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  • FDIC Releases Presentation Materials Explaining New Streamlined “FFIEC 051 Call Report” for Eligible Small Institutions

    Agency Rule-Making / Guidance / Amendments

    Earlier this month, the FDIC released presentation materials used during a recent webinar hosted by the Federal Financial Institutions Examination Council (FFIEC) for the purpose of explaining the new streamlined “FFIEC 051 Call Report” for eligible small institutions. As previously covered by InfoBytes, the Federal banking agencies – including the FDIC, the Fed, and the OCC – are implementing a new Call Report for financial institutions with only domestic offices and less than $1 billion in total assets (see FIL-82-2016). The proposed changes – which go into effect on March 31 – modify the existing “FFIEC 041” and “FFIEC 031” versions of the Call Report as part of an ongoing initiative to reduce the burden associated with Call Report requirements for community banks. Among other things, the streamlined Call Report reduces the existing Call Report from 85 to 61 pages, resulting from the removal of approximately 950 (or about 40 percent) of the nearly 2,400 data items in the Call Report.

    Agency Rulemaking & Guidance FDIC Federal Financial Institutions Examination Council FFIEC Call Report

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  • Federal Court in North Dakota Dismisses CFPB Complaint Against Payment Processor for Insufficient Factual Allegations

    Courts

    In an Order issued on March 17, a U.S. District Court for the District of North Dakota dismissed an enforcement action filed by the CFPB against a payment processor and its two top executives.  The Bureau had filed the lawsuit last year against a Fargo-based third-party payment firm, and its co-owners, alleging that the firm had “ignored” warnings from financial institutions of possible unauthorized debits and other possibly suspicious activity, including the possibility that the firm was processing electronic funds transfers on behalf of payday lenders in states where payday loans are illegal. 

    In granting Defendants’ motion to dismiss without prejudice, the Court held, among other things, that the CFPB had failed to “plead[] facts sufficient to support the legal conclusion that consumers were injured or likely to be injured” by the actions attributed to the defendants in the complaint.  As explained by the Court, "[a]lthough the complaint need not contain detailed factual allegations, it must contain 'more than an unadorned, the-defendant-unlawfully-harmed-me accusation.”  The Court emphasized both that (i) “[f]ormulaic recitations of the elements of a claim or assertions lacking factual enhancement are not sufficient,” and (ii) that “[t]he facts alleged in the complaint must be plausible, not merely conceivable.”  Applying this standard, the Court ultimately held that the CFPB’s complaint “d[id] not contain sufficient factual allegations to back up its conclusory statements regarding Intercept’s allegedly unlawful acts or omissions.”

    Courts CFPB Payment Processors Payday Lending

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  • CFPB’s Credit Union Advisory Council to Hold Public Meeting on March 30; Will Discuss Alternative Data and Consumer Access to Financial Records

    Agency Rule-Making / Guidance / Amendments

    In a Notice of Public Meeting published in the March 14 Federal Register, the CFPB announced that its Credit Union Advisory Council will hold a public meeting on March 30 from 3:15 to 4:45 pm EDT. According to the Notice, the Advisory Council plans to focus on “alternative data and consumer access to financial records.” Attendees should RSVP by noon on March 29.

    Agency Rulemaking & Guidance Consumer Finance CFPB Advisory Council

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  • Trump Administration Files Brief in PHH Corp. v. CFPB

    Agency Rule-Making / Guidance / Amendments

    On March 17, the Trump Administration’s Department of Justice (“DOJ”) filed its amicus brief in the D.C. Circuit’s en banc review of the CFPB’s enforcement action against PHH Corporation for alleged violations of the Real Estate Settlement Procedures Act (“RESPA”). In October 2016, a panel of the D.C. Circuit concluded that the CFPB misinterpreted RESPA and that its single-Director structure violated the constitutional separation of powers. The DOJ brief states that, “[w]hile we do not agree with all of the reasoning in the panel’s opinion,” the DOJ agrees with the panel’s conclusion that “a removal restriction for the Director of the CFPB is an unwarranted limitation on the President’s executive power” and that “the panel correctly concluded … that the proposed remedy for the constitutional violation is to sever the provision limiting the President’s authority to remove the CFPB’s Director, not to declare the entire agency and its operations unconstitutional.”

    Like the brief filed in this case by the Obama Administration DOJ before the change in administration, the current DOJ brief states that “[t]he United States takes no position on the statutory issues in this case, but in the event that the ultimate resolution of those issues results in vacatur of the CFPB’s order [against PHH], it is within this Court’s discretion to avoid ruling on the constitutional question.” However, the brief goes on to state that, because the issue is already before the en banc court and the “question is likely to recut in pending and future cases, it would be appropriate for the Court to provide needed clarity by exercising its discretion to resolve the separation-of-powers issue now.”

    Agency Rulemaking & Guidance Consumer Finance Federal Issues CFPB PHH v CFPB DOJ POTUS

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  • House Oversight Committee to Hold Hearing on March 21 Examining CFPB’s “Unconstitutional Design”

    Consumer Finance

    On March 16, the U.S. House of Representatives Subcommittee on Oversight and Investigations announced it will hold a hearing on Tuesday, March 21, at 10:00 a.m., entitled “The Bureau of Consumer Financial Protection’s Unconstitutional Design.” According to a March 16 Committee Memorandum, the hearing—which will be held in room 2128 of the Rayburn House Office Building—will examine, among other things, “whether the structure of the CFPB (Bureau) violates the Constitution as well as structural changes to the Bureau to resolve any constitutional infirmities.” The following witnesses are scheduled to testify:

    • The Honorable Theodore Olson, Partner, Gibson, Dunn & Crutcher LLP
    • Professor Saikrishna Prakash, James Monroe Distinguished Professor, University of Virginia School of Law
    • Mr. Adam White, Research Fellow, Hoover Institution
    • Ms. Brianne Gorod, Chief Counsel, Constitution Accountability Center

    Consumer Finance Federal Issues House Oversight Committee CFPB

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  • President Trump Releases Budget Plan Proposal; HUD and Treasury Among Many Who Would Face Significant Cuts

    Federal Issues

    On March 16, the White House released its budget blueprint America First: A Budget Blueprint to Make America Great Again, which sets forth the President’s discretionary funding proposals in advance of the “full Budget”—scheduled for release later this spring. Among the many agencies and programs that would experience substantial cuts under the President’s budget are both the Department of Housing and Urban Development and the Department of the Treasury.

    Department of Housing and Urban Development (“HUD”). For HUD, the President’s 2018 budget requests $40.7 billion in gross discretionary funding for HUD, which is a $6.2 billion or 13.2 percent decrease from the 2017 annualized continuing resolution level. The White House budget also proposes that: (i) funding be eliminated or redirected to the State and Local level for the Community Development Block Grant program, which the White House estimates would save $3 billion from 2017 levels; (ii) funding be eliminated for “lower priority programs,” which the White House says include “the HOME Investment Partnerships Program, Choice Neighborhoods, and the Self-help Homeownership Opportunity Program”; (iii) funding be eliminated or redirected to the State and Local level for Section 4 Capacity Building for Community Development and Affordable Housing (at an estimated savings of $35 million from 2017 levels); (iv) support be provided for “homeownership through provision of Federal Housing Administration mortgage insurance programs.”

    Dept. of the Treasury. And, as for Treasury, the White House is proposing that the Department be granted $12.1 billion in discretionary resources. This proposal represents a $519 million or 4.1 percent decrease from the 2017 levels. Specifically, the White House’s budget proposes to, among other things: (i) preserve key operations of the Internal Revenue Service (“IRS”) to ensure that “the IRS can continue to combat identity theft, prevent fraud, and reduce the deficit through the effective enforcement and administration of tax laws,” while diverting resources away from “antiquated operations” that still rely on paper-based reviews;  (ii) “strengthen cybersecurity in a Department-wide plan to strategically enhance existing security systems and preempt fragmentation of information technology management across the bureaus”; (iii) “prioritize funding for Treasury’s array of economic enforcement tools”; (iv) “eliminate funding for Community Development Financial Institutions Fund grants”; (v) “empower the Treasury Secretary, as Chairperson of the Financial Stability Oversight Council, to ‘end taxpayer bailouts and foster economic growth by advancing financial regulatory reforms that promote market discipline and ensure the accountability of financial regulators;’” and (vi) “shrink the Federal workforce” while increasing its efficiency by redirecting resources away from "duplicative" policy offices.

    In response to the proposed budget, Treasury Secretary Steven T. Mnuchin released the following statement:

    "President Trump’s discretionary budget plan released today focuses Treasury on our core missions of collecting revenue, managing the nation’s debt, protecting the financial system from threats, and combating financial crime and terrorism financing. It will ensure that we have the resources we need to enforce the nation’s tax laws, while investing in cybersecurity and prioritizing resources on initiatives that promote technology, efficiency and modernization across the agency."

    Federal Issues Trump budget HUD Treasury Department

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  • SEC Denies Application for Bitcoin ETF Due to Lack of Regulation, Potential for Manipulation

    Agency Rule-Making / Guidance / Amendments

    On March 10, 2017, the SEC issued an Order disapproving of a proposed rule change by the BATS BZX Exchange (“the Proposal”), which proposed to list and trade “commodity-based trust shares” issued by the Winklevoss Bitcoin Trust. The Proposal, if approved, would have established a bitcoin exchange-traded fund (“ETF”) that market participants could invest in through the BATS BZX Exchange platform. Specifically, in rejecting the Proposal, the Commission emphasized the lack of regulation in the bitcoin market, noting both (i) that the BATS BZX Exchange platform “would currently be unable to enter into, the type of surveillance-sharing agreement that helps address concerns about the potential for fraudulent or manipulative acts and practices in the market for the Shares”; and (ii) that bitcoin regulation, at present, would leave a bitcoin ETF more susceptible to manipulation than an ETF comprised of other commodities, such as gold and silver. Ultimately, the Commission concluded that, “[a]bsent the ability to detect and deter manipulation of the Shares—through surveillance sharing with significant, regulated markets related to the underlying asset—the [Commission] does not believe that a national securities exchange can meet its” regulatory obligations.

    Comments submitted in response to the original BATS BZX Exchange proposed rule change can be accessed here.

    Agency Rule-Making / Guidance / Amendments Securities FinTech Digital Commerce bitcoin SEC

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  • 9th Circuit Panel Reverses and Remands Dismissal of Pro Se Plaintiff’s Breach of Contract Claim in Connection with Bank’s Trial Loan Modification Process

    Courts

    In an opinion filed on March 13, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit reversed and remanded a district court’s dismissal of a homeowner-plaintiff’s breach of contract claim against a major bank for damages allegedly suffered when she unsuccessfully attempted to modify her home loan over a two-year period. Oskoui v. J.P. Morgan Chase Bank, N.A., [Dkt No. 47-1] Case No. 15-55457 (9th Cir. Mar. 13, 2017) (Trott, S.). The court also remanded with instructions to permit the pro-se plaintiff to amend her complaint to allege a right to rescind in connection with her previously-dismissed TILA claim in light of the Supreme Court’s January 2015 decision in Jesinoski v. Countrywide Home Loans, Inc. And, finally, the panel affirmed the district court’s ruling that the facts alleged demonstrated a claim under California’s Unfair Competition Law (“UCL”) because, among other reasons, the factual record supported a determination that the bank knew or should have known that the homeowner was plainly ineligible for a loan modification; yet, the bank encouraged her to apply for modifications (which she did), and collected payments pursuant to trial modification plans. 

    In reversing and remanding the district court’s ruling dismissing the breach of contract claim, the Ninth Circuit pointed to the styling on the first-page of the complaint—“BREACH OF CONTRACT”—along with allegations about the explicit offer language contained in the bank’s trial modification documents.  The Ninth Circuit relied on the Seventh Circuit’s opinion in Wigod v. Wells Fargo, which it identified as the “leading federal appellate decision on this issue of contract,” to “illuminate the viability” of plaintiff’s breach of contract claim in connection with trial plan documents.  673 F.3d 547 (7th Cir. 2012). The Ninth Circuit remanded the claim with instructions to permit the plaintiff to amend if necessary in order to move forward with her breach of contract claim.

    Courts Lending TILA UDAAP appellate Mortgages CA UCL

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  • Governor’s Proposed NY State Executive Budget Includes More Online Lending Supervision; State Assembly Budget “Rejects” Proposed Change

    State Issues

    Article 7 of the New York State Constitution requires the Governor to submit an executive budget each year, which contains, among other things, recommendations as to proposed legislation. On February 16, New York Governor Andrew Cuomo released a proposed 2017-18 Executive Budget that includes a proposed amendment to the New York Banking Law that would provide the New York Department of Financial Services (“NYDFS” or “DFS”) expanded licensing authority over online and marketplace lenders.  (See Part EE (at pages 243-44) of the Transportation, Economic Development and Environmental Conservation Bill portion of the Executive Budget).[1] 

    According to a Memorandum in Support of the Governor’s Budget, the proposed amendment would (i) address “[g]aps in the State’s current regulatory authority [that] create opportunities for predatory online lending,” and (ii) “ensure that all types of online lenders are appropriately regulated,” by (a) “increase[ing] DFS’ enforcement capabilities,” and (b) “expand[ing] the definition of ‘making loans’ in New York to not only apply to online lenders who solicit loans, but also online lenders who arrange or otherwise facilitate funding of loans, and making, acquisition or facilitation of the loan to individuals in New York.” If enacted, the NYDFS’s new authority would, under the Governor’s current proposal, become effective January 1, 2018.

    This proposal in the Governor’s Executive Budget has, however, been challenged by the New York State Legislature.  On March 13, after several hearings on the Governor’s proposed budget, the New York State Assembly released its own 2017-18 Assembly Budget Proposal (“Assembly Budget”), which, among other things, expressly rejected the aforementioned proposed amendment to the banking law found in “Part EE.” The Senate is now expected to release its own budget proposal shortly. And, once it is released, the two house of the State Legislature will reconcile the two bills in committees and pass legislation that stakes out the House’s position on the Governor’s proposals. From there, negotiations will begin in earnest between the Legislature and the Executive, with the goal of reaching a budget agreement on or before March 31, 2017.

     

    [1] See also N.Y. Banking Law § 340; N.Y. Gen. Oblig. Law § 5-501(1); N.Y. Banking Law § 14-a(1); N.Y. Gen. Oblig. Law § 5-521(3); N.Y. Ltd. Liab. Co. Law § 1104(a). 

    State Issues Lending FinTech NYDFS Online Lending

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  • OCC Releases Draft “Licensing Manual Supplement” to be Used for Evaluating Fintech Bank Charter Applications; Will Accept Comments Through April 14

    Agency Rule-Making / Guidance / Amendments

    On March 15, the OCC released both a Draft Licensing Manual Supplement for Evaluating Charter Applications From Financial Technology Companies (“Draft Fintech Supplement”) and a Summary of Comments and Explanatory Statement  (“March 2017 Guidance Summary”) (together, “March 2017 Guidance Documents”) in which it provides additional detail concerning application of its existing licensing standards, regulations, and policies in the context of Fintech companies applying for special purpose national bank charters. The Draft Fintech Supplement is intended to supplement the agency’s existing Licensing Manual. The March 2017 Guidance Summary addresses key issues raised by commenters, offers further explanation as to the OCC’s decision to consider applications from Fintech companies for an Special Purpose National Bank (“SPNB”) charter, and provides guidance to Fintech companies that may one day wish to file a charter application.

    The March 2017 Guidance Documents emphasize, among other things, certain “guid[ing]” principles including: (i) “[t]he OCC will not allow the inappropriate commingling of banking and commerce”; (ii) “[t]he OCC will not allow products with predatory features nor will it allow unfair or deceptive acts or practices”; and (iii) “[t]here will be no “light-touch” supervision of companies that have an SPNB charter. Any Fintech companies granted such charters will be held to the same high standards that all federally chartered banks must meet.”  Through its commitment to (and alignment with) these principles, the OCC “believes that making SPNB charters available to qualified [FinTech] companies would be in the public interest.”

    Notably, the OCC emphasized that its latest Fintech guidance “is consistent with its guiding principles published in March 2016” and “also reflects the agency’s careful consideration of comments received (covered by InfoBytes here) on its December 2016 paper discussing issues associated with chartering Fintech companies.” As covered in a recent InfoBytes Special Alert, the OCC has, over the past several months, taken a series of carefully calculated steps to position itself as a leading regulator of Fintech companies.

    Finally, although it does not ordinarily solicit comments on procedural manuals or supplements, the OCC will be accepting comments on the aforementioned Fintech guidance through close of business April 14.

    Agency Rulemaking & Guidance Bank Regulatory OCC FinTech

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