A New Argument for Financial Regulatory Reform. Over the past several weeks, there has been a steady stream of pessimistic views on the prospects for meaningful financial regulatory reform. Senate Banking Committee Chairman Crapo has called the political environment in the Senate “toxic.” Ranking Minority Member Brown told the ABA Governmental Affairs Conference that a wholesale rollback of Dodd-Frank “is not going to happen.” Senator Toomey indicated that “informal regulatory actions” may need to be targeted to accomplish financial regulatory reform. Furthermore, the House’s failure to pass a health care reform bill has cast doubt on the ability of Republicans to pass major Dodd-Frank reforms over Democratic opposition. In short, apart from some form of regulatory relief for community banks and raising the threshold to be considered a systemically important financial institution to a number greater than $50 billion in assets, there seems to be little bipartisan agreement on whether financial regulatory reform is needed and what it should look like. With major legislation looking unlikely and Congress’ ability to use the Congressional Review Act to repeal regulations implemented during the Obama administration expiring, it appears that meaningful financial regulatory reform may have to be accomplished through avenues such as regulatory review and repeal, personnel changes at the federal banking agencies, and changes in how the Department of Justice approaches important financial services litigation. However, despite setbacks in Congress, the president and industry leaders have not only demonstrated a willingness to continue to push for financial regulatory reform but have focused on a new, potentially more compelling argument in favor of such reform. On April 4, in remarks at a CEO Town Hall on Unleashing American Business held at the White House, President Trump again emphasized the need to reform the Dodd-Frank Act, promising a “very major haircut on Dodd-Frank” so that “the banks can loan money to people that need it.” Similarly, JPMorgan Chase Chairman and Chief Executive Officer Jamie Dimon said in his annual letter to shareholders that it is “appropriate to open up the rulebook in the light of day and rework the rules and regulations that don’t work well or are unnecessary” and that “changes can and should be made that preserve the safety and soundness of the financial system and lead to a more healthy and vibrant economy for the benefit of all.” M&T Bancorp Chairman and CEO Robert Wilmers, also in his annual letter to shareholders, provided details on the cost, financial and otherwise, of Dodd-Frank’s regulations on regional banks and the availability of credit to small businesses, stating that it is “very much uncertain whether the benefits of the ever-growing volume of regulation outweigh its drag on economic growth.” The comments by President Trump, Mr. Dimon and Mr. Wilmers share one important common element: none of the three are making the old ideological argument in favor of financial regulatory reform. Rather, all three are making the case that financial regulatory reform is not only desirable, but necessary in order to foster economic growth and create jobs. At a time when the partisan divide in Washington is as wide as it has ever been, it remains to be seen whether the emphasis on the economy over ideology can help bring about meaningful financial regulatory reform.
Regulatory Developments
CFPB Begins Mortgage Rule Check-In
The five-year anniversary of some of the major financial regulations passed by the Consumer Financial Protection Bureau (CFPB) is coming up in January 2018, meaning that such regulations will soon undergo a review to check on their effectiveness. The Dodd-Frank Act requires the CFPB to review its rules five years after their effective date to make sure that the rules operate as the CFPB intended and that they are not having an undue burden on the entities they seek to regulate. Some major rules related to mortgages, including the Ability-to-Repay Rule and other rules regulating the servicing industry, were implemented in January 2013 and will be included in the review. Chris D’Angelo, the CFPB’s Associate Director for Supervision, Enforcement and Fair Lending, recently spoke at the American Bankers Association’s Government Relations Summit and indicated that, although the actual five-year anniversary of these rules is still several months away, the CFPB plans to get started on its review soon. View the LenderLaw Watch blog post.
CFPB’s Monthly Complaint Report Spotlights Debt Collection Issues, Trends In Credit Card Complaints
On March 28, the CFPB released Volume 21 of its Monthly Complaint Report (the Report). The purpose of the Report is, in part, to educate consumers and financial institutions on major consumer issues—which it does by providing a high-level analysis of trends in consumer complaints, focusing on one or two product areas each month. The analysis is based on complaints received by the CFPB in its Consumer Complaint Database, which tracks complaints filed by consumers through the CFPB and also has a search functionality allowing users to quantify complaint trends. It behooves financial companies to keep apprised of these trends, as they signal areas that may undergo increased scrutiny by the CFPB. The Report details its findings primarily by establishing a three-month rolling average—in this case, December 2016 through February 2017—and comparing it with the same period in the prior year. View the LenderLaw Watch blog post.
SEC Approves Rules Relating to Financial Exploitation of Seniors
The SEC approved: (1) the adoption of new FINRA Rule 2165 (Financial Exploitation of Specified Adults) to permit members to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief of financial exploitation of these customers; and (2) amendments to FINRA Rule 4512 (Customer Account Information) to require members to make reasonable efforts to obtain the name of, and contact information for, a trusted contact person for a customer’s account. New Rule 2165 and the amendments to Rule 4512 become effective February 5, 2018.
Enforcement & Litigation
High Court Says NY Credit Card Disclosures Regulate Speech
On March 29, in Expressions Hair Design v. Schneiderman, the Supreme Court remanded a case to the Second Circuit Court of Appeals (Second Circuit) to determine whether a New York law that restricts the disclosures retailers can make to customers about credit card surcharges violated the retailers’ First Amendment rights. Petitioners, five New York businesses and their owners who wish to impose surcharges for credit card use, filed suit against state officials, arguing that §518 of the New York General Business Law violates their First Amendment rights by regulating how they communicate their prices. The District Court had ruled in favor of the merchants, but the Second Circuit vacated the judgment with instructions to dismiss on the grounds that §518 regulated conduct and not speech. On appeal, the Supreme Court ruled that, in regulating the communication of prices rather than prices themselves, §518 regulates speech and ordered the Second Circuit, on remand, to determine whether §518 survives First Amendment scrutiny as a speech regulation.
North Carolina Attorney General Secures $377,000 in Settlement with Private Student Lender
On March 27, the North Carolina Attorney General announced that it had settled a lawsuit filed in the Wake County, North Carolina Superior Court against a student loan company. As a result of the settlement, the parties filed a consent judgment requiring that the company pay $377,048 in restitution to 377 North Carolina student borrowers. View the Enforcement Watch blog post.
FTC Announces Settlement with Municipal Debt Collector Over Alleged Abusive Debt Collection Practices
On March 24, the Federal Trade Commission (FTC) announced that it entered into a consent order with a debt collection company, resolving allegations that the company engaged in unfair and abusive debt collection practices in violation of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692-1692p, and section 5 of the Federal Trade Commission Act (FTC Act), 15 U.S.C. § 45. View the Enforcement Watch blog post.
