Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations
Section Content

Upcoming Events

Filter

Subscribe to our InfoBytes Blog weekly newsletter for news affecting the financial services industry.

  • FDIC Updates Affordable Mortgage Lending Guide Part II

    Lending

    On July 26, the FDIC released an update to its Affordable Mortgage Lending Guide, Part II: State Housing Finance Agencies (Guide) and Quick Links: State Links for Housing Finance Agencies. The Guide provides information for community banks about the programs and products offered by each State Housing Finance Agency (HFAs), and discusses, among others things: (i) first-lien mortgage products; (ii) down payment and closing cost assistance; (iii) mortgage tax credit certificates; and (iv) mortgage lending homeownership education and counseling programs. Updates to the Guide include program updates to 40 out of the 54 HFAs and changes to the State HFA Product Matrix. A review of Part II, completed July 1, 2017, reflects the FDIC’s commitment to provide the most up-to-date borrower and loan criteria information available.

    Lending Mortgages Agency Rule-Making & Guidance FDIC FHLB

    Share page with AddThis
  • SEC Issues Investigative Report: Federal Securities Laws Apply to Virtual Organizations

    Securities

    On July 25, the SEC issued an investigative report stating that federal securities laws apply to anyone who offers and sells securities in the U.S., regardless of the manner of distribution or whether dollars or virtual currencies are used to purchase the securities. The SEC’s Report of Investigation (Report) advises users to make sure they are compliant with federal securities laws when raising capital through Decentralized Autonomous Organizations (DAO) or other forms of distributed ledgers or blockchain technology. These offering are often referred to as “Initial Coin Offerings” (ICOs) or “Token Sales.”

    The Report originates from an Enforcement Division inquiry into whether the DAO—and affiliated entities—“violated federal securities laws with unregistered offers and sales of DAO Tokens in exchange for ‘Ether,’ a virtual currency.” According to the SEC, the DAO, which has been described as a “crowdfunding contract,” has not met any of the specific Regulation Crowdfunding exemption requirements issued earlier this year by the agency. These regulations were previously discussed in InfoBytes. In its Report, the SEC stated that the individuals involved in a 2016 virtual currency offering that was later hacked will not face charges, but will rather serve as a warning to the industry that people who offer and sell securities in the U.S. must follow the law. In light of this discussion, the SEC’s Office of Investor Education and Advocacy issued an Investor Bulletin to educate investors about the benefits and risks of ICOs, which promoters have begun to use to sell virtual currencies.

    “Investors need the essential facts behind any investment opportunity so they can make fully informed decisions, and today's Report confirms that sponsors of offerings conducted through the use of distributed ledger or blockchain technology must comply with the securities laws,” said William Hinman, SEC Director of the Division of Corporation Finance.

    Securities Fintech SEC Digital Commerce Virtual Currency Blockchain Coin Offerings

    Share page with AddThis
  • D.C. Circuit Court Affirms Dismissal of Suit, FCA First-to-File Bar Applies

    Courts

    In an opinion handed down on July 25, the Court of Appeals for the D.C. Circuit affirmed a district court’s dismissal of a False Claims Act (FCA) suit because it violated the first-to-file bar, ruling that a relator must re-file a qui tam action and cannot merely amend a complaint where the relator’s complaint was filed when a related qui tam case was still pending. The first-to-file bar provides that if an individual brings an action under the FCA, “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.”

    The case concerned a qui tam relator who claimed that a telecommunications company overbilled on government contracts, thereby violating the FCA, which “penalizes the knowing submission of a false or fraudulent claim for payment to the federal government.” While the first suit was still pending, the relator filed a second suit alleging that the fraud was more widespread. The related suit was then resolved, but a district court dismissed the second suit based on the FCA’s first-to-file bar, which the D.C. Circuit affirmed. In 2015, the U.S. Supreme Court granted the relator’s petition for certiorari, and vacated the D.C. Circuit’s decision, citing a holding in Kellogg Brown & Root Services, Inc., et al v. Carter, 135 S. Ct. 1970 (2015), in which the Court claimed that the first-to-file bar only applies when a previous suit is pending—not once it has been resolved. Therefore, once the first-filed suit has been resolved, the first-to-file bar “no longer prohibits bringing a new action.” Because the statute of limitations period had run while the case was being appealed to the Supreme Court, the relator sought to amend his complaint rather than file a new action. The defendant moved to dismiss, and the district court granted the defendant’s motion. The relator appealed the ruling back to the D.C. Circuit, but the appellate court sided with the defendants and dismissed the relator’s action without prejudice. However, the appellate court expressly declined to opine on whether the statute of limitations would be equitably tolled if the relator were to re-file his complaint.

    Courts FCA Litigation Appellate D.C. Circuit

    Share page with AddThis
  • House Votes to Repeal CFPB Arbitration Rule

    Federal Issues

    On July 25, the House voted along party lines to strike down the CFPB’s final arbitration rule by a vote of 231 to 190, exercising its authority under the Congressional Review Act to overturn a new agency rule within 60 days of its publication. H.J. Res. 111, sponsored by Rep. Keith Rothfus (R-Pa.), invalidates the recently adopted rule that prohibits the use of mandatory pre-dispute arbitration clauses in certain contracts for consumer financial products and services. A similar measure was introduced by Senate Banking Committee Chairman Mike Crapo (R-Idaho). A date for the Senate vote has not yet been set.

    American Bankers Association. President and CEO Rob Nichols applauded the action: “Today’s action is critical to ensuring the Bureau doesn’t provide trial lawyers with a regulatory windfall at consumers’ expense. In class-action lawsuits, the spoils go overwhelmingly—and sometimes exclusively—to a small group of highly motivated trial lawyers who specialize in filing a large volume of often frivolous litigation.”

    Consumer Bankers Association. President and CEO Richard Hunt supported the action: “Consumers' access to arbitration, which has long provided a faster, more cost-effective, and higher recovery alternative to class action lawsuits, should not be undermined by a harmful rule resulting from an incomplete study by the CFPB. The Bureau's own study shows the average consumer receives $5,400 in cash relief when using arbitration and just $32 through a class action suit.”

    U.S. Chamber of Commerce. In a key vote letter sent to the House before Tuesday’s vote, the Chamber of Commerce stated, “Even though this regulation is directed at financial firms, the CFPB’s rule impacts businesses of all types that the Bureau believes touch consumer finance – even mobile telephone service providers and website operators.” Furthermore, the CFPB “decided to issue a regulation that interferes with freedom of contract, imposes new burdensome regulations, hurts consumers, and rewards class action lawyers. Congress should assert its prerogatives and overturn this illegitimate rule.”

    Federal Issues Agency Rule-Making & Guidance Arbitration CFPB Senate Banking Committee CRA

    Share page with AddThis
  • District Judge Denies Summary Judgement in FTC, N.Y. AG FDCPA Suit

    Courts

    On July 18, the U.S. District Court for the Western District of New York denied summary judgment in a suit filed by the FTC and the New York Attorney General against four corporate defendants (Corporate Defendants) and four individual defendants (Individual Defendants) alleging that the Defendants engaged in abusive and deceptive debt collection practices. See Federal Trade Commission and People of the State of New York v. Vantage Point Services, LLC, Case 1:15-cv-00006-WMS-HKS (W.D.N.Y., Jul. 18, 2017). Plaintiffs argued that the Corporate Defendants, together with several non-defendant debt-collecting businesses, engaged in a single debt-collection enterprise. The Corporate Defendants maintained, however, that while they “did business with the various entities, either by placing debt with them or by processing payments on debt they were collecting,” the businesses remained separate, distinct entities, and they operated independently.

    The court found that there were “numerous disputed issues of fact” concerning the plaintiffs’ common enterprise theory, including a failure by the plaintiffs to specify which entities allegedly made threats or used illegal tactics to collect debt. Indeed, the court noted that while there was “overwhelming evidence of wrongdoing,” the plaintiffs had “failed to link that wrongdoing to any specific Defendant.” In fact, the court observed that the “majority of the wrongdoing appears to have been committed by the non-defendant call initiators.” The court also found material disputes of fact as to whether the Corporate Defendants shared office space and commingled funds and as to whether the Individual Defendants were liable at all.

    Courts State AG Debt Collection Litigation UDAAP FDCPA

    Share page with AddThis
  • CFTC Approves First Digital Currency Derivatives Exchange

    FinTech

    On July 24, the Commodity Futures Trading Commission (CFTC) announced its approval, by unanimous vote, of the first digital currency derivatives exchange under the Commodity Exchange Act. The CFTC issued a letter and order granting the registration, allowing the company to provide clearing services for fully-collateralized digital currency swaps, but noted that the authorization to provide clearing services for fully-collateralized digital currency swaps did not constitute or imply a CFTC endorsement of the use of digital currency generally, or bitcoin specifically. Based on the company’s representations related to having collateral already on deposit to cover the maximum possible loss, the CFTC exempted the company from certain regulations calling for, among other things, monthly stress-testing and specific daily reporting requirements. The company initially plans to clear bitcoin options.

    Fintech CFTC Digital Commerce Bitcoin Securities Commodity Exchange Act

    Share page with AddThis
  • FTC Announces Weekly Blog on Reasonable Data Security Practices

    Privacy, Cyber Risk & Data Security

    On July 21, the FTC announced a new initiative as part of ongoing efforts to provide guidance to businesses on protecting and securing consumer data. Each Friday, the FTC will post a new blog that will build on the FTC’s Start with Security principles, and will showcase hypothetical examples using material from closed investigations, FTC law enforcement actions, and questions from businesses. The first blog post, “Stick with Security: Insights into FTC Investigations,” highlights practical approaches for businesses to take in securing consumer data based on examples gleaned from FTC complaints and orders. The post also examines emerging themes from closed FTC data security investigations that did not necessarily result in FTC law enforcement.

    Privacy/Cyber Risk & Data Security FTC Small Business

    Share page with AddThis
  • Regulators Coordinate Review of Volcker Rule Application to Foreign Funds

    Securities

    On July 21, five U.S. financial regulators announced that they would not take action against foreign banks for qualifying foreign excluded funds, subject to certain conditions, under the Volcker Rule for a period of one year as they review the treatment of these types of funds under current implementing regulations. The regulators, which include the Federal Reserve Board, FDIC, OCC, SEC, and Commodity Futures Trading Commission, issued a joint statement to address concerns raised as to whether certain foreign excluded funds may fall within the definition of “banking entity” under the Bank Holding Company Act and therefore be subject to the Volcker Rule.

    “A number of foreign banking entities, foreign government officials, and other market participants have expressed concern about the possible unintended consequences and extraterritorial impact of the Volcker Rule and implementing regulations for certain foreign funds,” according to the joint statement. The regulators noted that the review will allow time to consider the appropriate course of action to address these concerns, including whether congressional action may be necessary.

    In addition, the regulators stressed that the joint statement “does not otherwise modify the rules implementing section 619 [of the Dodd-Frank Act] and is limited to certain foreign excluded funds that may be subject to the Volcker Rule and implementing regulations due to their relationships with or investments by foreign banking entities.”

    Securities Prudential Regulators Compliance Bank Compliance Banking Volcker Rule Federal Reserve FDIC OCC SEC CFTC

    Share page with AddThis
  • Small Lenders Call for Restraint on Housing Finance Reform During Senate Banking Committee Hearing

    Federal Issues

    On July 20, the Senate Committee on Banking, Housing, and Urban Affairs (Committee) held a hearing entitled, “Housing Finance Reform: Maintaining Access for Small Lenders.” Frequent topics of discussion in the hearing included, among other things, housing finance reform, secondary market access, affordable housing, access to credit in rural areas, mortgage insurance, and mortgage backed securities issued by government-sponsored enterprises (GSEs), operating under conservatorship since 2008.

    Sen. Mike Crapo (R-Idaho), Chairman of the Committee, remarked in his opening statement that “small lenders play a critical role in the mortgage market,” and that a need exists to preserve access to the secondary market. However, Sen. Crapo asserted that although GSEs are currently earning profits, a risk exists for taxpayers if there is a market downturn. “A mortgage market dominated by two huge government-sponsored companies in conservatorship is not a long-term solution, and is not in the best interest of consumers, taxpayers, lenders, investors, or the broader economy,” Sen. Crapo stated.

    Sen. Sherrod Brown (D-Ohio), ranking member of the Committee, released an opening statement in which he stated, “[S]mall lenders are often the only lenders willing to go the extra mile to underwrite mortgages . . . in cities’ urban core and in rural communities. . . . As we continue to debate the role of the GSEs, private capital, and large financial institutions in providing access to affordable mortgages, we cannot create a system that allows the GSEs or new players to use a business model that serves only the largest lenders, the highest income borrowers, or the well-off pockets of our country.”

    The coalition of consumer groups and small lenders present at the hearing supported GSE reform, sought additional support for small lenders, and called for prompt government action relative to housing finance reform.

    The July 20 hearing—a video of which can be accessed here—included testimony from the following witnesses:

    • Ms. Brenda Hughes, Senior Vice President and Director of Mortgage and Retail Lending, First Federal Savings Bank of Twin Falls, on behalf of the American Bankers Association (testimony)
    • Mr. Tim Mislansky, Senior Vice President and Chief Lending Officer, Wright-Patt Credit Union and President and CEO, myCUmortgage, LLC on behalf of the Credit Union National Association (testimony)
    • Mr. Jack E. Hopkins, President and CEO, CorTrust Bank, N.A., on behalf of the Independent Community Bankers of America (testimony)
    • Mr. Charles M. Pruvis, President and CEO, Coastal Federal Credit Union, on behalf of the National Association of Federally-Insured Credit Unions (testimony)
    • Mr. Wes Hunt, President, Homestar Financial Corporation, on behalf of the Community Mortgage Lenders of America (testimony)
    • Mr. Bill Giambrone, President and CEO, Platinum Home Mortgage and President, Community Home Lenders Association (testimony)

    Federal Issues Lending Mortgages Fair Lending Fannie Mae Freddie Mac ABA CUNA ICBA NAFCU

    Share page with AddThis
  • Legislation Introduced to Codify “Valid-When-Made” Doctrine

    Federal Issues

    On July 19, Representative Patrick McHenry (R-N.C.), the Vice Chairman of the House Financial Services Committee, and Representative Gregory Meeks (D-N.Y.) introduced legislation designed to make it unlawful to change the rate of interest on certain loans after they have been sold or transferred to another party. As set forth in a July 19 press release issued by Rep. McHenry’s office, the Protecting Consumers’ Access to Credit Act of 2017 (H.R. 3299) would reaffirm the “legal precedent under federal banking laws that preempts a loan’s interest as valid when made.”

    Notably,  a Second Circuit panel in 2015 in Madden v. Midland Funding, LLC overturned a district court’s holding that the National Bank Act (NBA) preempted state law usury claims against purchasers of debt from national banks. (See Special Alert on Second Circuit decision here.)The appellate court held that state usury laws are not preempted after a national bank has transferred the loan to another party. The Supreme Court denied a petition for certiorari last year. According to Rep. McHenry, “[t]his reading of the National Bank Act was unprecedented and has created uncertainty for fintech companies, financial institutions, and the credit markets.” H.R. 3299, however, will attempt to “restore[] consistency” to lending laws following the holding and “increase[] stability in our capital markets which have been upended by the Second Circuit’s unprecedented interpretation of our banking laws.”

    Federal Issues Federal Legislation Fintech Lending Second Circuit Appellate Usury National Bank Act

    Share page with AddThis

Pages