THE BIG PICTURE
The national conversation this week has revolved around shocking racially-charged protests that erupted in Charlottesville the weekend of August 12. White nationalist protestors came to protest the removal of a statue of Confederate General Robert E. Lee, and counter-protestors were present to support the removal of the statue. Violence ensued, and one woman was killed when a car drove into a crowd of counter-protestors.
In the financial world, some financial companies are facing pressure to disrupt the financial operations of white supremacist and neo-Nazi groups. One group, Color of Change, has called on payment processors to discontinue processing transactions from about 100 of what it identifies as the most violent and extreme organizations. However, there are practical and legal limits as to how much these financial institutions can do.
More Terror in Barcelona: On the afternoon of August 17, a van drove down a pedestrian avenue in Las Ramblas, a town south of Barcelona, targeting people and weaving from side to side. Thirteen people died in the attack. On the morning of August 18, seven people were killed in Cambrils, a seaside resort southwest of Barcelona, when a car drove into a crowd. One American was killed in the Barcelona terror attacks.
Federal Housing Finance Agency (FHFA) Extends Home Affordable Refinance Program (HARP):
In an announcement regarding modifications to high loan-to-value streamlined refinance program, Federal Housing Finance Agency said that the agency is extending the Home Affordable Refinance Program to December 31, 2018. HARP was established in 2009 in partial response to the financial crisis. More than 3.4 million homeowners have refinanced their mortgages through the program.
Justice Department Ending “Operation Choke Point”: The Department of Justice has indicated that it will terminate controversial program “Operation Choke Point.” In a letter to House Judiciary Chairman Bob Goodlatte (R-VA), Assistant Attorney General Stephen Boyd wrote that Operation Choke Point was a “misguided initiative.” “Operation Choke Point” is an Obama-era program which aimed to block some businesses, such as firearms dealers and payday lenders, from accessing bank loans. In his letter, Boyd stated “We share your view that law abiding businesses should not be targeted simply for operating in an industry that a particular administration might disfavor.”
Consumer Financial Protection Bureau (CFPB) Finds Percentage of Borrowers with $20K in Student Debt Doubled Over Last Decade:
On August 16, the Consumer Financial Protection Bureau released a new data point finding that nearly half of student loan borrowers leave school owing at least $20,000 – double the share of borrowers a decade ago. The Bureau also found that more borrowers are taking out student loans later in life, and fewer borrowers are paying down their student debt in five years. Record student debt and associated borrower stress is spurring more employers to offer student loan repayment benefits to their employees, according to a separate CFPB report.
CFPB and States Settle Predatory Lending Case: The CFPB and about a dozen state attorneys general have settled a case with Aequitas Capital Management, a private equity firm that operated a predatory lending scheme in connection with Corinthian Colleges. At issue is the private loan debt of tens of thousands of students who attended now-defunct Corinthian Colleges.
Securities and Exchange Commission (SEC) Issues Guidance on Confidential IPOs: On August 17, the SEC clarified how companies can submit interim financial statements in confidentially-filed IPOs. The agency said that companies submitting confidential IPOs and planning to submit interim financial statements for a year that is not yet finished can postpone providing the interim financial statement if the financials are expected to be updated by the time the company files its registration statement. This is part of the agency’s overall effort to encourage more IPOs and ease burdens on issuers.
Regulators Make Changes to Capital Accounting for Some Derivatives:
The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) on August 14 issued interagency guidance on the regulatory capital treatment of certain centrally cleared derivative contracts in light of recent changes to the rulebooks of certain central counterparties. The variation margin for certain centrally cleared derivative contracts and netting sets of centrally cleared derivative contracts is now considered a settlement payment, rather than collateral, for the exposure that arises from marking the cleared derivative contracts to fair value (settled-to-market contracts). FDIC Vice Chairman Tom Hoenig criticized the move, saying that it may have “negative and unintended consequences.”
National Credit Union Administration (NCUA) Lays out Sweeping Regulatory Reform:
The National Credit Union Administration is inviting credit union stakeholders to read and comment on a package of regulatory reforms recommended by an internal agency task force. The task force has recommended changes that would be adopted in the coming four years to clarify, improve, revise, or eliminate regulations. The NCUA Board approved posting the proposal in the Federal Register for a 90-day comment period, and a copy of that notice is available on the agency’s website.
Public Citizen Calls on SEC to Ban Forced Arbitration Clauses:
Liberal-leaning advocacy group Public Citizen called on the SEC in an August 14 letter to immediately begin the process of prohibiting the use of forced arbitration clauses by entities governed by the SEC. The group said it was “greatly distressed” by comments made last month by SEC Commissioner Michael Piwowar that supported arbitration clauses. This is a timely issue in light of the CFPB’s recent rule banning mandatory arbitration clauses in consumer financial contracts.
FDIC Sues European Banks Over Libor-Rigging Scandal: After parts of a similar New York lawsuit failed, the FDIC has sued European banks in a London court over the Libor-rigging scandal. The FDIC is suing for fraudulent misrepresentation claiming the banks submitted artificially low estimates to the Libor rate-setting process from 2007 to 2009. This practice, known as “lowballing”, made banks appear to be more creditworthy than they actually were.
NOMINATIONS, COMINGS AND GOINGS AT THE AGENCIES
SEC Will Begin Replacing Public Company Accounting Oversight Board (PCOAB) Members: According to Chairman James Doty, PCOAB will begin replacing members whose terms have expired. Of the five seats on the Board, one is vacant, two have expired terms, and one has a term that will expire in October.
OTHER NOTEWORTHY ITEMS
States Developing Regulatory Structure for Fintech: In light of the proposed federal fintech charter, some states are considering ways to create a single regulatory structure for fintech companies. According to the Bryan Schneider of the Illinois Department of Financial and Professional Regulation, the goal is “uniformity across the United States.” Schneider said that “it’s not exactly creating a new license type or a new charter. But it’s harmonizing the regulatory requirements while still recognizing the sovereignty of each individual state.”
Paul Hastings’ Government Relations team is monitoring these issues. We help our clients craft strategies to address federal legislative and regulatory matters. Please reach out to us if your organization needs assistance with congressional or regulatory relations.