Case Update: Madden v. Midland Funding

​On May 22, 2015, the U.S. Court of Appeals for the Second Circuit held in Madden v. Midland Funding that the federal preemption provision of the National Bank Act, 12 U.S.C. § 85, could not be invoked by a non-national bank assignee.  Consequently, even though the debt in that case was procured from a national bank, the interest rate the non-bank assignee could charge was subject to state usury law scrutiny.

The Court's decision was informed by the policies underlying the National Bank Act.  The Act was designed to create uniform rules that limit the liability of national banks and prescribe exclusive remedies for their overcharges so as to protect them from unfriendly state legislation.  The Court explained that these purposes are not served in the case of a non-national bank assignee because invocation of state usury laws in that context would not interfere with the business of national banks.   The Court further explained that the national bank would still be able to sell the debt—it's just that the debt's exposure to state usury law could affect its market price.

We expect that Midland Funding will file a certiorari petition in the United States Supreme Court on November 10.  When filed, we will send a follow up.  For now, there are three quick points worth highlighting:

Read More.

CFTC Extends Time-Limited No-Action Relief for Swap Execution Facilities from Certain "Block Trade" Requirements

On November 2^nd, the U.S. Commodity Futures Trading Commission ("CFTC") extended no-action relief to Swap Execution Facilities ("SEFs")  from the "occurs away" requirement in the definition of "block trade" under CFTC regulation Section 43.2. The definition of "block trade" includes publicly reportable swap transactions that occur, "away from the registered [SEF's] or [Designated Contract Market's] trading system or platform and is executed pursuant to the registered [SEF's] or [Designated Contract Market's] rules and procedures". CFTC Letter 15-60 extends no-action relief from the "occurs away" requirement through November 15, 2016.  Press Release.  CFTC Letter 15-60.

Federal Reserve Announces Approval of Fee Schedules for Payment Services Provided to Depository Institutions

On November 3^rd, the Federal Reserve Board announced the approval of fee schedules for payment services the Federal Reserve Banks provide to depository institutions, effective January 1, 2016. The Federal Reserve Banks estimate the following increases: Check prices will increase an average of 0.5%, FedACH prices will increase an average of 6.5%, Fedwire Funds prices will increase an average of 5.8%, and FedLine prices will increase an average of 1.5%.  Press Release.

On November 2^nd, DBRS updated its rating methodology for Companies in the Gaming Industry.  Methodology.

On November 2^nd, DBRS updated its rating methodology for European Non-Performing Loans Securitizations.  Methodology.

On October 30^th, Moody's updated its rating methodology for Large Loan/Single Asset-Single Borrower CMBS.  Methodology.

On October 30^th, Moody's updated its rating methodology for SME Balance Sheet Securitizations.  Methodology.

On October 30^th, Moody's updated its rating methodology for Finance Companies.  Methodology.

On October 29^th, DBRS published its rating methodology for U.S. Collateralized Fund Obligations Backed by Private Equity.  Methodology.

Goldman Sachs Settles CDO Class Action 

On November 3, 2015, Goldman Sachs Group Inc. agreed to settle a lawsuit brought by a class of investors over Goldman's sale of two collateralized debt obligations.  The settlement agreement comes on the heels of a September 8, 2015 summary judgment decision for Goldman that we recently covered, which found that Plaintiffs had failed to show evidence that Goldman Sachs knew about the risks associated with the CDOs.  The settlement amount was not disclosed.  Settlement Announcement.

U.S. Supreme Court Denies S&P Investors' Petition for Certiorari

On November 2, 2015, the United States Supreme Court denied investors' petition for review of a Second Circuit decision affirming the dismissal of their class action against Standard & Poor's Rating Services' parent, McGraw-Hill Cos. Inc., and two of its corporate officers.  In that case, the plaintiff pension fund had made claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 15 of the Securities Act of 1933, alleging that S&P's Ratings Services had intentionally made false and misleading statements to investors about the accuracy of its credit ratings for mortgage-backed securities.  As we previously covered, the Second Circuit had affirmed a decision by Judge Sidney H. Stein of the Southern District of New York dismissing the suit and holding that S&P's ratings were "mere commercial puffery" and could not form the basis for a securities fraud claim.  In its certiorari request, Plaintiff argued that Judge Stein's and the Second Circuit's broad interpretation of "puffery" conflicted with Supreme Court precedent, Omnicare Inc. et al. v. Laborers District Council Construction Industry Pension Fund by holding that the alleged knowing falsity of S&P's statements is irrelevant.  Petition for Cert.  Order List.

EBA Announces Details of 2016 EU-Wide Stress Test

The European Banking Authority (EBA) published on November 5, 2015 its EU-wide stress test and draft methodology for discussion. The stress-test exercise to be carried out in 2016 will assess a sample of banks covering broadly 70% of the banking sector in the EU against a common macroeconomic baseline and adverse scenario. The objective will be to provide supervisors, banks and other market participants with a common analytical framework to compare and assess the resilience of the EU banking system to shocks.

Details of the stress test are set out in a press release published by the EBA, and the draft methodology note is also available for review.

EU Council Information Note on SFT Regulation

Following the first reading of the proposed Regulation on reporting and transparency of securities financing transactions (SFT Regulation) in the European Parliament, the Council of the EU has published a note setting out the proposals.

The Council's note explains what the policy makers aim to achieve through the new regulation and also sets out the outcomes of the Parliament's first reading, including discussion of proposed amendments to the regulation.

EIOPA Consultation Paper

On October 30, 2015 the European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the proposal for preparatory guidelines on product oversight and governance arrangements by insurance undertakings and insurance distributors.

The guidelines will be addressed to competent authorities and will provide support and guidance on how to proceed in the preparatory period leading up to the transposition of the Insurance Distribution Director (IDD).

The paper invites consultation responses – responses must be received by January 29, 2016.

BCBS Consultation Document on Haircut Floors

The Basel Committee on Banking Supervision (BCBS) has published a consultation document on haircut floors for non-centrally cleared securities financing transactions.

The report is published following a recommendation by the Financial Stability Board that the BCBS incorporate the haircut floors into capital requirements for non-centrally cleared SFTs by setting significantly higher capital requirements for transactions traded below the haircut floors.

The document welcomes consultation responses, and specifically asks whether the public sees any weakness in the proposals or any specific implementation challenges. Responses must be received by January 5, 2016.

The Investors' Conference on Marketplace Lending

On October 29, Orrick sponsored IMN's 1^st annual Investors' Conference on Marketplace Lending, which served to connect some of the industry's most dominant investors with the most established lending platforms while they delved into discussions on the securitization, legal and regulatory risks and investor issues.  Orrick partner, Bob Loeb, moderated a roundtable on legal and structural considerations in the Madden v. Midland Funding case.

Please click here to view all presentations from this conference.

Securitization Spotlight Session – GSE Credit Risk Transfer

On December 10, SIFMA will be hosting a collaborative panel discussion where experts will discuss the role credit risk transfers play in the current market, issues that hold back a more liquid market, as well as any future innovations that can be anticipated in this nascent asset class.

Date: December 10
Program: 3:00pm – 5:00pm EST
Reception: 5:00pm – 6:00pm EST
Location: SIFMA Conference Center

Speakers:

• Steven Abrahams, Managing Director, Deutsche Bank
• Howard Altarescu, Partner, Orrick
• Michael Brown, Managing Director, JPMorgan
• Kevin Chavers, Managing Director, Blackrock
• To Be Announced, Federal Housing Finance Agency (FHFA)

Please click here to register.