Financial Services Weekly News - June 2017 #4

by Goodwin


Editor's Note

Happy Independence Day. “The United States is the only country with a known birthday. All the rest began, they know not when, and grew into power, they know not how... There is no “Republican,” no “Democrat,” on the Fourth of July — all are Americans.” ~James Gillespie Blaine

Please note: The Roundup will be on hiatus next week due to the July 4 holiday. We will resume publication on July 12.

Regulatory Developments

SEC Announces New Leadership Changes

On June 20, the Securities and Exchange Commission (SEC) announced that Robert Evans III was named Deputy Director in the agency’s Division of Corporation Finance, joining Deputy Director Shelley Parratt as a senior adviser to the division’s director, William H. Hinman; Kelly L. Gibson was named the Associate Regional Director for Enforcement in the SEC’s Philadelphia Office; and Kathryn A. Pyszka was named an Associate Regional Director for Enforcement as a co-leader in the SEC’s Chicago Office. Robert Burson serves as the office’s other Associate Regional Director for Enforcement. Both report to David Glockner, the office’s Regional Director. On June 15, the SEC announced that Keith E. Cassidy was named Associate Director, Technology Controls Program, in the Office of Compliance Inspections and Examinations.

State Regulators Call for Regulatory Relief for Community Banks

Community banks need regulatory relief, according to Charles G. Cooper, Commissioner of the Texas Department of Banking, who testified on behalf of the Conference of State Bank Supervisors (CSBS) and its state banking regulator members at a hearing of the U.S. Senate Committee on Banking, Housing and Urban Affairs on June 22, 2017. The Commissioner observed a post-Dodd Frank uptick in consolidation among community banks, as well as a consolidation of assets among large banks. These trends, coupled with a lack of de novo institutions, are impacting competition, credit availability and small-business growth as the number of community banks shrinks. The Commissioner’s testimony criticized the effects of regulations that are “inappropriate” for the size, business model, or activities of community banks and “disproportionately burden” them. He also advocated reforms intended to alleviate the regulatory pressures community banks face, including:

  • Adoption of a uniform, activities-based definition for community banks, which would be paired with a process allowing institutions to petition their chartering authority for the community bank designation to account for both quantitative and qualitative factors;
  • Simplification of the revised Basel III capital regime designed for internationally active, complex organizations, and the regime’s treatment of certain activities, such as risk weightings for (and lack of definitional clarity of) high volatility commercial real estate and mortgage servicing assets;
  • Granting community banks relief from qualified-mortgage rules, especially for loans held in a community bank’s portfolio, and from Home Mortgage Disclosure Act (HMDA) reporting requirements under a tiered approach to HMDA, as well as similar data reporting requirements; and
  • Ensuring that state regulators and local communities are represented in the national policy development process.

The Commissioner also suggested ways to address the ongoing appraiser shortage in many areas of the country; encouraged the reevaluation of the use of the Herfindahl-Hirschman Index (HHI) in competitive analyses, since its reliance on deposits does not accurately consider the market-share of credit unions or a variety of non-depository competitors of community banks; supported changes to the Bank Service Company Act to expressly authorize state regulators to examine technology service providers; and requested clarity surrounding the models and methodologies used in federal consumer compliance examinations.

Treasury Seeks to Reshape Financial Services Regulatory Regime

As discussed in the June 14 edition of the Roundup, on June 12, the U.S. Department of the Treasury issued a 150-page report called for by President Trump’s Executive Order 13772 on Core Principles for Regulating the United States Financial System. The Report, entitled “A Financial System that Creates Economic Opportunities: Banks and Credit Unions,” is the first in a series of four reports requested by President Trump that will be focused on potential changes to the existing regulatory environment governing the financial industry. According to the Secretary of the Treasury, Steve Mnuchin, the Treasury focused its recommendation on ways to make changes to the federal regulatory system for depository institutions through executive financial agencies and executive orders; he estimated that only 20 percent of the report recommendations would require Congress to enact legislation. For additional information, view the LenderLaw Watch blog post.

Enforcement & Litigation

Client Alert: Supreme Court to Hear Challenge to State Court Jurisdiction Over 1933 Act Class Actions

The Supreme Court has agreed to decide whether the Securities Litigation Uniform Standards Act of 1998 abolishes state court jurisdiction over class action lawsuits that allege only claims under the Securities Act of 1933. The Court’s ultimate decision could have a significant impact on the future of securities class action litigation, as in recent years a substantial percentage of such cases have been filed in state court. The Court will receive briefing over the summer, hear argument in the fall, and likely render a decision on this issue in early 2018. An amicus brief supporting the defendants’ side would be due August 18, 2017, on the current schedule, but that time may be extended. For more information, view the client alert issued by Goodwin’s Securities and Shareholder Litigation Group.

Client Alert: Supreme Court Upholds Strict Time Limit for Securities Actions

On June 26, the Supreme Court issued a decision in the closely watched case of California Public Employees’ Retirement System v. ANZ Securities, Inc., holding that claims under Section 11 of the Securities Act of 1933 must be brought within three years of the securities’ public offering, even if the plaintiffs were previously members of a timely filed class action. In a 5-4 decision, the Court distinguished between statutes of limitations, which are designed to encourage plaintiff diligence and may be tolled for fairness reasons, and statutes of repose, which effect a legislative judgment that a defendant should be free from liability after the legislatively determined period of time and may not be tolled. The Court held that the 1933 Act’s statute of repose is not subject to tolling under the class-action tolling rule adopted by the Supreme Court in American Pipe Construction Co. v. Utah, and that putative class members who opt out and pursue individual claims must do so within three years of the securities’ offering to the public. The Court’s holding ensures that Section 13 of the 1933 Act and other statutes of repose will function as intended, providing defendants greater certainty about the scope of their potential liability. For more information, view the client alert issued by Goodwin’s Securities and Shareholder Litigation Group.

Client Alert: DOJ Reverses Stance and Urges Supreme Court to Enforce Class Action Waivers in Employment-Related Arbitration Agreements

The Department of Justice has reversed its stance and now urges the Supreme Court to enforce class action waivers in employment-related arbitration agreements. This increases the likelihood that the Supreme Court will side with the now employer-friendly DOJ when it resolves the split among the federal Courts of Appeals during its October 2017 term. In light of the DOJ’s reversal of position, some commentators have expressed the belief that the Supreme Court will resolve this dispute by enforcing class waivers. For more information, view the client alert issued by Goodwin’s Labor and Employment Practice.

For-Profit Student Loan Consolidator Reaches Consent Order with State of New Jersey

On June 16, the New Jersey Office of the Attorney General (New Jersey AG) and the New Jersey Division of Consumer Affairs announced a settlement with a for-profit student loan consolidation service that allegedly operated in the State of New Jersey without a debt-adjuster license. The New Jersey AG brought the action alleging a violation of the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq. In New Jersey, only certain nonprofit companies are permitted to act as debt adjusters under the Debt Adjustment and Credit Counseling Act, N.J.S.A. 17:16G-1 et seq. For-profit companies cannot obtain a license. View the Enforcement Watch blog post.



DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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