Businesses such as banks and other financial institutions that are exempt from state-wide or local orders requiring business closures because they are considered “essential” or “life-sustaining” may want to consider providing letters to their employees regarding the business’s exempt status.

Employees of businesses that remain open who need to travel to and from their workplaces and/or other locations could encounter questions from individuals such as law enforcement officers or security guards regarding the employee’s activities.  A letter provided to employees that explains the employee is employed by an “essential” or “life-sustaining” business and is traveling in connection with his or her employment could be useful to employees encountering such questions as well as provide reassurance to employees concerned about possible travel obstacles.

We have been assisting clients in preparing letters of this type for their employees.  Examples of such letters can be found under “Labor and Employment” in Ballard Spahr’s COVID-19 Resource Center.

 

 

On March 23, 2020, the FDIC’s Office of Minority and Women Inclusion (OMWI) announced that it will request 2019 diversity self-assessments from FDIC-regulated financial institutions.  The FDIC regulates insured state banks that are not members of the Federal Reserve System and insured state thrifts.  This year’s self-assessment application is presented on a new automated platform designed to increase efficiency and encourage more participation from the institutions.  The associated Financial Institution Letter (FIL), to be sent to such institutions identified as having 100 or more employees, sets forth in detail the process for completing the voluntary self-assessment.  This parallels similar actions from other regulatory agencies, such as the Consumer Financial Protection Bureau which sent letters to regulated entities last year inviting them to submit a self-assessment of their diversity and inclusion (D&I) policies and practices.

FDIC-regulated financial institutions began voluntarily submitting diversity self-assessments to the FDIC’s OMWI for the 2016 reporting period, following the June 10, 2015 announcements of D&I standards set forth in the Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Regulated Entities.  The FDIC compiles and anonymously shares the submitted information with the stated purpose of encouraging institutions in the financial community to develop or enhance their D&I policies and help them achieve their strategic goals, including in the areas of their workforce recruitment, supplier diversity procurement, and training practices.

Realizing a goal set for 2020 in its 2018 Report and Analysis, and in an attempt to increase its participation beyond its most recent rate of about 17% of regulated entities, the FDIC has automated the Financial Institution Diversity-Self Assessment (FID-SA) application and created a portal to facilitate financial institutions’ electronic submissions.  The FID-SA is accessible through FDICconnect.  The new format allows multiple authorized users to complete the application, view previous submissions, attach supporting material, and print and save the application in pdf format.

The FIL also indicates that there are additional resources for users including, the FID-SA user guide, key facts sheet, and video tutorial, made available on the FID-SA Diversity Self Assessment Portal.  The FDIC hopes this streamlined process will not only improve the participation rates, but also result in more detailed data that will be meaningful for the whole financial services industry.  Covered institutions are strongly encouraged to use the new instrument and submit completed self-assessments by the extended submission date of May 31, 2020.  Note, the FDIC represents that it will to treat all information received as confidential commercial materials, but entities should be mindful that such information could remain subject to requests under the Freedom of Information Act.

A financial institution should consult legal counsel in determining whether to undertake a self-assessment, publicly disclose information regarding an assessment, or submit an assessment to its regulator.  Ballard Spahr’s D&I counseling team advises financial institutions on the development, enhancement, and implementation of their D&I programs.  As attorneys, we offer a perspective that blends D&I consulting and development with a sensitivity to important legal issues—including regulatory compliance, the interplay of equal employment opportunity and affirmative action laws, reverse discrimination risks, and the role of D&I in potential discrimination litigation.  Our D&I team performs assessments, develops D&I strategic plans, advises on existing programs, develops policies and communications materials, conducts training, and assists with the implementation of D&I programs.

The American Arbitration Association (AAA) and its international division, the International Centre for Dispute Resolution (ICDR) announced that no hearings will take place in AAA-ICDR hearing facilities until at least April 17.  Case management staff will contact parties and arbitrators to discuss alternative arrangements, including the use of video, teleconferencing, or postponements.  To the extent in-person hearings may be taking place outside AAA-ICDR’s facilities, parties, arbitrators, and mediators must consult city, state, federal, and other applicable regulations and guidance to determine their impact on the hearing.  Parties, arbitrators, and mediators must also promptly raise concerns about their participation resulting from limitations on travel imposed or urged by governmental and regulatory authorities.

As of the time of this blog post, JAMS had not announced a universal postponement of scheduled hearings.  An announcement similar to the AAA’s announcement is expected.  On March 17, JAMS issued an update on the impact of COVID-19 to its operations.  JAMS announced that it had shifted its staff to a remote work structure and its neutrals and staff will utilize technology, including video conferencing services, to enable parties to participate and engage remotely in mediations and arbitrations.  This was the last update from JAMS on COVID-19.

Ballard Spahr’s Consumer Financial Services Group is closely monitoring the impact of COVID-19 on arbitration and will provide updates on our blog.

The FDIC has issued a proposed rule setting forth the conditions it would impose and the commitments it would require to approve a deposit insurance application from an industrial bank or industrial loan company (collectively, ILC) whose parent company is not subject to consolidated supervision by the Federal Reserve Board (FRB).  The proposal is a significant development for fintech companies and other commercial companies seeking to establish ILCs.

As a general matter, the proposal would codify the FDIC’s current supervisory processes and policies for ILCs that would not be subject to consolidated FRB supervision and “add additional safeguards the FDIC believes are appropriate based on its experience.”  Part IV of the Supplementary Information accompanying the proposed rule contains a section-by-section description of the proposal with a series of questions for each section on which the FDIC seeks comment (17 questions in total).  Comments on the proposal will be due no later than 60 days after the date of publication in the Federal Register.

The proposal would apply to an ILC that, after the effective date of a final rule, becomes a subsidiary of a “Covered Company.”  A “Covered Company” is defined as any company that is not subject to federal consolidated supervision by the FRB and that after the effective date of the final rule, directly or indirectly, controls an ILC (1) as a result of change in control under Section 7(j) of the FDI Act or a merger pursuant to Section 18(c) of the FDI Act, or (2) that is granted deposit insurance under Section 6 of the FDI Act.  A company would “control” an ILC if it has the power, directly or indirectly, to vote 25 percent or more of any class of voting shares of any ILC or any company that controls the ILC, or to direct the management or policies of any industrial bank or parent company.  (The FDIC would also apply certain rebuttable presumptions of control.)  Grandfathered ILCs (i.e. an ILC that is a subsidiary of a company not subject to consolidated FRB supervision on or before the effective date) could become subject to the proposed rule following a change in control, merger, or grant of deposit insurance that occurs after the final rule’s effective date in which the resulting institution is an ILC that is a subsidiary of a Covered Company.

Commitments by Covered Company.  The proposal would prohibit an ILC from becoming a subsidiary of a Covered Company unless the Covered Company enters into one or more written agreements with the FDIC and the ILC in which the Covered Company (or each Covered Company) makes the eight commitments listed below.  Compliance with the commitments would be a condition of the FDIC’s grant of deposit insurance, issuance of a nonobjection to a change in control, and approval of a merger.  The proposal would also allow the FDIC, at its sole discretion, to require a controlling shareholder of a Covered Company to join as a party to the written agreement among the FDIC, ILC, and Covered Company as a condition of granting deposit insurance, issuing a nonobjection to a change in control, or approving a merger.

A Covered Company must commit to:

  • Give the FDIC an initial listing, with annual updates, of the Covered Company’s subsidiaries
  • Consent to the FDIC’s examination of the Covered Company and its subsidiaries
  • Submit an annual report to the FDIC on the Covered Company and its subsidiaries and such other reports as requested by the FDIC regarding specified information such as the Covered Company’s financial condition
  • Maintain such records as deemed necessary by the FDIC to assess risks to the ILC or the deposit insurance fund
  • Cause an annual independent audit of each subsidiary ILC
  • Limit the Covered Company’s representation on the ILC’s board of directors or managers to 25%
  • Maintain an ILC’s capital and liquidity at such levels as the FDIC deems appropriate and take such other actions as the FDIC deems appropriate to provide the ILC with a resource for additional capital and liquidity, including, for example, pledging assets, obtaining and maintaining a letter of credit from a third-party institution acceptable to the FDIC, and providing indemnification of the ILC
  • Enter into a tax allocation agreement with the ILC that includes certain provisions, including an express statement that an agency relationship exists between the Covered Company and the ILC with respect to tax assets generated by the ILC

In addition to these eight commitments, the FDIC could require a Covered Company and ILC to commit to provide to the FDIC and implement “a contingency plan subject to the FDIC’s approval that sets forth, at a minimum, recovery actions to address significant financial or operational stress that could threaten the safe and sound operation of the [ILC] and one or more strategies for the orderly disposition of the [ILC] without the need for the appointment of a receiver or conservator.”  The FDIC could also, “at its sole discretion, require additional commitments by a Covered Company, or by an individual who is a controlling shareholder of a Covered Company.”

Restrictions on Covered Company’s ILC Subsidiary.  The proposal would prohibit an ILC from taking certain actions without the FDIC’s prior written approval after it becomes a subsidiary of a Covered Company.  An ILC must obtain such approval to:

  • Make a material change in its business plan
  • Add or replace a member of its board of directors, board of managers, or a managing member
  • Add or replace a senior executive officer
  • Employ a senior executive officer who is associated in any matter (e.g., as a director, officer, employer, agent, partner, or consultant) with an affiliate of the ILC
  • Enter into any contract for services material to the ILC’s operations (e.g., loan servicing function) with the Covered Company or any of its subsidiaries

At its sole discretion, in addition to denying approval for any of the above actions, the FDIC could impose restrictions on the activities or operations of an ILC that is controlled by a Covered Company.

The proposed rule, together with the FDIC’s recent approvals of deposit insurance applications for Nelnet Bank and Square Financial Services, Inc., suggest the ILC charter as a viable alternative to the OCC’s fintech charter, which has been stalled by litigation.  Importantly for a parent company the controls an ILC that is exempt from the Bank Holding Company Act (BHCA) definition of a “bank,” such parent company will not be subject to restrictions in the BHCA and Federal Reserve Board Regulation Y on nonbanking activities imposed on a bank holding company or a financial holding company.  To be eligible for the “bank” exemption, an ILC must have received a charter from a state eligible to issue ILC charters and the law of the chartering state must have required federal deposit insurance as of March 5, 1987.  In addition, an ILC must meet one of the following criteria: it must (1) not accept demand deposits, (2) have total assets of less than $100 million, or (3) have been acquired before August 10, 1987.

 

 

The Federal Communications Commission, on its own motion, has issued a Declaratory Ruling to address how the Telephone Communication Protection Act’s “emergency purposes” exception applies to calls relating to the COVID-19 pandemic.

The TCPA includes an “emergency purposes” exception to its general prohibition on making automated or prerecorded calls to a cellular telephone number without the called party’s prior express consent.  FCC rules define “emergency purposes” to mean “calls made necessary in any situation affecting the health and safety of consumers.”  The FCC has stated that the exception is intended for “instances [that] pose significant risks to public health and safety, and [where] the use of prerecorded message calls could speed the dissemination of information regarding…potentially hazardous conditions to the public.”

In the ruling, the FCC confirms that the COVID-19 pandemic constitutes an “emergency” under the TCPA and states that whether a call relating to the pandemic qualifies for the “emergency purposes” exception will depend on the caller’s identity and the call’s content.  With regard to the caller, the caller “must be from a hospital, or be a health care provider, state or local health official, or other government official as well as a person under the express direction of such an organization and acting on its behalf.”  With regard to the call’s content, the content “must be solely informational, made necessary because of the COVID-19 outbreak, and directly related to the imminent health or safety risk arising out of the COVID-19 outbreak.” 

The ruling makes clear that the “emergency purposes” exception does not include “calls that contain advertising or telemarketing of services” or “calls made to collect debt, even if such debt arises from related health care treatment.”  In the FCC’s view, collection calls do not qualify for the exception because they “are not time-sensitive, do not ‘affect the health and safety of consumers,’ and are not directly related to an imminent health or safety risk.”

 

 

Ballard Spahr’s Consumer Financial Services, Banking & Financial Institutions, and Mortgage Banking Groups are closely monitoring regulatory developments in connection with the coronavirus (COVID-19) crisis.  To provide one location where members of the banking and consumer financial services industries can access federal regulatory guidance and other information that relates to issues of particular concern to their industries, the Consumer Finance Monitor has launched a Banking and Consumer Financial Services COVID-19 Resource Center.

For our clients and others interested in monitoring COVID-19 developments involving debt collection or telemarketing, we have also made a national tracking program available for a monthly flat fee.  For more information, please contact Stefanie Jackman or Lori Sommerfield.

On March 25, 2020, from 12 p.m. to 1:30 p.m. ET, Ballard Spahr will hold a webinar, “What Financial Institutions Need to Do Now as a Result of the Coronavirus Pandemic.”  For more information and to register, click here.

 

 

This past Friday, March 20, the Fifth Circuit entered an order granting rehearing en banc in All American Check Cashing.  The Fifth Circuit also vacated the 2-1 panel decision issued on March 3 (the same day that the U.S. Supreme Court heard oral argument in Seila Law) that ruled that the CFPB’s structure is constitutional.

The Fifth Circuit’s order states that “a majority of the circuit judges in regular active service and not disqualified hav[e] voted, on the Court’s own motion, to rehear this case en banc.”  It also states that oral argument will be held “on a date hereafter to be fixed.”

Pursuant to Fifth Circuit Rule 35, any active member of the court or any member of the panel rendering the decision can request a poll of the court’s active members “whether rehearing en banc should be granted, whether or not a party filed a petition for rehearing.”  Such a request triggers the following procedures:

  • The requesting judge will ordinarily send a letter to the Chief Judge with copies to the other active judges and any other panel member.
  • Each active judge casts a ballot and sends a copy to all other active judges and any senior judge who is a panel member.  The ballot indicates whether the judge voting desires oral argument if en banc rehearing is granted.
  • If a majority of active judges who are not disqualified vote for en banc rehearing, the Chief Judge instructs the clerk as to an appropriate order indicating a rehearing en banc with or without oral argument has been granted.
  • If the vote is unfavorable to the grant of rehearing en banc, the Chief Judge advises the requesting judge.  The panel originally hearing the case then enters an appropriate order.

For our clients and others interested in monitoring coronavirus (COVID-19) developments involving debt collection or telemarketing, effective today, March 23, Ballard Spahr has launched a comprehensive, national tracking program.  Each business day, participants in the program will receive an email update of any new laws, orders, executive pronouncements, or other guidance impacting the collections and telemarketing industries sourced from a review of more than 350 federal, state, territorial, and municipal information sources.

In launching this program, it is our goal to provide members of the collection and telemarketing industries with daily communications providing practical insights and guidance into what these trying times mean for their industries.  We expect this program to evolve over the coming months as all of us review, analyze, and respond to what will undoubtedly be a multitude of developments occurring at a rapid pace.

To provide this service, we anticipate that our team members will devote more than 100 hours per week.  Given the magnitude of this effort, we will be charging a monthly flat fee for the service.

For more information, please contact Stefanie Jackman (jackmans@ballardspahr.com) or Lori Sommerfield (sommerfieldl@ballardspahr.com).

 

 

 

Today, U.S. Secretary of Education Betsy DeVos announced that the office of Federal Student Aid is executing on President Trump’s promise to provide student loan relief during the COVID-19 pandemic through several initiatives:

  • All borrowers with federally held student loans will automatically have their interest rates set to 0% for a period of at least 60 days. In addition, those borrowers will have the option to suspend their payments for at least two months to allow them greater flexibility during the COVID-19 crisis. This option will permit borrowers to temporarily cease their payments without accruing interest.
  • All federal student loan servicers have been directed to grant an administrative forbearance to any borrower with a federally held loan who requests one. The forbearance will be effective for a period of at least 60 days, beginning on March 13, 2020. To request this forbearance, borrowers must contact their loan servicer online or by phone. The Secretary also authorized an automatic suspension of payments for any borrower more than 31 days delinquent as of March 13, 2020, or who becomes more than 31 days delinquent, to provide borrowers with a safety net.
  • For borrowers who continue to make payments, the full amount of their payment will be applied to the principal amount of their loans once all interest accrued prior to President Trump’s March 13 announcement is paid. The Department of Education will work closely with Congress to ensure all student borrowers, including those in income driven repayment plans, receive needed support during this emergency.
  • Any borrower who has experienced a change in income should contact their loan servicer to discuss lowering their monthly payment.

Secretary DeVos noted that these initiatives are designed to bring “meaningful relief” so that students and families can focus on staying safe and healthy during the COVID-19 crisis. She also committed that the Department of Education would work closely with Congress to ensure all student borrowers receive needed support during this national emergency.

The website StudentAid.gov/coronavirus will contain more details. All Department of Education initiatives to address the COVID-19 crisis can be found at ed.gov/coronavirus.

On March 19, 2020, the New York Department of Financial Services (“NYDFS”) issued guidance urging all state-regulated financial institutions during the outbreak of the coronavirus to reduce its adverse impact by working with consumers and small businesses that can demonstrate financial hardship caused by COVID-19. Specifically, NYDFS authorized financial institutions to take “reasonable and prudent actions” to support impacted New York citizens through the following actions:

  • Waiving overdraft fees;
  • Providing new loans on favorable terms;
  • Waiving late fees for credit card and other loan balances;
  • Waiving automated teller machine (ATM) fees;
  • Increasing ATM daily cash withdrawal limits;
  • Waiving early withdrawal penalties on time deposits;
  • Increasing credit card limits for creditworthy customers;
  • Offering payment accommodations, such as allowing loan customers to defer payments at no cost, extending the payment due dates or otherwise adjusting or altering terms of existing loans, which would avoid delinquencies, triggering events of default or similar adverse consequences, and negative credit agency reporting caused by COVID-19 related disruptions;
  • Ensuring that consumers and small businesses do not experience a disruption of service if financial institutions close their offices, including making available other avenues for consumers and businesses to continue to manage their accounts and to make inquiries;
  • Alerting customers to the heightened risk of scams and price gouging during the COVID-19 disruptions, and reminding customers to contact their financial institutions before entering into unsolicited financial assistance programs; and
  • Proactively reaching out to customers via app announcements, text, email or otherwise to explain the above-listed assistance being offered to customers.

NYDFS also urged creditors to work with and provide accommodations to borrowers “to the extent reasonable and prudent,” including refraining from exercising rights and remedies based on potential technical defaults under material adverse change and other contractual provisions that might be triggered by the COVID-19 pandemic.

NYDFS noted that these types of efforts by financial institutions to assist consumers and businesses under the current unusual and extreme circumstances are consistent with safe and sound banking practices and the public interest and thus will not be subject to examiner criticism.

Financial institutions with questions concerning the guidance are directed to contact their regular point of contact at NYDFS.