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On February 28, the FDIC issued its Second Quarter Community Reinvestment Act (CRA) Examination Schedule for the following regions: New York, Atlanta, Chicago, Kansas City, Dallas and San Francisco. The entities listed on the schedules were chosen for CRA examinations based on the FDIC’s criteria which states that, absent reasonable cause, for institutions with $250 million or less in assets, those with a CRA rating of “Satisfactory” would be examined no more than once every 48 months, and those institutions with a CRA rating of “Outstanding” would be examined no more than once every 60 months. Public comments on the institutions to be examined under the CRA are encouraged and will be considered if received prior to the completion of the examination.
On February 21, the U.S. Court of Appeals for the District of Columbia Circuit held that stockholders of Fannie Mae and Freddie Mac (the Companies) could not challenge dividend-allocating terms that FHFA negotiated on behalf of the Companies because the Housing and Economic Recovery Act (HERA) strictly limits judicial review of actions authorized thereunder. Perry Capital LLC v. Mnuchin, No. 14-5243, 2017 WL 677589 (D.C. Cir. Feb. 21, 2017).
In 2008, Fannie and Freddie were placed into conservatorship with FHFA, which then entered into a stock purchase agreement with Treasury to obtain emergency capital for Fannie and Freddie. In exchange, Treasury received preferred shares of stock from Fannie and Freddie that provided for a quarterly dividend of 10 percent of the total funds drawn from Treasury. After Fannie and Freddie began routinely borrowing from Treasury to pay the dividends, FHFA and Treasury amended the stock purchase agreement in 2012 so that repayment would be based on the Companies’ profits rather than mandatory dividends. The stockholder-plaintiffs in this action sought to challenge the 2012 amendment–in particular, arguing that the 2012 amendment exceeded the authority granted to FHFA under HERA and constituted “arbitrary and capricious conduct” in violation of the Administrative Procedure Act. One class of stockholders also argued that the amendment constituted a breach of fiduciary duty and certain terms and covenants of the Companies’ stock certificates. The district court had dismissed both complaints on the motions of FHFA and Treasury.
The D.C. Circuit opinion noted that Section 4617(f) of HERA expressly states that “no court may take any action to restrain or affect the exercise of powers or functions of the Agency as a conservator or a receiver.” The court interpreted this language to prohibit any court from “wielding [its] equitable relief to second-guess either the dividend-allocating terms . . . or FHFA’s business judgment.” And although an exception to this bar on judicial review has been recognized where an agency is found to have exceeded or violated its statutory powers or functions, the court determined that FHFA’s actions were within its statutory powers or functions.
Although the majority of the stockholders’ claims were rejected, the stockholders’ contract-based claims regarding liquidation preferences and dividend rights were remanded to the district court for further proceedings.
On February 21, a national bank fined by the CFPB last September for opening deposit and credit card accounts without customers’ knowledge announced the termination of four current or former senior managers in its Community Banking Department. The individuals will not receive 2016 bonuses and will forfeit unvested equity rewards and vested outstanding options. As previously covered in InfoBytes, the bank’s incentive compensation program encouraged employees to “engage in Improper Sales Practices to satisfy goals and earn financial rewards”—practices that the CFPB alleged were unfair and abusive. The bank eliminated all product sales goals in retail banking effective January 1 of this year, and is conducting its own independent investigation, which is ongoing.
- Tina Tchen to deliver keynote address at the American Bar Association Professional Success Summit
- Jeffrey P. Naimon and Jonice Gray Tucker to discuss "Enforcement and litigation trends" at the American Bankers Association General Counsel Meeting
- Andrea K. Mitchell to discuss "Developments in fair lending law" at the Mortgage Bankers Association Summit on Diversity and Inclusion
- David S. Krakoff to discuss "The DOJ corporate enforcement policy and your disclosure calculus one year in: Are companies benefitting?" at the American Conference Institute International Conference on the Foreign Corrupt Practices Act
- Moorari K. Shah to discuss "Legal & regulatory issues" at the Opal Group Marketplace Lending & Alternative Financing Summit
- Jonice Gray Tucker to discuss "Hot topics in consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "New CDD Rule: Pitfalls in compliance" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference
- Daniel P. Stipano to discuss "Anti-money laundering/OFAC compliance" at the Institute of International Bankers U.S. Regulatory/Compliance Orientation Program