On January 13, 2020, the House of Representatives in a vote of 384 to 7 passed a bill titled the 8-K Trading Gap Act. The bill would require companies to promulgate policies and procedures that prohibit corporate executives from trading company stock during the time period between the occurrence of a major corporate event and the public disclosure of the event. As brief background, a company must file SEC Form 8-K to report the occurrence of certain corporate events deemed by the SEC to be important to shareholders. Form 8-K lists specific qualifying events, which include senior officer appointments and departures, bankruptcies, and the acquisition or disposition of significant amounts of assets. A company has a maximum of four business days from the occurrence of an 8-K event to file the form. This time period is referred to as the “8-K trading gap” because, in theory, insiders would be able to trade on the basis of the information during this period.
On January 8, 2020, Federal Reserve Board (“FRB”) Governor Lael Brainard delivered remarks on the state of Community Reinvestment Act (“CRA”) reform before an audience at the Urban Institute. As we summarized in a client alert, last month, the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”) released a proposed overhaul of the regulations implementing the CRA, which the FRB declined to join. While Governor Brainard’s speech made clear that she was not speaking on behalf of the FRB, her remarks provided insight into FRB decision-making on CRA reform and possible avenues to consensus among the agencies.
The House Financial Services Committee (“HFSC”) announced that it will convene hearings this month to consider both the trend of financial technology firms partnering with chartered banks to provide financial services and the rise of mobile payments. More information about the hearing schedule is available on the HFSC’s website.
On December 19, 2019, the Office of the Comptroller of the Currency (OCC) appealed a decision from the U.S. District Court for the Southern District of New York holding that the OCC cannot offer special purpose national bank charters to fintech companies. Lacewell v. Office of the Comptroller of the Currency, Case 1:18-cv-08377 (S.D.N.Y. Sept. 14, 2018).
On January 7, 2020, the presidential campaign of Senator Elizabeth Warren released a plan to overhaul the consumer bankruptcy system in the United States. The plan would repeal means testing and other provisions of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. It would also implement enhanced protections for consumer debtors who file for bankruptcy.
Perhaps most significantly, the plan would abolish the “undue hardship” standard for the discharge of student loans. Under current law, borrowers seeking to discharge student loans must file a separate adversary proceeding alongside their non-adversary bankruptcy case and make a significant showing of hardship. The plan would treat student loans identically to other types of consumer debt, allowing for their discharge without any special showing. Continue Reading
On December 12, 2019, the Office of the Comptroller of the Currency (the “OCC”) and the Federal Deposit Insurance Corporation (the “FDIC”) released a notice of proposed rulemaking to overhaul the agencies’ regulatory framework for evaluating banks’ Community Reinvestment Act (“CRA”) performance. The proposal follows a 2018 advance notice of proposed rulemaking by the OCC, and if finalized, would constitute the first major set of revision to the CRA framework in nearly 25 years.
Click here to read our Ten Things to Know about the Community Reinvestment Act proposal.
On December 12, 2019 the Federal Deposit Insurance Corporation (the “FDIC”) issued a notice of proposed rulemaking intended to modernize the regulatory framework applicable to brokered deposits. Since the FDIC promulgated its original brokered deposit regulations in 1989, there have been significant technological changes and innovations across the banking industry that affect the way banks source deposits. The proposal is intended to address those developments and provide greater certainty regarding what constitutes a brokered deposit by clarifying certain elements of the definition of “deposit broker” and key exceptions thereto, adopting several bright-line tests, and establishing an application process by which banks or third parties could obtain a written determination from the FDIC that an arrangement satisfies the “primary purpose” exception.
For the key takeaways from the proposal, click here to read our Eight Things to Know about the FDIC’s proposed rule. A more detailed summary of the proposal follows in this blog post below.
On December 10, the Federal Trade Commission (“FTC”) and Consumer Financial Protection Bureau (“CFPB”) held a joint workshop on accuracy in consumer reporting. The workshop included remarks from FTC Commissioner Noah Joshua Phillips, CFPB Assistant Director for Supervision Policy Peggy Twohig, CFPB Deputy Director Brian Johnson, and FTC Deputy Director for the Bureau of Economics Andrew Stivers. The workshop included four panels:
- Panel 1: Furnisher Practices and Compliance with Accuracy Requirements
- Panel 2: Current Accuracy Topics for Traditional Credit Reporting
- Panel 3: Accuracy Considerations for Background Screening
- Panel 4: Navigating the Dispute Process
Panelists included a range of stakeholders in the consumer reporting ecosystem, including representatives from consumer reporting agencies (“CRAs”), trade associations, furnishers, and consumer advocacy organizations.
In her closing remarks, Maneesha Mithal, Associate Director in the FTC’s Division of Privacy & Identity Protection, discussed three key takeaways and themes from the workshop:
- (1) Alternative Data: Mithal noted that the issue of alternative data came up on almost every panel, and that there appeared to be a consensus that using some types of alternative data may benefit consumers and the industry. Mithal noted that a number of panelists expressed caution about using “fringe data,” including social media data.In a panel discussion, Michael Turner, founder and President of the Policy and Economic Research Council (“PERC”), drew a distinction between “proven payment data,” including payments for utilities, media, and rent, and unproven “fringe data” or “unstructured data,” including information from social media. Turner, along with a number of other panelists, believed that reporting proven payment data would be beneficial for consumers. Francis Creighton, President and CEO of the Consumer Data Industry Association (“CDIA”), noted that consumers are currently experiencing the “downside” impacts of the reporting of negative information about the non-payment or late payment of obligations for utilities, media, and rental housing, but are not receiving the “upside” benefits of reporting on the positive payment histories on those recurring obligations. Consumer advocates, such as Ed Mierzwinski of U.S. Public Interest Research Group (“PIRG”), expressed skepticism regarding the use of certain alternative data, such as utility payment data, and the ability of the industry to ensure the accuracy of such data.
- (2) Role of Technology: Mithal also noted that there was some consensus that technology, including Artificial Intelligence (“AI”) and pattern recognition, may improve the quality and accuracy of consumer report information. Mithal stated that there appeared to be less consensus regarding the use of technology in data matching, with some panelists expressing the view that manual review is still necessary to ensure maximum possible accuracy. Mithal also noted that some panelists expressed the view that the CFPB should exercise its supervisory authority to examine CRAs and furnishers’ use of technology in consumer reporting.
- In general, industry panelists spoke favorably about the prospects for AI and other technologies. For example, Eric Ellman, Senior Vice President, Public Policy and Legal Affairs at CDIA, discussed the use of technology in dispute intake, including filtering credit repair disputes from legitimate consumer disputes. Chi Chi Wu of the National Consumer Law Center expressed skepticism about relying on AI and other technologies for data matching and dispute investigations.
- (3) Accuracy: Mithal concluded by discussing the accuracy of consumer reporting more generally, and stated that some panelists believe that the regulators should issue specific guidance in this area. Mithal also noted that panelists discussed both the importance of data accuracy with respect to consumer reports and furnished data, including ways in which CRAs may oversee furnishers.
- In general, industry panelists pointed to substantial improvements made in recent years with regard to the accuracy of consumer reports, with repeated emphasis on improvements brought about by the National Consumer Assistance Plan (“NCAP”), an outgrowth of a multi-state attorney general settlement with the three nationwide CRAs in May 2015. Turner discussed improvements between the early and more recent studies of data accuracy. Consumer advocates stressed continuing problems with data accuracy, including the reappearance of derogatory information on consumer reports.
On December 3, 2019, the Federal Reserve Board, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and National Credit Union Administration (collectively, “the agencies”), released a joint statement on the use of alternative data in underwriting by banks, credit unions, and non-bank financial firms. The agencies defined alternative data as information “not typically found in the consumer’s credit files of the nationwide consumer reporting agencies or customarily provided by consumers as part of applications for credit.”
The agencies recognized that the use of alternative data could improve the speed and accuracy of credit decisions and expand access to credit for consumers who currently cannot obtain credit in the mainstream system. They also acknowledged that such data could allow consumers to obtain additional products and/or more favorable pricing or terms. They highlighted the positive impact that this could have on the growth of small businesses.
On November 19, the Basel Committee on Banking Supervision (the “BCBS”) released a report on open banking and application programming interfaces (“APIs”), focusing specifically on aspects of open banking related to customer-permissioned data sharing, including sharing between a customer’s bank and various third party firms. The report builds on the BCBS’ February 2018 paper (“Sound Practices: Implications of fintech developments for banks and bank supervisors”), which noted the increasing adoption of advanced technologies—including APIs—by banks, service providers, and fintech firms to deliver innovative financial products and services. The key findings from the report are outlined below.