BELTWAY

Broke[red], So Fix It

The FDIC announced a "comprehensive review [of its] regulatory approach to brokered deposits and interest rate caps" for banks that are not "well-capitalized" with the release of an APNR. According to the FDIC, the review is driven by significant changes in technology, business models, products, and the economic environment. Under existing rules, banks that are not well-capitalized are subject to restrictions on brokered deposits and interest rate cap, but banks have argued that the regulations are outdated and unclear. The APNR seeks public comment on modifications to the regulations, including whether (1) certain deposits should not be considered brokered deposits, (2) there have been changes in the financial services industry that the FDIC should consider in its review of the regulations, (3) changes to Call Reports are required for purposes of brokered deposits, and (4) there are alternatives to existing interest rate restrictions on banks that are not well-capitalized.

For more information, contact Oliver Ireland at oireland@mofo.com.

Resolution in Expressions

On January 8, 2019, merchants and the State of New York filed a joint motion to vacate the final judgment in Expressions Hair Design v. Underwood, the surcharging case brought by New York merchants. This follows a longstanding battle between merchants and the State of New York, which included a Supreme Court decision in which the Court held that the New York law regulated speech, remanding the case to the Second Circuit to determine whether the law violated the First Amendment. Expressions Hair Design v. Schneiderman, 137 S. Ct. 1144 (2017). By agreeing to vacate the final judgment, New York's anti-surcharging law would not be completely invalidated; merchants will be required to disclose "total credit-card price in dollars and cents" and not just a percentage.

For more information, contact Natalie Fleming Nolen at nflemingnolen@mofo.com.

Thanks, but No Thanks

The GAO released a report finding that the OCC could better address risks of "regulatory capture" and issued a series of recommendations for the OCC. For example, the GAO highlighted that the OCC's examination teams are not required to document internal deliberations and are required to delete document drafts that summarize supervisory reviews. The OCC responded to many of the GAO's recommendations — including recommendations to track and monitor use of informal recommendations, document communications with regulated banks' senior management and executives, and check conflicts before staffing examination teams — by stating that it was not "prepared to implement the recommendation" or that it disagreed with the GAO's characterization of a vulnerability or assessment.

For more information, contact Oliver Ireland at oireland@mofo.com.

BUREAU

Wait, Consent Doesn't Begin with Kay?

The CFPB and New York Attorney General entered into a consent order with a jewelry retailer in January with $11 million in penalties, alleging that the company enrolled customers in in-house credit plans and payment protection plans without their consent, and misrepresented the terms of promotional financing. The regulators' complaint is wide ranging, but notably alleges that some employees were instructed to complete customers' credit card applications for them on an electronic interface, and in so doing, to inform customers that personal information was being collected for a "survey" or "rewards card." Employees were also allegedly encouraged to "distract" customers during this process by offering to clean their jewelry

For more information, contact Jessica Kaufman at jkaufman@mofo.com or read our Client Alert.

Findings Aren't Major in College Affinity Report

The Bureau issued its seventh annual report to Congress regarding financial products marketed to students through colleges and universities in January. Former Director Richard Cordray used to take it as an opportunity to scold colleges for failure to make their affinity agreements available to the public. In contrast, this year's report focuses primarily on trends — the number of college credit card agreements between issuers and schools or affiliated organizations increased in 2017, the number of issuers maintaining such agreements also increased, but the overall number of accounts was down.

For more information, contact Obrea Poindexter at opoindexter@mofo.com.

Priorities, People!

Regulated entities have had a difficult time predicting where the CFPB would place its enforcement attention one year versus the next. (Of course, the only effective way to understand the agency's enforcement priorities was to read this Report every quarter, despite all of the terrible jokes and puns!) In a recent report, the GAO recognized this 3 Financial Services Report, Spring 2019 issue, recommending that the CFPB take a more systematic and consistent approach to prioritizing what it views as financial risks to consumers. The GAO noted that the CFPB currently lacks this kind of process, as well as any method for considering how it will use its tools — "rulemaking, supervision, and consumer education" — to address them.

For more information, contact Nancy Thomas at nthomas@mofo.com.

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Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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