorithm to code documents based on input received from human reviewers. While there are various ways to implement predictive coding, the process generally involves two separate subsets of the document collection. One is the seed set, which can be created randomly from judgmental sampling or from searches designed to capture the most relevant documents. The other, the validation set, should be a statistically significant random sample of the document collection.

    Reviewers manually determine whether the documents in both subsets are relevant. Based on information gleaned from the seed set documents, the software predicts whether each of the remaining documents in the overall population, including the validation set, is relevant. The accuracy of the software’s predictions is then assessed by comparing its results to the manual determinations for each document in the validation set.

    Originally published in Legal Tech News; reprinted with permission. 

  • Has the Game Changed? New Considerations for General Counsel Post-Yates
    September 30, 2016
    Benjamin B. Klubes, Veena Viswanatha, Kate Berlitz Shrout & Matthew Newman

    On Sept. 9, 2015, the Department of Justice (DOJ) issued a memorandum from Deputy Attorney General Sally Quillian Yates announcing that the DOJ would require a company to fully disclose all relevant facts about individuals responsible for the misconduct at issue in order to receive any cooperation credit in a criminal investigation or prosecution.

    Under the so-called ‘‘Yates Memo,’’ a company will lose eligibility for any cooperation credit if it appears to be shielding any information about individual wrongdoers. The DOJ is now reportedly asking some companies to certify that they have fully disclosed all information about individuals involved in wrongdoing as a precondition to securing cooperation credit, though the DOJ has denied that written certifications will be a formal requirement in every case.

    The Yates Memo is not exactly a sea change, given the DOJ’s focus in recent years on prosecuting individual executives for corporate misconduct. However, the new requirement that companies identify individual wrongdoers and turn over all evidence of their wrongdoing as a threshold condition for cooperation credit does change the calculus for general counsel overseeing internal investigations. Below, we describe two areas of concern for general counsel — planning for individuals with exposure and ensuring that no constitutional rights are violated — and describe the benefits of identifying separate counsel in addressing those concerns.

    Originally published in Bloomberg BNA White Collar Crime Report; reprinted with permission.

  • Guarding Against Privilege Waiver in Federal Investigations
    September 20, 2016
    Elizabeth McGinn & Tihomir Yankov

    It has been well over a year since Judge Andrew Peck gently excoriated the legal community for underusing the not-so-new privilege waiver protections of Federal Rule of Evidence 502(d). He has fondly referred to it as the “Get Out of Jail Free Card” and offered that “it is akin to malpractice not to get [a Rule 502(d)] order.” It is a powerful hand indeed: a Rule 502(d) order can protect litigants against privilege waiver without having to prove that they have taken reasonable steps to prevent an inadvertent production of privileged documents. While Judge Peck’s remarks may have raised awareness of the rule’s novel and expansive protections for litigants in federal court, Rule 502 as a whole, together with any potential federal agency regulations concerning privilege waiver, offers little peace of mind to parties subject to government investigations.

    Buckets of judicial ink have been spilled lamenting the mounting costs of discovery obligations in the dawn of email and big data. To be sure, technological advances in e-discovery, like predictive coding and advanced analytics, have made great strides in alleviating the pain that technology itself has inflicted on litigants. But technology is no panacea for our discovery system’s ills — the solution lies in its marriage with legal innovation.

    Yet the latter is still not carrying its weight as lawyers continue to fear the prospects of waiving privilege in the 275,801st document of last March’s production. Without a doubt, Rule 502 (and the 2015 revisions to the Federal Rules of Civil Procedure) has marked a solid start in the right direction: it was enacted in 2008 in part to “respond[] to the widespread complaint that litigation costs necessary to protect against waiver of attorney — client privilege or work product have become prohibitive due to the concern that any disclosure (however innocent or minimal) will operate as a subject matter waiver of all protected communications or information.”

    While Congress may have enacted Rule 502 to replace the patchwork of federal common law governing privilege waiver in litigation, agencies are left to decide on an individual basis whether, and to what extent, to adopt the rule’s provisions in their own administrative proceedings or investigations.

    Even though the Rules Advisory Committee acknowledges that “[t]he consequences of waiver, and the concomitant costs of pre-production privilege review, can be as great with respect to disclosures to offices and agencies as they are in litigation,” textually, the thrust of Rule 502 governs the existence and reach of privilege waiver only in federal or state proceedings, to the exclusion of agency proceedings or investigations, even in cases where the privileged documents have been produced to a federal office or agency. Put differently, the rule may govern privilege waiver in cases where parties are subject to parallel (or sequential) federal investigation and civil litigation, but it does not address the scope of waiver — or the threshold question of whether there has been a waiver — with respect to the federal agency itself.

    This is not an indictment of Rule 502 itself — it is not designed to govern privilege waiver with respect to agency investigations.

    Unfortunately, federal agencies have not faced a corresponding amount of pressure and scrutiny to reform their investigative rules concerning privilege waiver to bring them in line with the Federal Rules of Evidence: after all, judicial ink rarely splashes on agencies’ investigative turf. As a result, the law on privilege waiver continues to evolve almost exclusively in the context of litigation.

    While courts — and Congress — have been experimenting and tweaking the Rules of Evidence and their application in the dawn of the information revolution, agencies have been slower in making parallel adjustments. This leaves investigated entities with fewer clear protections against privilege waiver, despite the astounding amount of information that is produced in a typical government investigation.

    Even if an agency has taken a step toward harmonization, investigated parties may be marching to a muted tune. For example, the Consumer Financial Protection Bureau has adopted Rules 502(a) and (b) (discussed below) nearly verbatim as part of its investigative procedures, providing investigated parties with protections against subject matter waiver and inadvertent disclosure. But the bureau’s rules do not include the broader protections of Rule 502(e), which allow parties to enter into voluntary agreements governing privilege waiver. Furthermore, the broad protections of Rule 502(d) court orders are usually out of reach for most investigated parties. In some cases, the lack of uniformity in approach as to privilege waiver may also result in conflicts between federal agencies, potentially complicating one’s response in the course of multi-agency investigations.

    On the plus side, to the extent that federal agencies may have adopted parts of Rule 502, investigated parties may not only rely on those protections in nonpublic government investigations, but may also cite to developing case law interpreting Rule 502 provisions to government enforcement lawyers and administrative law judges alike, at least as persuasive authority.

    Originally published in Law360; reprinted with permission.

  • Furthering the Enjoyment of Freedom of Assembly in Sub-Saharan Africa Through Its Legal Systems
    September 1, 2016
    Sarah E. Hager

    It is not hard to find iconic images of the protests that shaped modern sub-Saharan Africa; marches demanding independence or civil disobedience in the face of an apartheid regime. What is also visible in these historic moments is a harsh governmental response; police beating protestors and military vehicles in the streets. Sadly, one can look at an image from 40 years ago and see it replicated in recent years, both in the demand to see change as the impetus for protest and the harsh governmental response.

    Last year was a tumultuous time across the sub-Saharan region of the continent, reflected in mass mobilizations in multiple areas. South Africans took to the streets in multiple cities demanding an end to corruption, while students stood against tuition increases believed to make education inaccessible for many residents. Mothers and grandmothers in Angola attempted to march peacefully demanding the release of political prisoners. Women in Zimbabwe danced and sang while delivering petitions asking the government to respect the rights of informal traders. Citizens in Burundi engaged in large scale protests over a third presidential term grab they deemed invalid and violative of the 2000 Arusha peace agreement. These are only some of the instances of citizens assembling to promote their rights.

    Freedom to peacefully assemble is a revered right frequently exercised on much of the continent, but it is also just as common to see it harshly repressed. Governments deploy police, armed security agents, military, tear gas, dogs, and military grade vehicles to stop protests. They attack, beat, and kill participants in the streets. They disrupt informational meetings where people gather to learn about their rights and the measures they can take to assert them, in an anticipatory attempt to halt protests before they begin. In that same vein, activists and civil society members’ homes and offices are raided, their computers and documents are seized, they are surveilled and monitored, and their assets are confiscated. People are arrested and the judicial system is used to stifle dissent by trying, imprisoning and setting a punitive example for others who might organize.

    In such an environment, what is the recourse? Constitutions of most countries in Africa guarantee the right to freedom of assembly, all are parties to international instruments that also guarantee these rights, and nearly all are members of the African Union which also asserts these rights. There are examples of the use of legal systems to push back at government repression, but there is room to do more. Members of a civil society organization in Zimbabwe prevailed in a constitutional challenge asserting their rights of assembly and association. Since that ruling, there has been a dramatic decrease in arrests and violent suppression of their protests. Within the African Union system, the African Commission on Human and Peoples’ Rights addressed the issue of freedom of assembly by promulgating an advisory committee. The Commission also filed litigation with the African Court of Human and Peoples’ Rights against Great Socialist People’s Libya Arab Jamahiriya for violently dispersing protests.

    This paper will examine the legal right to assemble in sub-Saharan Africa before turning to discuss historic and present protest movements. I will examine the tactics activists today employ in sub Saharan Africa, from flash mob protests to hunger strikes to mass mobilization as they continue to express their right to protest, often in very challenging environments. I will then detail the legal systems through which individuals can attempt to assert their right to assemble and how they have been utilized to this point. I will conclude with recommendations activists and citizens can implement as they further their right to assembly with a specific focus on measures that utilize legal systems.

    Originally published in Intercultural Human Rights Law Review; reprinted with permission.

Knowledge + Insights

  • Special Alert: Summary of CFPB's Prepaid Rule
    October 25, 2016

    I. Overview of the CFPB’s Final Prepaid Rule
    On October 5, 2016, the Consumer Financial Protection Bureau (Bureau) issued a final rule (Prepaid Rule) amending Regulations E and Z to extend consumer protections to prepaid card accounts. The new protections include pre-acquisition disclosures, error resolution rights, and periodic statements. In addition, prepaid card accounts that include a separate credit feature are subject to some of Regulation Z’s credit card provisions, including an ability-to-repay requirement. Prepaid card issuers are also required to submit to the Bureau and to post to their websites any new and revised prepaid card account agreements. In this alert we summarize key provisions of the Prepaid Rule except those provisions that apply only to payroll and government benefits prepaid cards, which will be covered in a separate alert.

    Click here to read full Special Alert.

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    Questions regarding the matters discussed in this alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: D.C. Circuit Panel Rejects CFPB's RESPA Interpretation and Alters its Structure in PHH Corp. v. CFPB
    October 11, 2016

    On October 11, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion vacating a $109 million penalty imposed on PHH Corporation under the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA), concluding that the CFPB misinterpreted the statute and violated due process by reversing the interpretation of the prior regulator and applying its own interpretation retroactively. Furthermore, the panel rejected the CFPB’s contention that no statute of limitations applied to its administrative actions and concluded that RESPA’s three-year statute of limitations applied to any actions brought under RESPA.

    In addition, a majority of the panel held that the CFPB’s status as an independent agency headed by a single Director violates the separation of powers under Article II of the U.S. Constitution. However, rather than shutting down the CFPB and voiding all of its regulations and prior actions, the majority chose to remedy the defect by making the CFPB’s Director subject to removal at will by the President. In effect, this makes the CFPB an executive agency (like the Department of the Treasury) rather than, as envisioned by the Dodd-Frank Act, an independent agency (like the Federal Trade Commission). (One member of the panel, Judge Henderson, dissented from this portion of the opinion on the grounds that it was not necessary to reach the constitutional issue because the panel was already reversing the CFPB’s interpretation of RESPA.)

    The panel remanded the case to the CFPB to determine whether the relevant mortgage insurers paid in excess of the fair market value of the services provided within the three year statute of limitations in violation of RESPA. The CFPB is expected to petition for en banc reconsideration by the full D.C. Circuit or to seek direct review by the United States Supreme Court. Therefore, final resolution of this matter may be delayed by a year or more.

    Click here to read the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: OCC to Issue Guidance on "De-Risking" in Foreign Correspondent Banking Relationships
    October 4, 2016

    OCC Comptroller Thomas J. Curry announced Wednesday during a speech at the Association of Certified Anti-Money Laundering Specialists (ACAMS) conference that the OCC is developing guidance around “de-risking” in foreign correspondent banking relationships. Following the joint fact sheet published by the federal banking agencies and the Department of Treasury, Comptroller Curry said that it will issue “guidance that reiterates our risk management expectations for banks to establish and follow policies and procedures for regularly conducting risk evaluations of their foreign correspondent portfolios.” The guidance will describe “best practices” that the OCC has observed that banks can use when “re-evaluating their risks and making decisions about retaining or terminating foreign correspondent accounts.”

    Click here to read the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: NYDFS Stakes Claim on Cybersecurity Regulation
    September 16, 2016

    On September 13, the New York Department of Financial Services (DFS) issued a proposed rule establishing cybersecurity requirements for financial services companies, and has thus ventured into new territory for state regulators. In the words of Governor Cuomo, “New York, the financial capital of the world, is leading the nation in taking decisive action to protect consumers and our financial system from serious economic harm that is often perpetrated by state-sponsored organizations, global terrorist networks, and other criminal enterprises."

    Given the concentrated position of financial service companies in New York and the regulation’s definition of a Covered Entity – which includes “any Person operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the banking law, the insurance law or the financial services law” – it could create an almost de facto national standard for medium to large financial services companies, regardless of where they keep their servers or suffer a cyberattack. This type of state-level regulation is not unprecedented. In 2003, California passed a data breach notification law that requires companies doing business in California to notify California residents of the breach and more recently amended the law to require 12 months of identity protection and strengthen data security requirements. In 2009, Massachusetts enacted a regulation mandating businesses implement security controls to protect personal information relating to state residents.

    The DFS designed the regulation to protect both consumers and the financial industry by establishing minimum cybersecurity standards and processes, while allowing for innovative and flexible compliance strategies by each regulated entity. Yet the proposed regulation goes further than to just ask financial entities to conduct a risk assessment and to design measures to address the identified risks.

    Click here to view the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: More Turbulence for Marketplace Lending - CFPB Prevails in "True Lender" Litigation
    September 2, 2016

    After what seems to be an extended season of heavy weather for marketplace lending, a federal district court in California unleashed a late-Summer lightning storm in Consumer Financial Protection Bureau v. CashCall, Inc. In a CFPB action leveled against the so-called “tribal model” of online lending, the court held that defendants, CashCall and its affiliated entities and owner, engaged in deceptive practices by collecting on loans that exceeded the usury limits in various states. Although the case focused on the tribal model – a structure where the loan is made by an entity located on tribal land and subsequently transferred to an assignee not affiliated with the tribe – the court’s opinion raises critical issues about the extent to which its analysis applies to the more common “bank partnership model” of marketplace lending.

    Click here to view the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.