PH FedACTion: Financial Regulatory Updates

This Week in Washington for November 2, 2020

November 02, 2020

Dina Ellis

THE BIG PICTURE

For the latest advice for businesses dealing with the coronavirus, be sure to check out Paul Hastings’ targeted alert series: https://www.paulhastings.com/coronavirus

After over a year of campaigning and billions of dollars spent, Election Day is nearly upon us. Over 90 million Americans have already cast their ballot through early and mail-in voting; an unprecedented turnout that showcased the passion many voters feel over the future direction of the country. Both campaigns have embarked on a final tour through swing states to shore up support among their bases and turnout remaining voters. Several disputes over mail ballots were brought to the Supreme Court; in both Pennsylvania and North Carolina, the Court rejected Republican efforts to limit the counting of late arriving ballots, while in Wisconsin, it declined to reinstate a 6-day extension.

Coronavirus cases continue an alarming surge across the country, with nearly 100,000 new cases identified on Friday, bringing the total to over 9.2 million. Top infectious disease expert Dr. Anthony Fauci warned the country “could not possibly be positioned more poorly” as we enter the colder winter months and cautioned the resurgence posed a serious threat to the nation’s healthcare capacity. In contrast, the President sought to project optimism, saying he felt the country was “rounding the corner,” and White House officials accused Fauci of inappropriately “play[ing] politics.”

The Senate voted 52-48, almost entirely along party lines, to confirm Judge Amy Coney Barrett to the vacant seat on the Supreme Court, with only Sen. Susan Collins (R-ME) joining the Democrats in opposition. Barrett’s confirmation marks a major victory for the President, cementing a conservative 6-3 majority on the nation’s highest court. Barrett appeared at an event at the White House Monday evening, and was formally sworn in at the court on Tuesday by Chief Justice John Roberts.

Negotiations over a stimulus package continued, but significant differences remain between the parties, particularly over testing, and the final measure will likely hinge on the outcome of the election. The President and Secretary Steven Mnuchin accused House Speaker Nancy Pelosi of “refusing to compromise” and characterized a letter she released describing the status of negotiations as “a stunt.” Lawmakers on both sides of the aisle are eyeing the post-election period when the stakes are lowered for more meaningful progress on a bill.

Other highlights of last week include:

• The U.S. economy grew at a rate of 7.4% in the last quarter, but is still struggling to rebound from the pandemic, with the Dow dropping over 900 points on Monday.

• Miles Taylor, a former Department of Homeland Security official who served as a close aide to Kirstjen Nielsen, revealed himself as “Anonymous” the author of a New York Times op-ed published in 2018 describing resistance inside the administration.

LAST WEEK ON THE HILL

House Select Subcommittee on the Coronavirus Crisis Releases Staff Report on Investigations into Pandemic Response: On Friday, the Select Subcommittee released an interim staff report entitled “Inefficient, Ineffective and Inequitable: The Trump Administration’s Failed Response to the Coronavirus Crisis,” documenting key findings from its first six months investigating the nation’s response to the pandemic. The report details the Select Subcommittee’s accomplishments so far, including the documentation of 61 instances of political interference in the federal public health response and the reversal of several troubling decisions, the discovery of more than $4 billion in potential fraud in small business relief programs, the suspension of a potentially wasteful $765 million loan, and the return of more than $100 million in taxpayer dollars to the U.S. Treasury.

Brown, Merkley, and Colleagues Press Nation’s Utility Companies to Cease Utility Shutoffs for the Duration of the COVID-19 Crisis: On Friday, Sen. Sherrod Brown (D-OH) and Sen. Jeff Merkley (D-OR) led their colleagues in sending letters to the nation’s largest utility companies, urging them to suspend all utility shutoffs for the duration of the COVID-19 pandemic. “Because of the economic devastation wrought by the pandemic, millions of Americans are struggling to make ends meet and are at risk for having their electricity, water, and broadband services terminated. In order to effectively address the concurrent public health and economic crises, the families you serve must have uninterrupted access to these essential public services,” wrote the lawmakers.

Pressley and Ramamurti Urge Fed, Treasury to Make Emergency Lending Facilities More Equitable: On Friday, Rep. Ayanna Pressley (D-MA) and Congressional Oversight Commissioner Bharat Ramamurti wrote to Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin, urging the agencies to take immediate action to address the disproportionate impact of the COVID-19 pandemic on the country’s most vulnerable communities. The letter offered several suggestions for improving the Municipal Lending Facility and Main Street Lending Program to better serve people of color and women.

LEGISLATION INTRODUCED AND PROPOSED

H.R. 8661: Rep. Abby Finkenauer (D-IA) introduced H.R. 8661, which would address the housing needs in rural communities in the United States.

H.R. 8667: Rep. Hank Johnson (D-GA) introduced H.R. 8667, which would provide that all persons shall be entitled to the full and equal enjoyment of the goods, services, facilities, privileges, and accommodations of financial institutions.

H.R. 8674: Rep. Ted Lieu (D-CA) introduced H.R. 8674, which would establish a Housing Stabilization Fund to provide emergency housing assistance to extremely low-income renters and homeowners.

H.R. 8693: Rep. Ro Khanna (D-CA) introduced H.R. 8693, which would establish an independent agency in the executive branch to be known as the Federal Institute of Technology.

H.R. 8696: Rep. Richard Neal (D-MA) and Rep. Kevin Brady (R-TX) introduced H.R. 8696, which would increase retirement savings, and simplify and clarify retirement plan rules.

THE REGULATORS

Federal Reserve Board Adjusts Terms of Main Street Lending Program: On Friday, the Federal Reserve Board adjusted the terms of the Main Street Lending Program in two important ways to better target support to smaller businesses that employ millions of workers and are facing continued revenue shortfalls due to the pandemic. In particular, the minimum loan size for three Main Street facilities available to for-profit and non-profit borrowers has been reduced from $250,000 to $100,000, and the fees have been adjusted to encourage the provision of these smaller loans. The Board and Department of the Treasury also issued a new frequently asked question clarifying that Paycheck Protection Program loans of up to $2 million may be excluded for purposes of determining the maximum loan size under the Main Street Lending Program, if certain requirements are met, which should also help smaller businesses access Main Street loans.

Agencies Issue Final Rule on Total Loss Absorbing Capital Holdings: On Wednesday, the OCC, FDIC, and Federal Reserve issued a joint final rule that amends the capital rule to require advanced approaches banking organizations to deduct from regulatory capital certain investments in unsecured debt instruments issued by global systemically important banks (GSIBs) and certain subsidiaries of GSIBs that are issued for the purpose of meeting minimum long-term debt or TLAC requirements (i.e., covered debt instruments).

Agencies Propose Regulation on the Role of Supervisory Guidance: On Thursday, the Federal Reserve, CFPB, FDIC, NCUA, and OCC invited comment on a proposal outlining and confirming the agencies’ use of supervisory guidance for regulated institutions. The proposal would codify the statement, as amended, that was issued in September 2018 by the agencies that clarified the differences between regulations and guidance.

Agencies Release Paper on Operational Resilience: On Friday, the Federal Reserve, FDIC, and OCC released a paper outlining sound practices designed to help large banks increase operational resilience. Examples of risks to operational resilience include cyberattacks, natural disasters, and pandemics. “Sound Practices to Strengthen Operational Resilience” outlines practices to increase operational resilience that are drawn from existing regulations, guidance, statements, and common industry standards. The practices are grounded in effective governance and risk management techniques, consider third-party risks, and include resilient information systems.

Office of the Comptroller of the Currency Issues True Lender Rule: On Tuesday, the OCC issued a rule that determines when a national bank or federal savings association (bank) makes a loan and is the “true lender,” including in the context of a partnership between a bank and a third party. The rule also clarifies that as the true lender of a loan, the bank retains the compliance obligations associated with the origination of that loan, thus negating concern regarding harmful rent-a-charter arrangements. Senate Banking Committee ranking member Sen. Sherrod Brown (D-OH) blasted the move, saying “the Trump Administration is racing against the clock to finalize a new rule that empowers and enables predatory lending. The new “rent-a-bank” rule makes a mockery of the long-standing federalism that has guided bank policy.”

SEC Adopts Modernized Regulatory Framework for Derivatives Use by Registered Funds and Business Development Companies: On Wednesday, the SEC voted to enhance the regulatory framework for derivatives use by registered investment companies, including mutual funds (other than money market funds), exchange-traded funds (ETFs), and closed-end funds, as well as business development companies. The new rule and rule amendments will provide a modernized, comprehensive approach to the regulation of these funds’ derivatives use that addresses investor protection concerns and reflects developments over the past decades. “Derivatives have come to play an important role for many funds in portfolio strategy and risk management, but the regulatory approach for derivatives use has been inconsistent and outdated,” said SEC Chairman Jay Clayton. “Importantly, the new comprehensive limits on risk will prohibit derivatives use that is inconsistent with the leverage limits imposed by the Investment Company Act, but will allow virtually all funds to continue to serve their investors using the most efficient instruments.”

SEC Issues Agenda for Special Meeting of the Asset Management Advisory Committee: On Thursday, the SEC released the agenda for the Nov. 5, 2020, special meeting of the Asset Management Advisory Committee. AMAC was formed to provide the Commission with diverse perspectives on asset management and related advice and recommendations. At the meeting, AMAC will consider recommendations concerning COVID-19-related operational issues, which may include electronic delivery, remote work, e-authorization, and dematerialization.

CFPB Private Education Loan Ombudsman Issues 2020 Annual Report: On Wednesday, on the CFPB Private Education Loan Ombudsman issued the 2020 Annual Report, which shows that that from September 1, 2019, through August 31, 2020, the Bureau handled approximately 7,000 complaints related to private or federal student loans. This is an overall decrease from last year and continues a trend from 2017. More specifically, for the year ending August 31, 2020, the Bureau handled approximately 1,900 private student loan complaints, a decrease of approximately 33 percent compared to that of the previous year (2019), and for the year ending August 31, 2020, the Bureau handled approximately 5,000 federal student loan complaints, a decrease of approximately 24 percent compared to that of the previous year (2019).

CFPB Issues Final Rule, Improves Clarity and Transparency by Amending Disclosure of Records and Information Regulation: On Thursday, the CFPB issued a final rule amending its Disclosure of Records and Information Regulation. The rule seeks to balance concerns regarding the Bureau’s need to protect confidential personal, business, supervisory, and investigative information against the need to use and disclose certain information in the course of the Bureau’s work or the work of other agencies with overlapping statutory or regulatory authority. Specifically, the rule addresses the confidential treatment of information that the Bureau obtains from persons in connection with the exercise of its authorities under Federal consumer financial laws.

CFPB Issues Final Rule to Implement the Fair Debt Collection Practices Act: On Friday, the CFPB issued a final rule to restate and clarify prohibitions on harassment and abuse, false or misleading representations, and unfair practices by debt collectors when collecting consumer debt. The rule focuses on debt collection communications and gives consumers more control over how often and through what means debt collectors can communicate with them regarding their debts. The rule also clarifies how the protections of the Fair Debt Collection Practices Act, which was passed in 1977, apply to newer communication technologies, such as email and text messages. Sen. Sherrod Brown (D-OH) criticized the rule as failing “to provide hardworking consumers with the protections they need to guard against abusive debt collection practices.”

CFTC to Hold an Open Commission Meeting: On Monday, the CFTC announced it will hold an open meeting on Monday, November 2 at 10:00 a.m. The Commission will consider the following: Final Rule: Amendments to Part 50 Clearing Requirement Exemptions for Central Banks, Sovereigns, IFIs, Bank Holding Companies, and CDFIs.

CFTC’s Enforcement Division Issues Staff Guidance on Recognition of Self-Reporting, Cooperation, and Remediation: On Thursday, the CFTC announced the Division of Enforcement had issued new guidance for enforcement staff when recommending the recognition of a respondent’s cooperation, self-reporting, or remediation in CFTC enforcement orders. “Providing clarity to market participants and the public is one of the CFTC’s core values,” said Acting Division of Enforcement Director Vincent McGonagle. “An effective self-reporting, cooperation, and remediation program helps to foster market integrity through timely enforcement.”

CFTC Announces Organizational Changes to Enhance Agency’s Operational Effectiveness: On Thursday, the CFTC announced it has completed negotiations to reorganize certain portions of the agency to enhance the CFTC’s operational effectiveness. The changes will take effect November 8, 2020. The reorganization includes the creation of four new operating divisions: (1) Division of Data - Data personnel from various operating units including the Office of Data and Technology and the Division of Market Oversight have been merged into the new Division of Data to centralize the agency’s data functions; (2) Market Participants Division - The Division of Swap Dealer and Intermediary Oversight and the Office of Customer Education and Outreach have been combined to form the new Market Participants Division; (3) Legal Division - The Office of General Counsel and the Office of the Executive Secretariat have been merged to form the new Legal Division; (4) Division of Administration - The Office of the Executive Director and the customer service elements of the Office of Data and Technology have been combined to form the new Division of Administration.

COMINGS AND GOINGS AT THE AGENCIES

SEC’s Division of Corporation Finance Director Bill Hinman to Conclude Tenure: On Tuesday, the SEC announced that Bill Hinman, Director of the SEC’s Division of Corporation Finance, plans to leave the SEC later this year. Upon Mr. Hinman’s departure, Shelley Parratt will serve as Acting Director of the Division.

SEC’s Director of the Office of International Affairs to Depart: On Thursday, the SEC announced that Raquel Fox, Director of the Office of International Affairs, will leave the agency in November.

OTHER NOTEWORTHY NEWS

NYDFS Expands Efforts to Ensure Financial Services Industry Manages Financial Risks from Climate Change: On Thursday, Superintendent of Financial Services Linda Lacewell announced that the Department of Financial Services has broadened its efforts to ensure that all of the Department’s regulated entities prudently manage the financial risks from climate change. “Climate change is happening now, and we have to take steps to manage the financial risks now,” said Superintendent Lacewell. “We want to ensure that every institution is managing its own individual risks from climate change, which is critical for the safety and soundness of the financial services industry.” DFS outlined its expectations related to addressing climate risks in a letter to all New York-regulated banking organizations, branches and agencies of foreign banking organizations, mortgage bankers and servicers, and limited purpose trust companies as well as New York-regulated non-depositories.

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