Financial Services Weekly News - May 2018 #3

by Goodwin


Editor's Note

In This Issue. The Consumer Financial Protection Bureau (CFPB) published its Spring 2018 rulemaking agenda; the U.S. Department of Housing and Urban Development (HUD) announced that it will seek public comments on whether its 2013 Disparate Impact Regulation is consistent with the 2015 U.S. Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.; the Financial Crimes Enforcement Network (FinCEN) issued an administrative ruling providing exceptive relief from the Beneficial Ownership Rule for financial institutions with respect to premium finance lending products; and the Department of Justice (DOJ) announced that it reached a voluntary settlement with a Minnesota bank, resolving allegations that the bank had violated the Fair Housing Act and the Equal Credit Opportunity Act by redlining minority neighborhoods around Minneapolis and St. Paul, Minnesota. These and other recent developments are covered below.

Regulatory Developments

CFPB Publishes Its Rulemaking Agenda

The CFPB has published its Spring 2018 rulemaking agenda setting forth its short- and long-term plans for the coming year. In anticipation of the appointment and confirmation of a permanent director, the CFPB has set the following priorities for the coming months: meeting specific statutory responsibilities; continuing selected rulemakings that are already underway; and reconsidering two regulations established under prior leadership. In addition, the CFPB has launched a “call for evidence,” seeking public feedback and information regarding CFPB-promulgated regulations and regulations inherited from other agencies. For the year, the CFPB is continuing to implement, and update as necessary, certain directives and mandates under the Dodd-Frank Act, including follow-up rulemaking on various mortgage requirements and implementation of section 1071 of the Dodd-Frank Act amending the Equal Credit Opportunity Act. Through ongoing research and pre-rulemaking activities, the CFPB is also preparing for a proposed rule on Fair Debt Collection Practices which will address issues regarding communication practices and consumer disclosures. Additionally, the CFPB will revisit and reconsider a 2015 final rule which amended regulations implementing the Home Mortgage Disclosure Act and the 2017 Payday, Vehicle Title, and Certain High-Cost Installment Loans rule, the latter of which will not require compliance until August 2019. Finally, the agenda provides a list of long-term actions of potential rulemakings and CFPB review of certain regulations, including a review of subparts B and G of Regulation Z, which implements the Truth in Lending Act with respect to open-end credit generally and credit cards in particular. The CFPB’s summary can be found on its website.

HUD to Seek Public Comment on Disparate Impact Regulation

On May 10, HUD announced its intention to seek public comment on whether its Discriminatory Effect Regulation (see 78 Fed. Reg. 11460 (Feb. 15, 2013)) is consistent with the U.S. Supreme Court’s ruling in Texas Dep’t of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507 (2015), which held that disparate impact claims are cognizable under the Fair Housing Act. HUD’s regulation establishes a burden-shifting framework for disparate impact claims, under which a plaintiff must first make a prima facie showing that facially neutral practices have had or will have discriminatory effects on a protected class of persons. The burden of proof then shifts to the defendant to prove that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests. Upon such a showing, the plaintiff may still prevail by demonstrating such interests could be served by a less discriminatory practice. HUD indicated that it will formally seek public comments “shortly.”

FinCEN Provides Exceptive Relief to Beneficial Ownership Reporting Requirements for Premium Finance Cash Refunds

On May 11, FinCEN issued an administrative ruling providing exceptive relief from the Beneficial Ownership Rule for financial institutions with respect to premium finance lending products that allow for cash refunds. FinCEN’s previous exceptive relief excluded products that allowed for cash refunds. Premium finance lenders provide short-term loans to help businesses cover their annual insurance premiums by making an advance payment, in full, directly to the insurance carrier. Some of these loan products allowed for the possibility of cash refunds. FinCEN had been concerned that providing cash refunds would increase the risk of using such products for money laundering. FinCEN’s new exception is based on its current understanding from financial institutions and law enforcement that the business practices surrounding such cash refunds limit risks related to money laundering. However, FinCEN may withdraw or modify its exceptive relief under any circumstances, particularly if FinCEN receives new or different information involving (1) the manner in which premium financing operates, (2) the risks of money laundering and terrorist financing associated with premium finance lending that incorporates the potential for cash refunds and, (3) the value of information that would otherwise be collected but for the existence of the exemption.

Federal Agencies Release Exam Procedures for New Beneficial Ownership Rule

On May 11, the Federal Financial Institutions Examination Council (FFIEC) released examination procedures based on the requirements of the final rule on Customer Due Diligence Requirements for Financial Institutions (CDD Rule), which was issued by FinCEN on May 11, 2016, and for which compliance became mandatory on May 11, 2018. The CDD Rule clarifies requirements related to customer due diligence and contains a new requirement for covered financial institutions to identify and verify the beneficial owners of certain legal entity customers. FFIEC released two sets of procedures: the Customer Due Diligence Overview and Examination Procedures, and the Beneficial Ownership Requirements for Legal Entity Customers Overview and Examination Procedures. The first replaces related procedures previously issued in 2014, while the second is new.

Diane Blizzard to Leave SEC After 18 Years of Service

On May 4, the Securities and Exchange Commission announced that Diane C. Blizzard, Associate Director of the agency’s Division of Investment Management, is planning to leave the agency at the end of May after 18 years of service. Ms. Blizzard has led the Division’s rulemaking offices in developing policy recommendations and rule changes under the federal securities laws affecting investment companies and investment advisers since 2012. Dalia Blass, Director of the Division of Investment Management, described Ms. Blizzard as a thoughtful and creative leader.

Enforcement & Litigation

DOJ Settles With Minnesota Bank Over Redlining Allegations

On May 8, the DOJ announced that it had reached a voluntary settlement with a family-owned Minnesota bank, resolving allegations that the bank had violated the Fair Housing Act, 42 U.S.C. §§ 3601 et seq. (FHA) and the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691 et seq. (ECOA) by redlining minority neighborhoods around Minneapolis and St. Paul, Minnesota. View the Enforcement Watch blog post.

Virginia AG Files Suit Against Online Lender Alleging Predatory Lending

On May 4, Virginia Attorney General Mark Herring announced that its Predatory Lending Unit had filed suit in Virginia state court against a Chicago-based online lender, alleging violations of the Virginia Consumer Protection Act, Virginia Code §§ 59.1-196 to 59.1-207 (VCPA). The complaint alleges that the lender, one of the largest online lenders in Virginia, operated without a Virginia license, and misled borrowers about its licensure status in another state in order to avoid Virginia’s 12% interest rate usury cap. Virginia Code § 6.2-303. View the Enforcement Watch blog post.

Webinar: What’s Happening Inside the CFPB and How It Impacts State Enforcement of Consumer Finance Laws

On May 8, Anthony Alexis, head of Goodwin’s Consumer Financial Services Enforcement practice and former Assistant Director and Head of the Office of Enforcement at the Consumer Financial Protection Bureau, and Kyle Tayman, partner in Goodwin’s Consumer Financial Services Enforcement practice, kicked off Goodwin’s State of Enforcement series with the webinar, “What’s Happening Inside the CFPB and How it Impacts State Enforcement of Consumer Finance Laws.” The live presentation covered changes at the CFPB under the Trump administration, the overt call to state attorneys general to pick up the enforcement mantle and the effect on consumer financial services participants. Click here to view the presentation slides. 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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