July 06, 2018

MONTH-IN-BRIEF: Business Regulation & Regulated Industries

Lynette Hotchkiss

Banking Law

Citibank and Coalition of 42 Attorneys General Settle LIBOR Action For $100 Million

By Buckley Sandler LLP

On June 15, 2018, the New York Attorney General, along with 41 other state Attorneys General, announced a $100 million settlement with Citibank for allegedly fraudulent conduct involving U.S. Dollar LIBOR. According to the settlement agreement, the bank “misrepresented the integrity of the LIBOR benchmark” to government and private institutional counterparties. The bank allegedly concealed, misrepresented, or failed to disclose information to “avoid negative publicity and protect the reputation of the bank,” including, among other things, asking employees in other sections of the bank to avoid offering higher rates than the bank’s USD LIBOR submissions. Additionally, contributing to inaccurate LIBOR benchmark rates, Citibank allegedly was aware that other financial institutions made USD LIBOR submissions that were inconsistent with their borrowing rates. The bank is required to pay $95 million into a settlement fund, which government and nonprofit entities with LIBOR-linked investments from the bank may be eligible for distribution, while the remaining $5 million will cover costs and fees associated with the investigation and settlement.

Federal Reserve Board Approves Final Rule Setting Single Counterparty Credit Limit

By Buckley Sandler LLP

On June 14, 2018, the Federal Reserve Board approved a rule to establish single-counterparty credit limits for U.S. bank holding companies with at least $250 billion in total consolidated assets, foreign banking organizations operating in the U.S. with at least $250 billion in total global consolidated assets (as well as their intermediate holding companies with $50 billion or more in total U.S. consolidated assets), and global systemically important bank holding companies (GSIBs).

Consumer Finance Law

New York Federal Court Holds CFPB Structure to Be Unconstitutional

By Ben Kahrl, Rabobank, N.A.

On June 21, 2018, the United States District Court for the Southern District of New York gave critics of the Consumer Financial Protection Bureau (CFPB) a victory in the battle over the CFPB’s constitutionality, dismissing the CFPB as a party and holding that the CFPB has no authority to bring claims under the Consumer Financial Protection Act (CFPA) because the structure of the CFPB is unconstitutional.  There has been substantial disagreement among federal judges across the country as to the constitutionality of the CFPB’s structure, and as to the power of federal courts to correct any constitutional defects in the context of existing enforcement actions brought by the CFPB.  The constitutional challenges typically raised in these cases are that the CFPB intrudes upon the President’s executive authority to check arbitrary decision making by executive agencies because it is headed by a single director who wields executive power, the director is only removable for cause, and the agency is funded outside of the normal budgetary process.  In her decision finding the structure to be unconstitutional, Judge Loretta A. Preska expressly adopted the reasoning from two separate dissenting opinions in the en banc holding of the Court of Appeals for the District of Colombia Circuit in PHH Corp. v. CFPB.  Specifically, Judge Preska incorporated the bulk of the reasoning from Judge Brett Kavanaugh’s dissenting opinion in the PHH Corp. decision, quoting Judge Kavanaugh’s conclusion that the CFPB “is unconstitutionally structured because it is an independent agency that exercises substantial executive power and is headed by a single Director.”  In addition, Judge Preska concluded that the court did not have the authority to sever or amend the for-cause removal provision of the statute, and that the proper remedy was to strike down Title X of the Dodd Frank Act in its entirety and to remove the authority of the CFPB to bring enforcement actions—adopting the reasoning from Judge Karen LeCraft Henderson’s separate dissent in in PHH Corp.            

CFPB Enters Consent Order with Consumer Lender over Debt Collection and Credit Reporting Practices

By Brent Yarborough and Eric Rosenkoetter, Maurice Wutscher LLP

On June 13, 2018, the Bureau of Consumer Financial Protection issued a consent order with a holding company and its affiliated operating entities engaged in consumer lending. The lenders were collecting their own debt, and their principal purpose is consumer lending and not debt collection, thus their collection activities were not governed by the Fair Debt Collection Practices Act (“FDCPA”). Instead, the Bureau used its authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act to find a that number of the lenders’ collection activities were “unfair, deceptive, or abusive acts or practices” (UDAAP).  Among those practices declared to be UDAAPs were in-person visits at consumers’ homes, places of employment and public venues, and phone calls to places of employment, that were conducted in such a way as to reveal the debt to third parties. The Bureau also alleged that the lenders regularly furnished consumer information to the credit reporting agencies but did not have written policies or procedures as required by Regulation V. The consent order provided for a civil money penalty in the amount of $5M and prohibited the lenders from engaging in numerous activities that, if committed by third-party debt collectors, would constitute violations of the FDCPA. In addition, the order prohibited the lenders from making in-person visits for collection purposes.

Trump Selects Kathleen Kraninger To Be Director of the CFPB

By Buckley Sandler LLP

On June 18, 2018, the White House announced President Trump’s selection of Kathleen Kraninger to be the director of the CFPB for a five-year term. Kraninger currently serves as the associate director for general government at the Office of Management and Budget (OMB). Prior to OMB, Kraninger worked at the Department of Homeland Security and in Congress on the House and Senate Committees on Appropriations. Mick Mulvaney, the acting director of the Bureau and director of OMB, supervises Kraninger in her current role. In a statement commending the selection, Mulvaney emphasized that Kraninger is likely to follow his example, saying “I have never worked with a more qualified individual than Kathy… I know that my efforts to rein in the bureaucracy at the [Bureau] to make it more accountable, effective, and efficient will be continued under her able stewardship.” While the Federal Vacancies Reform Act (FVRA) required the president to nominate a new director prior to June 22nd, Mulvaney is likely to remain the acting Bureau director for the foreseeable future, as FVRA allows Mulvaney to continue in the acting capacity until the Senate confirms or denies Kraninger’s nomination. If Kraninger’s nomination fails, FVRA would allow Mulvaney to restart a new 210-day period as acting director of the Bureau and to continue serving if the president makes another nomination before that period ends.

Employment Law

“Fair Share” Fees Invalidated in Blow to Public Unions

By Meagan Bainbridge, Weintraub, Tobin, Chediak, Coleman, Grodin Law Corporation

On June 27, 2018, the U.S. Supreme Court dealt a significant blow to public unions, ruling that the First Amendment prohibits public unions from collecting fees from non-member workers. In Janus v. AFSCME, Council 31, Mark Janus was an Illinois public employee who was forced to pay $44 a month to the AFSCME, which bargained on Mr. Janus’s behalf but to whom Mr. Janus declined to join. In a 5-4 decision, the majority of the Court determined that the compelled payment of fees by a public employee to support a union to which he/she is not a member offends the First Amendment, noting that  “compelling individuals to mouth support for views they find objectionable violates that cardinal constitutional command; and that compelling employees to “subsidize the speech of other private speakers raises similar First Amendment concerns.” In doing so, the Court’s majority overruled a long-standing decision that validated state laws permitting such “fair share” or “agency” fees to support union activities (i.e., collective bargaining) for which the employee receives the benefit of. 

Lynette Hotchkiss

EVP/General Counsel & Corporate Secretary; Rabobank, N.A

Lynette Hotchkiss is EVP/General Counsel & Corporate Secretary for Rabobank, N.A., where she also previously served as Associate General Counsel. Prior to joining Rabobank, Lynette was with OneWest Bank, N.A, where her responsibilities included monitoring and reporting on regulatory developments impacting the bank’s operations and providing legal support for regulatory compliance matters. Before that, Lynette was an attorney in the Financial Practices Division of the Federal Trade Commission, where she focused on mortgage servicing issues. For much of her career, Lynette used her knowledge and experience in consumer finance laws and regulations to build compliance tools to help financial institutions comply with the complex array of federal and state requirements, first acting as the lead compliance attorney at CFI ProServices Inc. (now Finastra) to develop the Laser Pro® loan documentation system and later leading the legal team at Mavent Inc. (now part of Ellie Mae) to develop the Mavent Expert System, an automated compliance system for mortgage origination.