Category:Finance & Banking
No Payday for the CFPB: A Recent 5th Circuit Decision Jeopardizes the CFPB and its Funding
A decision filed October 19, 2022 by the Fifth Circuit Court of Appeals has vacated a payday lending rule put in place by the Consumer Financial Protection Bureau (CFPB). The rule was put in place to prevent predatory lending practices and unfair practices in their collection. The court decision was not based on the rule being unconstitutional but rather based in how the bureau is funded. The decision has overreaching implications on the future enforcement of CFPB rules.
Single-Stock ETFs: The Debate Over Suitability
While Exchange-Traded Funds (ETFs) were introduced in the early 1990’s, the investment product skyrocketed in popularity throughout the 2000’s. In fact, only one ETF existed in 1993 before the market subsequently expanded to 102 funds in 2002, and then to 1,000 funds by 2009. There currently exists more than 7,602 ETFs globally, and their popularity among investors has prompted the creation of numerous other Exchange-Traded Products (ETPs). While ETFs are the most prominent form of ETPs, fund issuers have introduced a myriad of products that vary in terms of volatility, complexity, and investor suitability. Hence, regulators and financial professionals have continued to warn the investing public of the risks involved with purchasing complex ETPs, such as single-stock ETFs, without sufficiently understanding how the products operate.
The SEC’s Regulation Best Interest: Purposes, Components, and Criticisms
In 2019, the U.S. Securities and Exchange Commission (SEC) adopted Regulation Best Interest (“Reg BI”). Reg BI is a standard of conduct that applies to broker-dealers (a firm in the business of selling securities) and persons associated with broker-dealers when making a recommendation of a certain investment strategy or securities transaction to a retail customer. The SEC gave broker-dealers a time window to implement this new law into firm policies and procedures, and while no regulatory action happened in the first few years of its enactment, the SEC brought its first action in June of this year and FINRA brought its first in October of this year. This makes it especially important for broker-dealer firms to ensure they are presently in compliance with the standards set forth in Reg BI.
The Legal Fight for Student Debt Forgiveness Is Underway
In August, President Joe Biden announced that his administration would be implementing a one-time student loan debt relief program for Americans with student loan debt. Since the announcement, the administration has posted guidance on the Department of Education’s website that explains the plan in detail and attempts to answer some FAQs. The website outlining the plan states that $10,000 worth of debt would be forgiven for Americans making less than $125,000 a year who have outstanding federal student loans. For those who received Pell Grants to pay for college, up to $20,000 worth of student loan debt would be forgiven. The website states that “the Administration will launch a simple application in October” that must be completed by the end of the year to determine whether borrowers qualify for debt forgiveness. That application is now available on the Federal Student Aid website.
The Committee on Foreign Investment Publishes Its First Ever Guidelines
On October 20, 2022, the panel that reviews foreign investment in the United States for national security concerns published its first ever enforcement guidelines. The Committee on Foreign Investment (CFIUS) in the United States, has never had written guidelines on this topic. While this is the first guidance issued by CFIUS, the guidelines reflect the increased focus on monitoring and enforcement which has been evident since the passage of the Foreign Investment Risk Review Modernization Act of 2018. This continues the trend toward more enforcement relating to foreign investments and more concern surrounding compliance with terms of agreements meant to mitigate national security risks.
The OFAC Continues to Enforce Strict Sanctions on Cryptocurrency Mixers
Recently the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) added Tornado Cash to its Specially Designated National List. As part of enforcement efforts, the list contains individuals and companies that have been owned or transacted with targeted countries or organizations that may prove to be a threat to the United States. This action gives rise to questions regarding “secondary” sanctions/designated risk, and the effect this policy has on smart contracts and other protocols.
Challenges and Opportunities in Regulating Cryptocurrency
Many nations are increasingly attempting to regulate Bitcoin and other forms of cryptocurrency. Increased regulation could help legitimize the currency, but uncertainties about what regulation lies ahead threatens the value of the currencies. A main driver of the increased value of cryptocurrencies is the potential for increased usage in markets globally and greater integration of them into our economy. Regulation may be essential to successfully enabling such integration, because with instability in trade and valuation of the currency it is hard for consumers to know whether they should be spending the currency, or if it will dramatically change in value over the course of a short time period.
Appreciating Taxes
After failing to arrive at a consensus on healthcare reform, the Republican party recently passed a blueprint which marked their shift in focus to something less contentious: the American tax code. If the Republicans are successful, compliance with tax regulation in the United States may soon change. An aspect of the code likely to be reformed is how asset appreciation is taxed.
Congressional Repeal of Consumer Protection Rule Creates Bar to Class-Action Suits Against Banks
In July of 2017, the Consumer Financial Protection Bureau (“CFPB”) Director, Richard Cordray, implemented a rule regulating the ability of banks to prohibit class-action lawsuits from being placed within the fine print of their consumer contracts. By the end of July, the House of Representatives voted to repeal the rule under the Congressional Review Act, which allows lawmakers to overturn any recently issued regulation by an executive agency. The Senate subsequently voted to repeal the rule after a 50-51 vote, where Mike Pence cast his vote to break the 50-50 tie. On November 1st, 2017, President Trump signed the bill repealing the regulation.
Financial Institutions Join Forces for Vendor Management Compliance
Financial institutions often rely on outside vendors to provide information technology services. While doing so often provides economic efficiency and quicker technological innovation, the risks associated with outsourcing information technology services are significant. Institutions must develop strong vendor management programs to ensure the safety of their customer’s personal information. Several large financial institutions have come together to create a new consortium to perform vendor and partner due diligence.