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    Financial Services Regulation


    PHH v. CFPB, Part I: President of Consumer Finance No More
    CFPB’s Single-Director Structure Found to Be Unconstitutional
    Authors: Mercedes K. Tunstall, Elizabeth Vella Moeller, Michael J. Halloran, Christine A. Scheuneman, Craig J. Saperstein, Andrew Caplan
    In response to a challenge from mortgage servicer PHH Corp. regarding the constitutionality of the single director structure of the Consumer Financial Protection Bureau (the CFPB or Bureau), the United States Court of Appeals, District of Columbia Circuit (the DC Circuit) found that independent agencies, such as the CFPB, must be led by multi-member commissions in order to be constitutional.1 To cure this unconstitutional structure, the DC Circuit used the Dodd-Frank Act’s severability clause and effectively deleted the provision that the President may remove the CFPB director only for “inefficiency, neglect of duty or malfeasance of office.” The practical effect of removing this “removal for cause” clause is that the CFPB is now an executive agency which may have a single director (akin to the Department of Commerce or Environmental Protection Agency), and Director Cordray must follow the direction of the President of the United States.
    Arbitration Provisions Mauled by Consumer Watchdog
    Authors: Christine A. Scheuneman, Mercedes K. Tunstall, Amy L. Pierce, Andrew Caplan
    Companies offering payment services or financial products to consumers are facing a proposed rule from the CFPB that would prohibit class action waivers in binding pre-dispute arbitration agreements. Although the information used to support the rule is thin, a broad range of consumer-facing companies should consider this potential new reality and prepare for it.
    New York Revises “BitLicense” Regulations for Virtual Currency Businesses
    Authors: Marco A. Santori, Jeffrey Jacobi
    Seven months after releasing its BitLicense proposal, the State of New York has published substantial revisions. Like the original version, the revised regulations apply more broadly than federal regulations and require many virtual currency businesses that “involve” the State of New York or customers located or operating within New York to obtain a license.
    CFPB's Arbitration Study—A Warning to Consumer Financial Service Companies
    This alert was originally published in Law360 on January 17, 2014.
    Authors: Christine A. Scheuneman, Amy L. Pierce, Joseph T. Lynyak, III
    On December 12, 2013, the Consumer Financial Protection Bureau published its “Arbitration Study Preliminary Results,” mandated by Section 1028(a) of the Dodd-Frank Act (the “Study”). Unfortunately (and despite its statements to the contrary), the Study could be read as evidence that the CFPB intends to either ban or to severely limit arbitration provisions in consumer financial service contracts. Lenders and other financial service providers should consider the Study’s approach, possible actions by the CFPB, and steps that can be taken in anticipation of those actions.
    Meeting New OTC Swap Reconciliation Rules May Require Better Technology and Processes
    Authors: Mike Pierides, Alistair J. Charleton
    Although reconciliation of the key terms has been a best practice for over-the-counter derivative trades for some time (particularly with collateralised trades), the scale of the reconciliation exercise imposed by forthcoming regulations in the EU and U.S. has caused many market participants to undertake a fundamental review of the systems and processes in place. For many, compliance can only be achieved by utilising a third party for provision of an appropriate technology platform or an end-to-end service. With imminent compliance deadlines and the late development of the requirements themselves, functionality has understandably been the focus of any sourcing process. However, from a supply chain and outsourcing perspective, a key challenge remains the manner in which the financial services-specific regulations are applied to this type of third-party arrangement.
    D.C. Circuit Court Decision Calls Into Question the Constitutionality of the Appointment of the Director of the CFPB
    Authors: Rodney R. Peck, Michael J. Halloran, Joseph T. Lynyak, III
    This Alert analyzes the possible implications of the January 25,2013 decision of the United States Court of Appeals for the District of Columbia Circuit (the “D.C. Circuit”) that limits the ability of the President of the United States to utilize the recess authority to circumvent the authority of the U.S. Senate to “advice and consent” to proposed nominations. Specifically, this analysis discusses whether the appointment of the Director of the Consumer Financial Protection Bureau (the “CFPB”) was flawed, and thereby nullifies or otherwise limits actions taken by the CFPB since the Director was appointed by the President, purportedly using the recess appointment authority.
    How Officers and Directors of Financial Intermediaries Can Avoid Personal Liability in the Post-Dodd-Frank Market
    Authors: Rodney R. Peck, Michael J. Halloran, Joseph T. Lynyak, III
    This Alert analyzes steps that officers and directors of bank and non-bank financial companies and their holding companies and affiliates can take to address personal liability for alleged breaches of duty to manage and supervise a financial company’s operations, allegations which are being made in an increasing number by federal and state regulatory agencies, including the federal banking agencies and the U.S. Consumer Financial Protection Bureau (CFPB).
    Option ARM With Teaser Rate Disclosures Potentially Fraudulent Under State Law
    Authors: Christine A. Scheuneman, Amy L. Pierce, Nathaniel R. Smith, Brian D. Martin
    A California state court addressed for the first time whether a borrower can state claims under California law based on allegedly fraudulent Option ARM loan disclosures. While noting possible proof problems with plaintiffs’ case, the Fourth District Court of Appeal held that plaintiffs sufficiently alleged that loan documents inadequately disclosed negative amortization of Option ARM loans featuring “teaser” rates.
    July 2013
    Reconciliation + Regulation = Complication
    Source: Risk Magazine
    Authors: Mike Pierides, Alistair J. Charleton
    An updated version of this article was published in the July 2013 issue of Risk.
    July/August 2013
    Financial Crimes Enforcement Network Issues Guidance on Virtual Currency
    Source: The Banking Law Journal
    Authors: Deborah S. Thoren-Peden, JiJi Park, Amy L. Pierce, Elsa S. Broeker
    This article was originally published in the July/August 2013 issue of The Banking Law Journal.

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