Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

The Consumer Financial Protection Bureau, or CFPB announced several ways that whistleblowers can alert the Bureau to potential violations of federal consumer financial laws.  But they are not offering huge rewards, like the SEC and CFTC whistleblower programs.

The whistleblower channels announced include an email address, and a toll free “tips hotline.”   Early next year, the Bureau plans to introduce an online tips portal accessible through its website. People who submit tips through any of these channels may request confidentiality or even remain anonymous to the extent permitted by law, although providing contact information may assist the Bureau in investigating and remediating potential violations of federal consumer financial laws.

The Dodd-Frank Wall Street Reform and Consumer Financial Protection Act provides certain anti-retaliation protections for employees of providers of consumer financial products and services who share information regarding potential violations. Employees protected by the statute may not be terminated or discriminated against for:

  • providing information to the employer, the Bureau, or any other state, local, or federal government authority or law enforcement agency relating to a violation of federal consumer financial law;
  • testifying about a potential violation;
  • filing any lawsuit or other proceeding under any federal consumer financial law; or
  • objecting to or refusing to participate in violations of federal consumer financial laws.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

 

The Dodd-Frank Act created the  Office of Fair Lending & Equal Opportunity, part of  the Consumer Financial Protection Bureau, or CFPB, to address credit discrimination.  Congress also gave the CFPB authority over two key federal fair lending statutes. The CFPB has authority over the Equal Credit Opportunity Act, which prohibits discrimination against applicants in any type of credit transaction. This includes mortgages, car loans, student loans, and credit cards. The CFPB also has authority over the Home Mortgage Disclosure Act, which requires lenders to report mortgage data to allow for better fair lending enforcement.

The Office will play a lead role in the Bureau’s efforts to ensure fair, equitable, and nondiscriminatory access to credit for both individuals and communities.  According to the CFPB, the Office has the following tools to enforce relevant statutes:

  • Review lenders’ policies, procedures, and lending activity to detect and address potential discriminatory practices.
  • Bring enforcement actions to stop discriminatory practices and remedy harm to consumers.
  • Develop new policies, including rules about loan data collection required by Congress. These data will help ensure that lenders make credit available in a fair and non-discriminatory manner.
  • Partner with private industry and fair lending, civil rights, consumer, and community advocates to promote fair lending compliance and education.
  • Help ensure that consumers have the tools they need to make sound financial decisions and protect themselves from discriminatory practices.
  • Assist in reviewing consumer complaints of unlawful discrimination. We can also review complaint patterns for early warnings about troubling lending practices. This data will help us in our supervision, enforcement, rule writing, and education efforts.
  • Conduct research and analysis on equitable access to credit. This will include analyzing data collected under Federal regulations.
  • Work with the Department of Justice, Department of Housing and Urban Development, Federal Trade Commission, and other federal and state agencies to make sure that our fair lending enforcement efforts are consistent, efficient, and effective.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

 

The FDIC is proposing a rule that provides for the treatment of a mutual insurance holding company as an insurance company for the purpose of Section 203(e) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The proposed rule clarifies that the liquidation and rehabilitation of a covered financial company that is a mutual insurance holding company will be conducted in the same manner as an insurance company. The proposed rule is intended to harmonize the treatment of mutual insurance holding companies under Section 203(e) of the Dodd-Frank Act with the treatment of such companies under state insolvency regimes.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The MSRB has announced that the SEC is seeking additional time to consider its proposal regarding the duties of underwriters to state and local government issuers under the MSRB’s “fair dealing” rule. The proposal would for the first time establish detailed obligations of underwriters of municipal securities to their state and local government clients regarding clear disclosure of risks and conflicts of interest, among other things.

The proposal is a key piece of the MSRB’s rulemaking initiatives to protect issuers in the municipal market, which is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Our analysis on the original proposal and related amendments  can be found here.

The proposal was published in the Federal Register on September 9, 2011, and an amendment to the proposal was published on November 21, 2011. Under federal law, the SEC had 90 days from September 9 to approve or disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change. The 90-day period ended December 8, 2011.

On December 9, 2011, the SEC published a notice and order to institute proceedings pursuant to Section 19(b)(2)(B) of the Securities Exchange Act to determine whether to approve or disapprove the MSRB’s proposed rule change. In its notice, the SEC said that the institution of the proceedings does not indicate it has reached any conclusions with respect to the proposed rule change, or that it will ultimately disapprove the proposed rule change. The SEC is however seeking additional input from interested parties on the issues presented by the proposed MSRB rule change.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

Neil Wolin, Deputy Treasury Secretary, recently addressed the status of the Federal Insurance Office, or FIO, at a recent conference sponsored by the FIO.

Mr. Wolin noted that before the Dodd-Frank Act was passed, the Federal government had no central repository for comprehensive insurance expertise. He also added that “Dodd-Frank fixed this glaring omission so that, through FIO, we will have the institutional capability to develop and coordinate insurance policy at the federal level more effectively than in the past.”

Mr. Wolin said the office is responsible for, among other things:

• Monitoring the insurance industry, identifying gaps in regulation, and participating in the Financial Stability Oversight Council – all to help ensure stability in the insurance industry and the broader financial system;

• Developing and coordinating federal policy on prudential aspects of international insurance matters;

• Evaluating the accessibility and affordability of insurance products for low- and middle-income Americans; and

• Advising the Secretary of the Treasury on insurance issues.

Mr. Wolin made clear that regulating the insurance industry is not one of FIO’s responsibilities. Nothing in the Dodd-Frank Act alters the fact that insurance is fundamentally regulated by the states.

As to activities of the FIO, Mr. Wolin spoke about:

  •  FIO recently became a full member of the International Association of Insurance Supervisors (IAIS), which is currently working to designate globally significant insurers and develop a framework for supervising of internationally active insurance groups.
  •  FIO’s advisory body, the Federal Advisory Committee on Insurance, has also been established. Last month, FIO announced the appointment of 15 insurance experts.
  •  FIO will report to Congress in January 2012 on how to improve and modernize the United States’ system of insurance regulation.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The Bureau of Consumer Financial Protection, or CFPB, is requesting comment on a proposed Policy Statement  that addresses the CFPB’s proactive disclosure of credit card complaint data. The CFPB receives credit card complaints from consumers under the terms of the Consumer Financial Protection Act of 2010. The proposed Policy Statement sets forth the CFPB’s proposed initial disclosure of credit card complaint data. It also identifies additional ways that the CFPB may disclose credit card complaint data but as to which the CFPB will conduct further study before finalizing its position. The proposed Policy Statement does not address complaint data about any other consumer financial product or service.

The proposed Policy Statement does not contemplate the disclosure of confidential consumer complaint information. Under the proposed Policy Statement, the CFPB would not disclose information contained in consumer credit card complaints (and responses to such complaints) that is exempt from disclosure under the FOIA. The CFPB will not publish the name, full address, or credit card account number associated with any given credit card complaint. In addition, the CFPB’s policy will be not to publish credit card complaint information that could enable the consumer to be identified by any party other than the issuer of the credit card in question. Further, the CFPB will not disclose confidential and proprietary business information that issuers provide in response to complaints. Because of these limitations, the CFPB’s proposed publication of consumer complaint information pursuant to the Policy Statement does not rely upon any of the exceptions to the general prohibition on disclosure of confidential consumer complaint information.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The Fed, the FDIC and the OCC have announced they are seeking comment on a notice of proposed rulemaking, or NPR, that would amend an earlier NPR announced in December 2010. The initial NPR proposed modifications to the agencies’ market risk capital rules for banking organizations with significant trading activities.

The amended NPR includes alternative standards of creditworthiness to be used in place of credit ratings to determine the capital requirements for certain debt and securitization positions covered by the market risk capital rules. The proposed creditworthiness standards include the use of country risk classifications published by the Organization for Economic Cooperation and Development for sovereign positions, company-specific financial information and stock market volatility for corporate debt positions, and a supervisory formula for securitization positions.

The earlier NPR was based largely on the revisions to the market risk framework published by the Basel Committee on Banking Supervision since 2005. However, it did not include aspects of the Basel Committee revisions that rely on credit ratings. Under the Dodd-Frank Act, all federal agencies must remove references to, and requirements of, reliance on credit ratings from their regulations and replace them with appropriate alternatives for evaluating creditworthiness. The agencies believe that the capital requirements resulting from the implementation of these alternative standards would be generally consistent with the standards in the Basel Committee’s revisions.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The Consumer Financial Protection Bureau, or CFPB, has published a prototype credit card agreement. It is important to note that it is not a model form, and use is not mandatory. The CFPB believes its approach will help consumers better understand their credit card agreements.

The prototype credit card agreement separates important information about prices, risks, and terms from the legalese by taking much of the legal language and moving it into standard definitions. In the prototype, the definitions have been formulated by the CFPB based on standard industry usage and practices. To ensure that consumers can easily find these definitions, they will be housed online in a place where consumers can readily access them. For consumers who do not have Internet access, the definitions will be available from their issuer in printed form. Doing this allows for a plain language document that clearly explains to consumers how the credit card works.

The CFPB’s simplified agreement is intended to serve as a thought starter. The Bureau is testing the prototype with the Pentagon Federal Credit Union, which has more than one million member customers – including roughly 350,000 cardholders. The CFPB plans to continue to work with the Pentagon Federal Credit Union and other card issuers interested in making simplified credit card agreements an industry reality. The consumer agency is also inviting the public to weigh in on the prototype on its website.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The Financial Stability Oversight Council, established pursuant to the Dodd-Frank Act, has recently held executive sessions to discuss a couple of high profile topics:

  • On October 31, 2011, FSOC convened by teleconference to discuss developments regarding MF Global. Members of the Council provided oral reports. No votes were taken during the meeting.  The meeting lasted approximately ½ hour.  Ben Bernanke was absent.
  • On November 11, 2011, FSOC convened by teleconference to discuss European market developments. No votes were taken during the meeting.  The meeting lasted approximately ½ hour.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The CFTC has approved a final rule on investment of customer funds in the wake of the MF Global bankruptcy.  Interestingly, the CFTC repeatedly cites the MF Global comment letter on the proposed rulemaking.

The Commodity Exchange Act in section 4d(a)(2) prescribes that customer funds can only be placed in a set list of permitted investments. From 2000 to 2005, the Commission granted exemptions to this list, loosening the rules for the investment of customer funds. These exemptions allowed futures commission merchants, or FCMs, to invest customer funds in AAA-rated sovereign debt, as well as to lend customer money to another side of the firm through repurchase agreements.

The new regulations seek to simplify Regulation 1.25 and impose requirements that can better mitigate credit, liquidity and market risk and ensure the preservation of principal and maintenance of liquidity. The CFTC has:

  • narrowed the scope of investment choices;
  • raised certain standards imposed on permitted investments individually and on a portfolio basis; and
  • increased safety by promoting diversification.

More specifically, the new rule:

  • eliminates foreign sovereign debt as a permitted investment;
  • eliminates in-house transactions and repurchase agreements with affiliates. Repurchase agreements with third-parties are still allowed, subject to a 25% counterparty concentration limit; and
  • fulfills a Dodd-Frank requirement that the CFTC remove all reliance on credit ratings from its regulations.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.