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On March 5, Credit Union National Association (CUNA) President Jim Nussle submitted a letter to Rep. Roger Williams (R-Texas), supporting his introduction of H.R. 1264—the Community Financial Institution Exemption Act. The bill, referred to the House Financial Services Committee on February 28, provides an exemption from rules and regulations of the CFPB for community financial institutions with under $50 billion in assets. “The rules are, in large part, implemented to address abuses perpetrated by the large institutions and other previously nonregulated providers, and not small institutions like credit unions and small banks,” Nussle wrote. “While we believe that the statute presently provides the CFPB authority to exempt credit unions under $50 billion from its rulemaking, the bureau has been unwilling to effectively use the exemption authority.”
On March 8, the Financial Industry Regulatory Authority (“FINRA”) filed a proposed rule with the SEC to streamline its competency exams for professionals entering or re-entering the securities industry. Currently, only individuals associated with FINRA-regulated firms are eligible to take the qualification exam. The proposed rule would allow individuals with no prior securities industry experience to take FINRA’s Securities Industry Essentials exam, an “important first step to entering the industry,” which would serve to “provide enhanced flexibility and efficiency in [the] qualifications programs, while maintaining important standards and investor protections.” While these individuals would also be required to pass a more specialized knowledge exam—and must be associated with, and sponsored by, a firm—the proposed change would potentially expand the pool of qualified candidates for positions. Further, under this proposal, individuals who transfer to a financial services affiliate of a FINRA-regulated firm may qualify for a waiver that allows their credentials to be reinstated without re-taking their qualification exams, should they return to the industry within a seven-year period and meet the requirements of the waiver program. Currently, a registered individual who transfers for two or more years must re-take an exam to be re-qualified. The proposed rule is under review with the SEC.
On March 9, the Senate Banking Committee and the House Financial Services Committee introduced and advanced five securities-related bills out of committee. The bills—listed below—now await scheduling for consideration by each chamber in full.
- S. 327 / H.R. 910 - Fair Access to Investment Research Act of 2017. This legislation will direct the SEC to provide a safe harbor for certain investment fund research reports.
- S. 444 / H.R. 1219 - Supporting America’s Innovators Act of 2017. This legislation will amend the Investment Company Act of 1940 by expanding “the limit on the number of individuals who can invest in certain venture capital funds before those funds must register with the SEC as ‘investment companies.’”
- S. 462 / H.R. 1257 - Securities and Exchange Commission Overpayment Credit Act. This legislation will require the SEC to refund or credit excess payments made to the Commission under a 10-year statute of limitations.
- S. 484 / H.R. 1366 - U.S. Territories Investor Protection Act of 2017. This legislation will amend the Investment Company Act of 1940 to terminate an exemption for companies located in Puerto Rico, the Virgin Islands, and any other possession of the United States.
- S. 488 / H.R. 1343 - Encouraging Employee Ownership Act. This legislation will increase the threshold for disclosures required by the SEC relating to compensatory benefit plans.
H.R. 1312 - The Small Business Capital Formation Enhancement Act. The House Financial Services Committee also approved a sixth bill, which seeks to amend the Small Business Investment Inventive Act of 1980 to require an annual review by the SEC of any findings set forth in the annual government-business forum on capital formation.
On March 7, the FDIC released its Winter 2016 Supervisory Insights, which contains articles discussing credit risk trends and balance sheet growth, emphasizes the importance of strong risk management practices, and provides a roundup of recently released regulatory and supervisory guidance. Doreen Eberley, Director of the FDIC’s Division of Risk Management Supervision, stated in the release that “[h]istorically, financial institutions that have prudently managed loan growth have been better positioned to withstand periods of stress and continue to serve the credit needs of their local communities.” Her statement goes on to “encourage bankers to identify and correct loan underwriting and administration problems before they adversely affect the bottom line.” The Supervisory Insights note that nearly 80 percent of insured institutions grew their loan portfolios during the third quarter of 2016, which is “a figure not far from the peak of nearly 83 percent of institutions that grew their portfolios in 2005.” While this edition focused primarily on lending in the following sectors—commercial real estate, agriculture, and oil and gas—it also stressed the need for managing loan concentrations through strong, forward-looking risk management practices that allow for early intervention.
On March 10, the Department of Justice (the “Government”) announced that a California-based technology company agreed to settle the Government’s allegations that it violated the False Claims Act by making false statements and claims in its negotiation and administration of a General Services Administration (“GSA”) contract. According to the Government’s press release announcing the settlement, the settlement resolved allegations that the company failed to “fully and accurately disclose its discounting practices to GSA contracting officers.” More specifically, the Government had alleged that the company provided false information about customer discounts in connection with the contract negotiations, and violated the price reduction clause in the contract by not providing government customers with additional discounts when commercial discounts improved. The company agreed to pay $45 million to resolve the allegations, which were first made in a whistleblower lawsuit filed under the False Claims Act. $10.195 million of the total settlement will be paid to the whistleblower, as the rules under the False Claims Act provide that private individuals may to sue on behalf of the government and share in a portion of the recovery.
In February, Rep. Mia Love (R-Utah) introduced the Stop Debt Collection Abuse Act of 2017 (H.R. 864)—legislation seeking to extend the scope of the Fair Debt Collection Practices Act (“FDCPA”) to cover the activities of private debt collectors working on behalf of federal government agencies. Specifically, the proposed bill expands the definition of debt subject to the FDCPA to cover obligations—including loans, overpayments, fines, past-due penalties, and late fees—owed to a federal agency. Under the proposed new law, a debt collector includes any person who regularly collects debts currently or originally owed or allegedly owed to a federal agency. Moreover, the bill also requires that any fees charged by private debt collectors seeking to collect debt owed to a federal agency are limited to: (i) reasonable amounts in relation to the actual costs of the collection; (ii) fees authorized by a contract between the debt collector and the federal agency; and (iii) amounts not greater than 10 percent of the amount collected by the debt collector. H.R. 864, which is currently pending before the House committee on Financial Services, is co-sponsored by Keith Ellison (D-Minn.), French Hill (R-Ark.), and Emanuel Cleaver II (D-Mo.).
In a March 15 letter to CFPB Director Richard Cordray, Rep. Emanuel Cleaver (D-Mo.) called upon the Bureau to address potential abuses by FinTech companies that may be engaged in predatory small-business lending. In so doing, he asked that the Bureau “investigate whether FinTech companies engaged in small business lending are complying with all anti-discrimination laws, including the Equal Credit Opportunity Act.” The letter also seeks responses to three questions:
- When does the CFPB anticipate finalizing regulation and guidance to fully implement Section 1071 of the ECOA (requiring financial institutions to collect and maintain loan data for women-owned, minority-owned and small business credit applicants)?
- Has the CFPB engaged in any supervisory activities over FinTech small business lenders and, if so, did the CFPB identify any ECOA-related compliance issues?
- Will the CFPB solicit complaints through its consumer complaint portal from consumers, particularly those from communities of color, who feel they have been discriminated against by a FinTech lender offering small business loans (and, if not, how can consumers formally submit a complaint)?
FHFA Includes New Classifications for Reporting Adverse Examination Findings; Amends FOIA Regulations
On March 14, the Federal Housing Finance Agency (“FHFA”) issued an Advisory Bulletin establishing classifications of adverse examination findings for Fannie Mae, Freddie Mac, Federal Home Loan Banks (“FHLBs”), and the FHLB’s Office of Finance (AB 2017-01). Effective for the 2017 examination cycle, the bulletin establishes three designated “classifications,” which can be used by examination staff to communicate adverse examination findings more effectively. The three classifications are meant both to identify priorities for remediation and also to guide FHFA in the development of supervisory strategies. These supervisory strategies include: (i) Matters Requiring Attention—both high-priority critical supervisory matters that pose substantial risk to safety and soundness and deficiencies that, if not corrected, have the potential to escalate and negatively affect a regulated entity or the Office of Finance; (ii) Recommendations—advisory suggestions regarding changes to a policy, procedure, practice, or control; and (iii) Violations—non-compliance with laws, regulations, or orders that requires action by a regulated entity or the Office of Finance to correct, if possible.
On March 15, FHFA issued an interim final rule, amending its FOIA regulations (12 CFR Part 1202) in an effort to bring its internal policies into accord with guidelines established through the FOIA Improvement Act of 2016 (Pub. L. No. 114-185) and the “OPEN FOIA Act of 2009” (Pub. L. No. 111-83, 123 Stat. 2142, 2184 (2009)). The new FOIA rules – which are effective as of March 15—require agencies to, among other things, provide a minimum of 90 days (rather than 30 days) for requesters to file an administrative appeal; and provide notification to requesters about the availability of dispute resolution services.
On March 13, the Trump Administration issued an Executive Order calling for a reorganization of the executive branch to improve its efficiency, effectiveness, and accountability. Specifically, the order, entitled “Comprehensive Plan for Reorganizing the Executive Branch,” mandates that Office of Management and Budget (“OMB”) Director Mick Mulvaney “propose a plan to reorganize governmental functions and eliminate unnecessary agencies (as defined in section 551(1) of title 5, United States Code), components of agencies, and agency programs.” In order to assist Director Mulvaney in this task, the head of each agency is required to—within 180 days—submit to the OMB director a proposed plan “to reorganize the agency, if appropriate, in order to improve the efficiency, effectiveness, and accountability of that agency.”
Notably, the order requires that the OMB Director seek public comment as to potential improvements in “the organization and functioning of the executive branch,” and requires that the OMB Director consider the comments received when formulating a proposed plan that must be submitted to the President 180 days after the deadline for agency submissions. The order also asks agencies to (as consistent with applicable law) consult with persons or entities outside of government with relevant expertise in organizational structure and management.
On March 14, the FTC announced that it reached a settlement with a Los-Angeles-based auto dealership group over charges that the group engaged in deceptive and unfair sales and financing practices, deceptive advertising, and deceptive online reviews. The settlement, in the form of a stipulated final order, requires that the auto group pay more than $3.6 million in consumer remediation and is pending approval by the U.S. District Court for the Central District of California. The complaint, which was filed in September of last year, also alleged the defendants participated in deceptive and unfair practices related to add-on products that consumers did not authorize. Furthermore, the FTC claimed the defendants violated TILA and Regulation Z, as well as the Consumer Leasing Act and Regulation M, for “failing to clearly disclose required credit information and lease information in their advertising.” The proposed settlement order prohibits “the defendants from making misrepresentations relating to their advertising, add-on products, financing, and endorsements or testimonials,” and also bars “the defendants from engaging in other unlawful conduct when a sale is cancelled.”