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New York Department of Financial Services adopts emergency measure to provide relief to insureds
On June 28, the New York Department of Financial Services adopted an emergency measure that amends the insurance regulations to provide relief to policyholders, contract holders, and insureds who can demonstrate financial hardship relating to the Covid-19 pandemic. Among other things, the emergency measure: (i) provides that premiums remitted by a creditor will be assumed to provide coverage under a credit life or credit unemployment insurance policy for insured debtors whose payments are not more than three months overdue; (ii) provides certain protections for insureds who do not make timely premium payments to certain insurance entities; and (iii) prohibits a premium finance agency from cancelling an insurance policy due to an insured’s failure to make a timely installment payment for a period of at least 90 days, if the insured can demonstrate financial hardship due to Covid-19, and subject to the safety and soundness of the premium finance agency.
Global pharmaceutical company’s current and former subsidiaries settle alleged FCPA violations with DOJ
On June 25, the DOJ announced it had entered into a deferred prosecution agreement with a subsidiary of a Switzerland-based global pharmaceutical company to pay $225 million in criminal penalties related to alleged violations of the FCPA’s anti-bribery and books and records provisions. The DOJ also entered into a separate deferred prosecution agreement with a former subsidiary of the pharmaceutical company (current subsidiary of a multinational eye care company) for approximately $8.9 million in criminal penalties related to alleged violations of the FCPA’s books and records provisions.
According to the DOJ, between 2012 and 2015, the current pharmaceutical subsidiary violated the FCPA by engaging in a scheme to bribe employees of state-owned and state-controlled hospitals and clinics in Greece to increase the sales of its products. Moreover, between 2009 and 2010, the pharmaceutical subsidiary made improper payments, in connection with an epidemiological study, to providers in order to increase sales of certain prescription drugs. The DOJ alleged that the pharmaceutical subsidiary “knowingly and willfully conspired with others to cause [the pharmaceutical parent company] to mischaracterize and falsely record improper payments…in [the parent company]’s books, records, and accounts.” Under the terms of the agreement with the pharmaceutical subsidiary, the subsidiary agreed to cooperate with ongoing investigations, and both the subsidiary and its parent agreed to enhance their compliance programs and report to the DOJ on those improvements.
In the DPA with the former eye care subsidiary, the DOJ alleged that between 2011 and 2014, while still a subsidiary of the pharmaceutical parent company, the former subsidiary “knowingly and willfully conspired with others to cause [the pharmaceutical parent company] to maintain false books, records and accounts, as a result of a scheme to bribe employees of state-owned and state-controlled hospitals and clinics in Vietnam.” The agreement notes that the former eye care subsidiary and its current parent company have since implemented and will continue to implement enhanced FCPA compliance controls and will report to the government on the implementation.
The DOJ recognized that both subsidiaries engaged in remedial measures, including (i) terminating and disciplining individuals involved in the misconduct; (ii) adopting heightened controls and anti-corruption protocols; and (iii) increasing the resources devoted to compliance.
The SEC simultaneously announced a resolution with the pharmaceutical parent company to pay over $112 million in a related matter.
FDIC follows OCC, adopts final rule addressing Madden
On June 25, the FDIC issued a final rule clarifying that whether interest on a loan is permissible under the Federal Deposit Insurance Act is determined at the time the loan is made and is not affected by the sale, assignment, or other transfer of the loan. The FDIC’s final rule effectively reverses the Second Circuit’s 2015 Madden v. Midland Funding decision as applicable to state banks and follows the OCC’s issuance of a similar rule earlier this month for national charters. Specifically, the FDIC’s final rule states that, “[w]hether interest on a loan is permissible under section 27 of the Federal Deposit Insurance Act is determined as of the date the loan was made. . . [and] shall not be affected by a change in State law, a change in the relevant commercial paper rate after the loan was made, or the sale, assignment, or other transfer of the loan, in whole or in part.” Additionally, the FDIC rule mirrors the OCC in specifying that the rule does “not address the question of whether a State bank. . .is a real party in interest with respect to a loan or has an economic interest in the loan under state law, e.g. which entity is the ‘true lender.’” Details on the effect of these rules can be found in Buckley’s Special Alert on the OCC’s issuance.
Agencies finalize covered funds changes to Volcker Rule
On June 25, the Federal Reserve Board, CFTC, FDIC, OCC, and SEC (agencies) finalized the rule, which will amend the Volcker Rule to modify and clarify the regulations implementing Section 13 of the Bank Holding Company Act with respect to covered funds. As covered by InfoBytes in February, the agencies issued the proposed rule, and, after the notice and comment period, finalized the proposal with certain modifications based on the public comments. Among other things, the final rule (i) exempts qualifying foreign excluded funds from certain restrictions, but modifies the anti-evasion provision and compliance program requirements from the proposal; (ii) revises the exclusions from the covered fund provisions for foreign public funds, loan securitizations, and small business investment companies; (iii) adopts several new exclusions from the covered fund provisions, including an exclusion for venture capital funds, family wealth management, and customer facilitation vehicles; (iv) permits established, codified categories of limited low-risk transactions between a banking entity and a related fund; (v) provides an express safe harbor for senior loans and senior debt, and redefines “ownership interest”; and (vi) provides clarity regarding permissible investments in the same investments as a covered fund organized or offered by the same banking entity. The final rule is effective October 1.
The FDIC also released a Fact Sheet on the final rule.
Agencies propose updates to Interagency Questions and Answers Regarding Flood Insurance
On July 6, the FDIC, OCC, Federal Reserve Board, NCUA, and the Farm Credit Administration published a request for public comments on proposed new questions and answers to be included in the Interagency Questions and Answers Regarding Flood Insurance, following changes made to flood insurance regulations under the agencies’ joint rule regarding loans in special flood hazard areas. The proposal updates interagency questions and answers last updated in 2011, and is intended to reduce compliance burdens for lenders related to flood insurance laws. Among the new questions and answers are those related to (i) the “escrow of flood insurance premiums”; (ii) the “detached structure exemption to the mandatory purchase of flood insurance requirement”; and (iii) force-placement of flood insurance procedures. The proposal also revises and reorganizes several existing questions and answers to improve clarity and user functionality. Comments are due September 4.
Additionally, FDIC FIL 67-2020 states that the agencies are currently drafting new Interagency Questions and Answers Regarding Flood Insurance related to the 2019 private flood insurance rule (covered by InfoBytes here), which will be proposed at a later date.
Fed releases guidance for de novo banks supervision
On June 24, the Federal Reserve Board sent a letter to the Federal Reserve Banks (FRBs) providing guidance regarding the supervision of de novo state member banks, as well as the evaluation of de novo insured depository institutions (IDI) seeking to become state member banks. Under the letter, an insured depository institution is considered to be in the de novo stage until it has been operating for at least three years. Supervisory Letter SR 20-16, which supersedes Supervisory Letter SR 91-17, “applies to any commercial bank, thrift, Edge Act corporation, or industrial bank that has been in existence for less than three years and is converting to become a state member bank,” and outlines de novo application submission guidelines and FRB examination requirements. SR 20-16 provides that within six months following a de novo’s formation or conversion to a state member bank, the responsible FRB should conduct a targeted examination and issue a report summarizing supervisory findings, with targeted focus on the de novo’s risk management process or the management component of the CAMELS rating, as well as any business and operating plans submitted in connection with its membership application.” SR 20-16 outlines the examination cycle and notes that the full-scope statutorily required examination schedule will not occur until a de novo has had three full-scope examinations and has been in operation for three years. SR 20-16 further provides that, for de novo banks that are subsidiaries of existing bank holding companies, an FRB at its discretion, may elect to make a risk-based determination that if the parent bank has consolidated assets of greater than $3 billion and is in good standing, the subsidiary may be examined less frequently.
VA issues lender guidance on Covid-19
On June 30, the Department of Veterans Affairs issued Circular 26-20-25 (and subsequently issued Circular 26-20-25, Change 1), which provides guidance on the impact of the CARES Act foreclosure protections on VA-guaranteed purchase and refinance transactions. The circular states that for purchase and cash-out refinance loans, the “VA will not consider a Veteran as an unsatisfactory credit risk, based solely upon the fact that the Veteran received some type of credit forbearance or experienced some type of deferred payment during the COVID-19 national emergency.” With regard to Interest Rate Reduction Refinance Loans (IRRRL), the Circular notes that the VA is waiving certain prior approval requirements for delinquent loans if (i) the lender is approved to close loans on an automatic basis; (ii) the loan being refinanced is under CARES Act forbearance protections; (iii) the borrower is no longer experiencing the financial hardship caused by the Covid-19 pandemic; and (iv) the borrower qualifies for other IRRRL credit standards. Moreover, the Circular details additional IRRRL considerations for lenders, including maximum loan amounts, loan seasoning, and valuation requirements. Lastly, the Circular encourages lenders to waive origination fees and consider discount points and premium pricing offsets for veterans impacted by the Covid-19 pandemic.
NYDFS discusses state CRA exams and Covid-19 considerations
On June 30, NYDFS issued two industry letters aimed at reminding New York regulated banking institutions of their responsibilities under New York State’s Community Reinvestment Act (New York CRA) with respect to minority-and women-owned businesses, as well as opportunities to receive NYCRA credit for Covid-19 pandemic activities.
The first industry letter discusses the state’s recent amendments to the New York CRA, which were effective January 11, 2020, and require NYDFS to consider “several aspects of banking institutions’ activities with respect to minority- and women-owned businesses.” These include, among other things, (i) “‘the banking institution’s participation, including investments, … in technical assistance programs for small businesses and minority- and women-owned businesses’”; and (ii) “‘banking institution’s origination of … minority-_and women-owned business loans within its community or the purchase of such loans originated in its community.’” NYDFS notes that later this year, it will begin to request information regarding programs related to minority- and women-owned businesses in order to begin evaluating banks under the new amendments. NYDFS also provided a spreadsheet with sample requests for guidance.
The second industry letter describes the circumstances in which regulated institutions may receive New York CRA credit for activities taken in response to the Covid-19 pandemic, which the announcement notes is consistent with the guidance federal regulators have issued on the same topic (covered by InfoBytes here and here).
Special Alert: Supreme Court preserves CFPB through severance
The U.S. Supreme Court on Monday issued its long-awaited opinion in Seila Law LLC v. Consumer Financial Protection Bureau, with a 5-4 split along ideological lines holding that the structure of the CFPB is unconstitutional. Specifically, the clause in the underlying statute that requires cause to remove the director of the CFPB violates the constitutional separation of powers. In a plurality opinion representing three of the justices in the majority, the court further held that the removal provision could — and should — be severed from the statute establishing the CFPB, rather than invalidating the entire statute. While various aspects of the decision could lead to further constitutional challenges, the reasoning of the opinion was based in large part on the preservation of a regulatory framework that is now almost a decade old.
Chief Justice Roberts issued an opinion holding the removal provision unconstitutional but finding that it could be severed from the remainder of the statute. The first portion of the opinion was joined by Justices Thomas, Alito, Gorsuch, and Kavanaugh, and therefore is the opinion of the court. The severance analysis, however, was joined only by Justices Alito and Kavanaugh. Justice Thomas, in a separate opinion joined by Justice Gorsuch, concurred on the constitutional question but dissented on severance. Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, issued a third opinion dissenting from the court’s opinion on the constitutional question but concurring in the judgment that “if the agency’s removal provision is unconstitutional, it should be severed.” (Kagan Dissent, at 37). Justice Kagan’s opinion did not offer any further analysis of the severance issue, nor did she state that she concurred in Chief Justice Roberts’s opinion on that issue. Therefore, none of the three opinions commanded a majority of the court on the severance issue.
California governor issues executive order extending previous relief orders
On June 30, the California governor signed Executive Order N-71-20 (previously discussed here), which extends authorization for local governments to halt evictions for renters impacted by the Covid-19 pandemic through September 30. Among other things, the executive order also extends the deadlines in connection with certain licenses, including real estate licenses, which we previously covered here.