Appointments Clause Revisited. As we noted in a previous edition of the Roundup, Raymond Lucia was fined and barred from the industry by the Securities and Exchange Commission (SEC) for material misrepresentations to clients regarding, among other things, his investment strategy used to manage his clients’ money. Lucia had argued that the presiding administrative law judge (ALJ) was not appointed “by the President, head of a department or court of law” and was consequently in violation of the Appointments Clause, U.S. Const. Art. II, § 2, cl. 2. On April 23, the U.S. Supreme Court (SCOTUS) heard oral arguments in Lucia v. SEC, in which SCOTUS considered whether ALJs are “inferior officers” subject to the Appointments Clause. All eyes are on SCOTUS to see how they will rule in determining the constitutionality of the authority wielded by ALJs. Also this week, the SEC voted on standard of conduct proposals for broker-dealers and investment advisers; the Senate voted to overturn the Consumer Financial Protection Bureau’s (CFPB) indirect auto lending guidance; and the CFPB and the Office of the Comptroller of the Currency (OCC) settled with a national bank for $1 billion over its auto and mortgage lending practices. Recent developments are covered below.
Regulatory Developments
SEC Issues Standard of Conduct Proposals
On April 18, the SEC voted to propose a three-part regulatory package that includes: 1) a new regulation best interest that would prohibit broker-dealers from putting the financial or other interest of the broker-dealer ahead of the retail customer; 2) a new Form CRS which would require both investment advisers and broker-dealers to provide disclosure highlighting details about their services and fee structures; and 3) proposed interpretive guidance that would establish a federal fiduciary standard for investment advisers.
Client Alert: Recent Series of Regulatory Developments Regarding Implementation of the SEC’s Liquidity Rule and Related Requirements
The SEC and its staff recently have taken a series of regulatory actions regarding the implementation of the new liquidity rule, including (1) a proposal to amend certain reporting and disclosure requirements relating to the liquidity rule, (2) adoption of an interim final rule delaying by six months the compliance dates for certain elements of the liquidity rule, and (3) issuing responses to frequently asked questions which provide guidance on various interpretive and implementation issues under the liquidity rule. This alert summarizes the critical elements of the recent series of regulatory actions and is intended to serve as a reference for those who wish to review all of these various elements in a single document. For more information, read the client alert issued by Goodwin’s Investment Management practice.
Doug Scheidt to Leave SEC After 32 Years
On April 20, the SEC announced that Douglas Scheidt, an Associate Director and the Chief Counsel in the Division of Investment Management, will retire from the SEC at the end of September. Mr. Scheidt has led the Division’s Chief Counsel’s Office for over 21 years. Chairman Jay Clayton described Mr. Scheidt as an insightful and innovative leader.
Senate Votes to Overturn CFPB Indirect Auto Lending Guidance
On April 18, by a 51-47 vote, the U.S. Senate passed a resolution of disapproval (S.J. Res. 57) under the Congressional Review Act (CRA) relating to “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act.” The resolution of disapproval would invalidate the CFPB’s 2013 guidance on indirect auto lending, which imposed limits on how and what indirect lenders pay car dealers who provide financing and how much discretion dealers have to set loan terms and rates. The vote was made possible by a December 5, 2017, ruling by the Government Accountability Office (GAO) that the guidance constituted a rule for CRA purposes, which restarted the 60 legislative day period during which rules are subject to review and repeal under the CRA. The resolution of disapproval will now move to the House of Representatives for its consideration.
Enforcement & Litigation
CFPB and OCC Settle With National Bank for $1 Billion Over Auto and Mortgage Lending Practices
On April 20, the CFPB and the OCC each announced settlements totaling $1 billion with a national bank resulting from a coordinated action between the two agencies. The OCC found that deficiencies in the bank’s enterprise-wide compliance risk management program constituted reckless, unsafe, or unsound practices in violation of Section 5 of the Federal Trade Commission (FTC) Act. View the Enforcement Watch blog post.
Massachusetts Case Against Equifax Survives Motion to Dismiss
On April 2, the Superior Court of Suffolk County, Massachusetts denied Equifax, Inc.’s motion to dismiss the Commonwealth’s case against it related to the company’s widely publicized 2017 data breach. Although the ruling does not determine who will ultimately prevail in the action, it outlines several key considerations for any company that stores consumer data. View the LenderLaw Watch blog post.
