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MoFo Reenforcement

The Enforcement Blog

Federal Banking Agencies Signal Enhanced Cyber Standards

Posted in Privacy, Regulatory Developments

On October 19, 2016, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the OCC (collectively, the Agencies) released an Advanced Notice of Proposed Rulemaking (ANPR) laying out a framework for enhanced cyber risk management standards that the Agencies are considering requiring of certain “large and interconnected” financial institutions.  The Agencies have not yet proposed specific standards in a formal proposed rule.  Instead, the Agencies have laid out a framework that they are considering and have requested comment on a series of questions that will inform a later, more specific proposal.

Read our client alert.

EVENT: Financing FinTech: Prepaid Accounts

Posted in Events, Regulatory Developments

Thursday, October 27, 2016
5:00 p.m. – 5:45 p.m. EDT

Join us for one of our upcoming monthly telephone briefings led by members of our FinTech team:

The CFPB announced final rules on October 5 concerning prepaid accounts under the Electronic Fund Transfer Act (Regulation E) and the Truth In Lending Act (Regulation Z). The final rules include disclosure requirements and substantive limitations on prepaid cards as well as new requirements for overdraft service on prepaid cards. The new rules apply broadly to prepaid cards, including certain mobile wallets, P2P platforms, reloadable prepaid cards, payroll cards and cards used to deposit certain government benefits. Online accounts used to store money electronically will also be covered.

This call will be an operator-assisted call of approximately 45 minutes in duration, and will be followed by a brief Q&A opportunity. We also invite you to submit questions before the start of the call. A replay will be available upon request.

In order to RSVP for the October call, and to submit questions, please email tstarer@mofo.com.

Alphabet Soup?

Posted in Regulatory Developments

Several years have now passed since the financial crisis and the onslaught of regulations intended to prevent a future crisis. Regulatory reform has assuredly resulted in significant changes to our financial services sector. Regulatory reform also brought with it an alphabet soup of acronyms and terms with which we all have had to become familiar.

We recently published the newest edition of our Financial Services Glossary, which is intended to serve as a helpful reference source that identifies and explains frequently used terms and acronyms.

Read our Financial Services Glossary.

To request copies for you and your colleagues, please e-mail tstarer@mofo.com.

CFPB Hit by Major Setback in D.C. Circuit

Posted in CFPB, Mortgage

In a decision eagerly awaited by the financial services industry, the D.C. Circuit this week handed the CFPB a major defeat, throwing out a mortgage lender’s $109 million disgorgement remedy on constitutional, statutory, and administrative-law grounds. See PHH Corp. v. CFPB. This may not be the last chapter in the story, however, as it is likely that the government will seek further review.

Read our client alert.

D.C. Circuit Rules CFPB Unconstitutional, and Wrong on RESPA

Posted in CFPB, Mortgage

The D.C. Circuit held today that the single-director structure of the CFPB violates Article II of the United States Constitution, and added important substantive rulings on the Real Estate Settlement Procedures Act (RESPA).

The issue presented in PHH Corp. v. Consumer Financial Protection Bureau, Case No. 15-1177 (Oct. 11, 2016), was “Whether, under Article II of the Constitution, Congress can create an independent agency headed by a single director, removable by the President only for cause.” The opinion, authorized by Circuit Judge Kavanaugh, began with emphasizing the “grave threat to individual liberty” that “[t]he U.S. Government’s executive power to enforce federal law against private citizens” can represent. Discussing the long history of separation of powers, the Court went on, “no independent agency exercising substantial executive authority has ever been headed by a single person. Until now.”

The Court ultimately held that “This new agency, the CFPB, lacks [a] critical check” that a multi-member structure would provide, “yet wields vast power over the U.S. economy,” adding, “So ‘this wolf comes as a wolf.’” (Quoting Morrison v. Olson, 487 U.S. at 699 (Scalia, J., dissenting).) In other words, the Court held that “the CFPB is unconstitutionally structured.”

This does not mean that the Court agreed that the CFPB should be shut down, however. Instead, the Court held that “Supreme Court precedent dictates another remedy”: severing a problematic provision permitting removal of the director only for cause, from the rest of the statute. With that provision excised, the Court held that “the President now will have the power to remove the Director at will, and to supervise and direct the Director. The CFPB therefore will continue to operate and to perform its many duties, but will do so as an executive agency akin to other executive agencies headed by a single person.”

Finally, the Court agreed with PHH’s substantive arguments about RESPA:

(1) “Section 8 of the Act allows captive reinsurance arrangements so long as the amount paid by the mortgage insurer for the reinsurance does not exceed the reasonable market value of the reinsurance”;

(2) “the CFPB departed from the consistent prior interpretations issued by the Department of Housing and Urban Development, and that the CFPB then retroactively applied its new interpretation of the Act against PHH, thereby violating PHH’s due process rights,” thereby “violat[ing] bedrock principles of due process”; and

(3) “a three-year statute of limitations applies to all CFPB enforcement actions to enforce Section 8, whether brought in court or administratively.”

Stay tuned for our client alert discussing in detail the case and its impact.

CFPB Forgoes Traditional Rulemaking Process in Announcing that the Equal Credit Opportunity Act and Regulation B Prohibit Discrimination Based on Gender Identity and Sexual Orientation

Posted in CFPB, Fair Lending, Regulatory Developments

Richard Cordray, director of the CFPB, issued a  letter dated August 30, 2016 (“Cordray Letter”), expressing the CFPB’s views on whether credit discrimination on the basis of gender identity and sexual orientation violates the Equal Credit Opportunity Act (ECOA) and Regulation B. The Cordray Letter was issued in response to an inquiry from Services & Advocacy for GLBT Elders (“SAGE”). Specifically, the Cordray Letter addresses whether discrimination on the basis of an applicant’s sex under the ECOA and Regulation B includes discrimination based on gender identity and sexual orientation, including discrimination based on “actual or perceived nonconformity” with gender-based stereotypes. The Cordray Letter concludes that the ECOA and Regulation B prohibit such actions.

Read our client alert.

CFPB Finalizes Sweeping Prepaid Account Rule

Posted in CFPB, Credit Cards, Regulatory Developments

On October 5, 2016, the CFPB issued its long-awaited final rule to further regulate prepaid card products, or “prepaid accounts” (the “Final Rule” or “Rule”). This alert identifies key provisions of the Final Rule addressing scope, disclosures, error resolution and liability, and provisions regarding so-called “hybrid credit-prepaid cards.” The Rule generally takes effect on October 1, 2017.

Read our client alert.

CFPB and California Announce Enforcement Actions Against Online Lender

Posted in CFPB, Enforcement Actions

On Tuesday, September 27, 2016, the CFPB and the California Department of Business Oversight (“DBO”) announced separate enforcement actions against Flurish, Inc., an online lender that does business as “LendUp” in California and two dozen other states. LendUp agreed to pay, collectively, $3.43 million in restitution to consumers and $2.8 million in civil money penalties to the CFPB and California DBO.  Read More

NY Department of Financial Services Issues Significant Cybersecurity Proposal

Posted in Privacy, Regulatory Developments

On September 13, 2016, the New York State Department of Financial Services (NYDFS) proposed cybersecurity rules that, if finalized in their current form, would create one of the most comprehensive, detailed and onerous cybersecurity standards in the country. While the proposed rules would apply only to financial institutions subject to the NYDFS’s authority under New York law, this proposal is important for all companies. It highlights a trend that legislatures and regulators are revisiting decades-old approaches to cybersecurity and considering alternatives that would shift from a risk-based paradigm to a prescriptive approach. The NYDFS in particular has made great efforts to “spark additional dialogue, collaboration and, ultimately, regulatory convergence among” federal and state financial regulators on comprehensive cybersecurity standards for all financial institutions. In light of the significant role that New York plays in this country’s financial markets and NYDFS’s role as regulator for many financial institutions based in New York, this proposal comes with a level of credibility that could influence the broader, national dialogue and consideration of what cybersecurity standards are appropriate, even if NYDFS does not have unique expertise with respect to cybersecurity. If it does, consideration and monitoring of this proposal is important for all companies.

Read our client alert.

HUD Releases New Guidance on Limited English Proficiency Discrimination Under the Fair Housing Act

Posted in Disparate Impact, Fair Lending, Mortgage

On September 15, 2016, the U.S. Department of Housing and Urban Development issued guidance on how the nondiscrimination provisions in the Fair Housing Act apply to persons who consider an individual’s “Limited English Proficiency,” or limited ability to speak, read, write, or understand English, in housing transactions. The “Office of General Counsel Guidance on Fair Housing Act Protections for Persons with Limited English Proficiency” (the Guidance) addresses liability for both intentional discrimination and practices that have a disparate impact. While the primary focus is potential discrimination in renting a dwelling, the Guidance also discusses mortgage loan transactions.

Read our client alert.