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  • Federal Reserve Board to vote on national bank’s asset growth restriction

    Federal Issues

    On May 10, Federal Reserve Board (Board) Chairman Jerome H. Powell responded to Senator Elizabeth Warren’s request concerning a formal commitment by the Board to vote on whether a national bank’s remediation plans to improve its compliance and operational risk management program meet the terms set forth by the Board’s February 2 order to cease and desist (Order). (See previous InfoBytes coverage here.) According to Powell, the decision to lift the asset growth restriction placed on the bank as part of the Order will be determined by a vote of the Board of Governors. In addressing an additional request made by Sen. Warren that the third-party review of the bank’s remedial actions required by the Order be publically released, Powell stated that when the third-party review is ready, “we will review that report to determine whether and to what extent the report can be publicly disclosed without impairing protected interests.” Powell noted that typically evaluations of that kind are not released to the public because they contain confidential supervisory information that would, if disclosed, “likely impair the effectiveness of the supervisory process,” among other things.

    Federal Issues Federal Reserve Congress Bank Compliance

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  • Court preliminarily approves $80 million settlement for shareholders after global internet company data breach

    Privacy, Cyber Risk & Data Security

    On May 9, the U.S. District Court for the Northern District of California granted a preliminary approval of a settlement between a global internet media company and its shareholders over alleged securities law violations related to cybersecurity breaches in 2013 and 2014. The $80 million settlement resolves a consolidated shareholder action accusing the company of making misleading statements to shareholders about the company’s data security. According to the order, the settlement applies to all shareholders who acquired the company’s securities between April 30, 2013 and December 14, 2016. As previously covered by InfoBytes, the company was recently ordered by the SEC to pay $35 million to resolve allegations related to the same cybersecurity incidents.

    Privacy/Cyber Risk & Data Security Securities Data Breach Settlement SEC

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  • FCC seeks comments on interpretation of autodialer under TCPA

    Federal Issues

    On May 14, the FCC’s Consumer and Governmental Affairs Bureau released a notice seeking comment on the interpretation of the Telephone Consumer Protection Act (TCPA) in light of the recent D.C. Circuit decision in ACA International v. FCC. (Covered by a Buckley Sandler Special Alert.) The notice requests, among other things, comment on what constitutes an “automatic telephone dialing system” (autodialer) due to the court setting aside the FCC’s 2015 interpretation of an autodialer as “unreasonably expansive.” Specifically, the FCC requests comment on how to interpret the term “capacity” under the TCPA’s definition of an autodialer (“equipment which has the capacity—(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers”) and requests comment on the functions a device must be able to perform to qualify as an autodialer, including how “automatic” the dialing mechanism must be. Additionally, the notice seeks comment on (i) how to treat reassigned wireless numbers under the TCPA; (ii) how a party may revoke prior express consent to receive robocalls; and (iii) three pending petitions for reconsideration, including the 2016 Broadnet Declaratory Ruling and the 2016 Federal Debt Collection Rules. Comments are due by June 13 and reply comments are due by June 28.

    On May 3, the U.S. Chamber of Commerce, the American Bankers Association, and over a dozen more trade associations petitioned the FCC seeking a declaratory ruling on the definition of an autodialer under the TCPA, previously covered by InfoBytes here.

    Federal Issues TCPA Consumer Finance FCC Agency Rule-Making & Guidance D.C. Circuit Appellate

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  • Maryland expands authority over credit reporting agencies

    State Issues

    On May 8, Maryland governor Larry Hogan signed HB848, which expands Maryland’s authority over Credit Reporting Agencies (CRAs) by requiring CRAs to develop a secure system to process electronic requests for placing, lifting, or removing a security freeze. Additionally, the law expands the definition of “protected consumer” for purposes of free security freezes to include persons age 85 or older, certain members of the military, and incarcerated individuals. The law also (i) codifies an existing requirement that CRAs register with the Office of the Commissioner of Financial Regulation (OCFR); (ii) allows the OCFR to investigate written consumer complaints against CRAs; and (iii) increases the maximum civil monetary penalty to $1,000 for the first violation and $2,500 for each subsequent violation. The law is effective October 1.

    State Issues Credit Reporting Agency Security Freeze Privacy/Cyber Risk & Data Security

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  • Supreme Court says states can legalize sports gambling


    On May 14, the U.S. Supreme Court held that the 1992 Professional and Amateur Sports Protection Act (PASPA), which, among other things, bans most states from authorizing sports gambling, violates the 10th Amendment “anticommandeering” principle. The decision results from a lawsuit filed by the National Collegiate Athletic Association (NCAA) and four major professional sports leagues alleging that a 2012 New Jersey state law legalizing sports betting violated PASPA. The district court and the U.S. Court of Appeals for the 3rd Circuit agreed with the NCAA and New Jersey revised the law in 2014. The new law removed existing bans on sports gambling at horseracing tracks, casinos, and gambling houses in Atlantic City as long as the wagers did not involve New Jersey college teams or a collegiate event in the state. The NCAA filed suit again and the district court, with the 3rd Circuit affirming, held that the revised law violated PASPA. New Jersey appealed to the Supreme Court, arguing that PASPA violates the “anticommandeering” principle of the Constitution.

    In a 7-2 vote, the Supreme Court reversed the lower court’s decision, holding that the PASPA provision, which prohibits state authorization of sports gambling, “unequivocally dictates what a state legislature may and may not do.” The Court rejected the NCAA’s argument that PASPA preempts, not commandeers, state laws that conflict with its provisions, concluding that preemption applies to private actors and the prohibition cannot be understood “as anything other than a direct command to the States.” The Court went on to hold that no provision of PASPA is severable from the anti-authorization provision and, therefore, the entire law should be struck down. The majority acknowledged that the legalization of sports gambling is an important, yet controversial, policy choice but not a choice for the Court to make. “Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own.”

    Courts U.S. Supreme Court State Issues

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  • Federal banking agencies seek comments on proposal to revise regulatory capital rules

    Agency Rule-Making & Guidance

    On May 14, the Federal Reserve Board, FDIC, and OCC published a joint notice and request for comment on a proposal to revise regulatory capital rules to, among other things, identify which credit loss allowances are “eligible for inclusion in regulatory capital” under changes made to U.S. generally accepted accounting principles (U.S. GAAP), described within Accounting Standards Update No. 2016-13 (ASU 2016-13). The proposed rulemaking would provide (i) banking organizations subject to the agencies’ regulatory capital rules with “the option to phase in the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard;” (ii) amendments to certain regulatory disclosure requirements to reflect applicable changes to U.S. GAAP covered under ASU 2016-13; (iii) amendments to stress testing regulations, which would grant covered banking organizations that have adopted ASU 2016-13 an extension until the 2020 stress test cycle to “include the effect of ASU 2016-13 on their provisioning for purposes of stress testing;” and (iv) conforming amendments to other regulations referencing credit loss allowances. Comments must be submitted by July 13.

    Agency Rule-Making & Guidance Federal Reserve FDIC OCC GAAP

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  • FHFA and the Enterprises release Language Access Plan

    Federal Issues

    On May 10, Fannie Mae and Freddie Mac (the Enterprises), in conjunction with the Federal Housing Finance Authority (FHFA), released a Language Access Multi-Year Plan (Plan), which identifies potential solutions for the obstacles faced by limited English proficiency (LEP) borrowers in accessing mortgage credit. The Plan was developed based on research and testing conducted in 2016 and 2017 to assist the Enterprises and FHFA in identifying the issues faced by LEP borrowers throughout the mortgage cycle. Key milestones for the Enterprises and FHFA for 2018 and beyond include (i) creating a clearinghouse with centralized resources, such as translated mortgage documents; (ii) establishing a language access working group; (iii) developing a disclosure that accompanies the Preferred Language Question on the Uniform Residential Loan Application (URLA) (previously covered by InfoBytes here); (iv) developing glossaries that include mortgage and real estate terms; (v) in addition to Spanish, translating the URLA into additional languages; and (vi) creating a language access line to provide consumers with assistance expeditiously.

    Federal Issues FHFA Fannie Mae Freddie Mac Mortgages URLA Language Access

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  • 11th Circuit holds national bank did not waive arbitration for unnamed plaintiffs


    On May 10, the U.S. Court of Appeals for the 11th Circuit held that a national bank did not waive its right to arbitration with respect to the unnamed plaintiffs in five class actions. The decision stems from multiple class action filings against that bank and over a dozen other banks in 2008 and 2009, alleging unlawful overdraft practices. In late 2009, the actions were consolidated and the bank filed answers to the five complaints, in each answer stating, “[a]bsent members of the putative classes have a contractual obligation to arbitrate any claims they have against [the bank].” The bank originally chose to not move for arbitration against the named class members, but after the Supreme Court decision in AT&T Mobility LLC v. Concepcion, the bank filed a motion to compel the named plaintiffs to arbitrate. The appellate court affirmed the district court’s denial of the motion. The bank then moved to compel arbitration against the unnamed class members, which the district court denied and the appellate court vacated, holding that the lower court lacked jurisdiction to rule on the arbitration obligations without a class certification. After the district court granted class certification, the bank moved to compel arbitration against the unnamed class members again and the district court denied the motion, holding that the bank “acted inconsistently with its arbitration rights” during the precertification litigation efforts.

    In vacating the district court’s decision, the appellate court concluded that the bank had not acted inconsistently with respect to the unnamed plaintiffs and had expressly stated it wished to preserve arbitration rights against those class members when the matter became ripe. The panel vacated the district court’s order and remanded for further proceedings.

    Courts Arbitration Eleventh Circuit Appellate Overdraft Class Action

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  • FinCEN issues ruling to clarify beneficial ownership requirements for premium finance cash refunds

    Financial Crimes

    On May 11, FinCEN issued a ruling to provide exceptive relief to covered financial institutions from the requirements to obtain and verify the identity of beneficial owners of legal entity customers at account opening to insurance premium finance lending products that allow for cash refunds. Although FinCEN’s regulations already exempted covered financial institutions from the requirements to identify and verify the identity of the beneficial owner of legal entity customers at account opening to the extent that the legal entity customer opens the account for the purpose of financing insurance premiums, the exemption does not apply if there is a possibility of cash refunds. However, because premium finance lenders typically process a significant number of cash refunds, and premium finance loans present a low risk for money laundering, FinCEN issued the ruling to provide for additional relief for premium finance loans offering cash refunds. A condition of the relief is that the cash “refunds are only remitted directly to the borrower or the borrower’s agent or broker.”

    Financial Crimes FinCEN Beneficial Ownership Bank Secrecy Act Anti-Money Laundering

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  • FFIEC releases customer due diligence and beneficial ownership examination procedures

    Financial Crimes

    On May 11, the Federal Financial Institutions Examination Council released updated examination procedures for FinCEN’s final rule, “Customer Due Diligence Requirements for Financial Institutions” (CDD rule). Compliance with the CDD rule became mandatory on  May 11. The updated customer due diligence exam procedures were developed in close collaboration with FinCEN and replace those in the current Bank Secrecy Act/Anti-Money Laundering Examination Manual. Additionally, a new set of exam procedures address the CDD rule’s beneficial ownership requirements.

    According to an OCC bulletin released the same day, the examination procedures reflect federal and state banking agencies’ “ongoing commitment to examine financial institutions for compliance with the Bank Secrecy Act . . . in accordance with uniform standards and principles.”

    See here for continuing InfoBytes coverage of the CDD rule.

    Financial Crimes FFIEC CDD Rule OCC FinCEN Beneficial Ownership

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