Banking Law Prof Blog

Sen. Dodd's Proposal Would Be One Giant Step Backward for Taxpaying Consumers

According to latest reports, Sen. Dodd's proposed financial reform legislation (to be released on Monday) comtemplates placing consumer financial protection within the Federal Reserve. 

Based on the well-documented failure of the Federal Reserve to act within the authority it had at the time subprime abuses were apparent to all (and even Congress was chiding the agency for inaction), this would be a devastating message concerning consumer protection.  By short-changing consumer protection, this structure would give free rein to a new round of abusive financial products. 

Please call and write your Senator about this proposal:    http://www.senate.gov/reference/common/faq/How_to_contact_senators.htm

Link to WSJ Article:  http://www.washingtonpost.com/wp-dyn/content/article/2010/03/12/AR2010031204209.html?hpid=topnews 

(ag) Mar. 13, 2010, in Congress, Consumer Protection, Financial Regulatory Reform

USA PATRIOT Act Information Sharing - Banks Must Search Records Every Two Weeks

The Financial Crimes Enforcement Network (FinCEN), the federal agency charged with administering Anti-Money Laundering (AML)  laws and regulations,  runs a page on the FinCEN website for "Regulatory Hot Line Hot Topics." 

These topics change to reflect calls received from financial institutions.  Apparently a lot of compliance officers are calling about USA PATRIOT Act Information Sharing requirements.  One of the current hot topics is USA PATRIOT Act Section 314(a) Information Sharing among financial institutions and law enforcement agencies.  There's a further link to FinCEN's 314(a) Fact and Figures, dated March 9, 2010, and here's the most important part of that advisory reminder:

"FinCEN receives requests from law enforcement and upon review, sends requests to designated contacts within financial institutions across the country once every 2 weeks via a secure Internet web site. The requests contain subject and business names, addresses, and as much identifying data as possible to assist the financial industry in searching their records. The financial institutions must query their records for data matches, including accounts maintained by the named subject during the preceding 12 months and transactions conducted within the last 6 months. Financial institutions have 2 weeks from the transmission date of the request to respond to 314(a) requests. If the search does not uncover any matching of accounts or transactions, the financial institution is instructed not to reply to the 314(a) request."

FinCEN will direct these requests to a "Point of Contact" within your institution, so be sure that designation is up to date.  FinCEN also has instructions for Changing Your Point of Contact.

Link to FinCEN home page:  http://www.fincen.gov

(ag) Mar. 12, 2010, in BSA/AML, Compliance Issues

Senator Dodd to Release Senate Bill on Financial Regulatory Reform

The Washington Post afternoon edition today reports that Sen. Chris Dodd (D-Conn.), Chairman of the Senate Banking Committee, will unveil his latest version of financial regulatory reform on Monday, Mar. 15, 2010. 

The U.S. House of Representatives passed the Wall Street Reform and Consumer Protection Act (including Title IV:  The Consumer Financial Protection Agency Act of 2009) on December 11, 2009, by a vote of 223 to 202, falling completely along political party lines.  Since that time, Sen. Dodd has been attempting to secure bi-partisan support for the Senate financial reform legislation.  His first negotiating efforts were with Republican Sen. Richard C. Shelby (R-Ala.), followed by renewed negotiations with freshman Sen. Bob Corker (R-Tenn.)

Whether the Senate Bill will provide for an independent, stand-alone consumer financial protection agency or not has been a key point of controversy.  We will see what Monday's version of the Senate Bill includes.

Link to story:  http://www.washingtonpost.com/wp-dyn/content/article/2010/03/11/AR2010031102005.html?wpisrc=nl_pmpolitics 

Unfortunately, the Huffington Post reports that a draft memo purportedly obtained from Sen. Dodd's office says that the Consumer Financial Protection Agency would become merely the Bureau of Financial Protection within the Treasury Department.

LInk to story:   http://www.huffingtonpost.com/2010/02/28/consumer-groups-rip-chris_n_479983.html

(ag) Mar. 11, 2010, in Congress, Consumer Protection, Financial Regulatory Reform

The Case for a Consumer Financial Protection Agency

My most recent law review article, "The Consumer Financial Protection Agency:  Love It or Hate It, U.S. Financial Regulation Needs It" is posted on SSRN at http://ssrn.com/author=391481. 

Abstract:
As the U.S. economy begins a tentative recovery from recession, Congress is debating financial regulatory reform legislation. Whether a stand-alone consumer financial protection agency becomes a centerpiece of the new regulatory regime or a throw-away bargaining chip remains to be seen. In any assessment of the subprime-mortgage-crisis-gone-global, with the benefit of honest hindsight, failures of consumer protection loom large.

In the wake of this crisis, just as in the aftermath of the banking collapse of the 1930s, Congress has an opportunity to restructure a broken financial regulatory system. More than band aids are required. If the reforms Congress adopts now are to secure a lengthy period of financial stability, as was the case following the New Deal era’s reenvisioning of financial regulation, consumer protection cannot continue to be marginalized. Congress could muster the leadership and political backbone to create a new, independent agency whose sole mission is to protect consumers of financial products from the abuses which contributed to the present financial crisis. The prospect of such a major shift in the allocation of regulatory authority has already raised a hue and cry from beneficiaries of the status quo in the federal regulatory agencies and the financial industry lobby.

This article analyzes The Consumer Financial Protection Agency Act of 2009, as passed by the House of Representatives. Each section of the article identifies a key point of controversy, with arguments pro and con, coming down in favor of an independent consumer financial protection agency.

(ag) Mar. 10, 2010, in Congress, Consumer Protection, Financial Regulatory Reform

Two New Global Anti-Money-Laundering (AML) Trends

Thanks to Blog Reader Jonathan Stotts for this informative video clip discussing two new global anti-money-laundering (AML) Trends:  Big fines and more complex monitoring requirements.

http://www.youtube.com/watch?v=C7mUwqoMDng&feature=youtube_gdata

Eugene Yoo talks about the top global trends in AML watch list filtering (WLF) and the challenges firms face matching multi-cultural client names. Banks are under increased regulatory pressure and face even larger penalties for non compliance.  In 2009, we saw fines in excess of a half-a-billion USD.  Firms must fundamentally shift how they approach watch list filtering because of growing OFAC and PEP (politically exposed people) lists.

Key points covered:
1. Non-compliance fines are growing.
2. Firms are now required to do more than just sanction screening through OFAC List matching.
3. Naming variations across cultures must be understood and addressed.

(ag) Mar. 9, 2010, in BSA/AML

Inside the Fed: Division of Opinion between the Regional Federal Reserve Banks & D.C. Headquarters

Monday's Wall Street Journal has a detailed article by Jon Hilsenrath, "Battle Inside Fed Rages Over Bank Regulation." 

According to the article,  "Fissures at the central bank boiled over last year in a meeting in the boardroom of a Fed branch office in Memphis. The presidents of the regional banks, which dot the country from Boston to San Francisco, complained to Fed Vice Chairman Donald Kohn that the Fed's Washington bank-supervision group was adrift and not providing the district banks needed guidance on how to navigate a worsening banking crisis."

But then, a new Governor was appointed.  Daniel K. Tarullo began "pushing ahead aggressively to strengthen the Fed's bank oversight,"

What bank supervision powers will remain with the Fed is an open question as Congress considers financial regulatory reform.

Link to article:  http://online.wsj.com/article/SB10001424052748704754604575095321531680234.html?mod=rss_Today's_Most_Popular

(ag) Mar. 9, 2010, in Federal Banking Agencies/FRB, Financial Regulatory Reform

OCC as the Consumer Protection Agency -- You've Got to Be Kidding

One Senate Proposal is to scrap the independent Consumer Financial Protection Agency and house the consumer protection function in the Office of the Comptroller of the Currency, the cheerleader (captive regulator) for national banks. 

University of Connecticut Law Professor Patricia McCoy outlines the OCC's abject failure in the consumer protection arena during the subprime buildup.

Good grief!  Say it ain't so!  This would be the proverbial fox guarding the henhouse.

Link to NY Times Editorial:  http://dealbook.blogs.nytimes.com/2010/03/08/another-view-the-best-way-to-protect-borrowers/ 

(ag) Mar. 8, 2010, in Congress, Consumer Protection, Federal Banking Agencies/OCC, Financial Regulatory Reform

Treasury Defends Government Bailout of Citigroup

Herbert M. Allison, Jr., Assistant Secretary for Financial Stability and Counselor to the Secretary of the Treasury, defended the government bailout of Citigroup and the implicit government guarantee that this large financial group would not be allowed to fail.

Despite evidence to the contrary, he said, "There is no too-big-to-fail guarantee on the part of the U.S. government." On March 4, 2009, Allison faced difficult questions from the Congressional Oversight Panel, which is charged by Congress with policing the $700 billion Troubled Assets Relief Program.

Link to story:  http://www.washingtonpost.com/wp-dyn/content/article/2010/03/04/AR2010030404778.html?wpisrc=nl_fed 

Link to Written Testimony before the Congressional Oversight Panel:  http://www.ustreas.gov/press/releases/tg573.htm 

(ag) Mar. 5, 2010, in Congress, Financial Regulatory Reform, Too Big to Fail

AIG Mortgage Subsidiaries Settle Claims They Discriminated Against African American Borrowers

The Justice Department announced a $6.1 Million settlement today with two mortgage lending subidiaries of AIG.  Wilmington Finance and AIG Federal Savings Bank allegedly discriminated against approximately 2,500 African American borrowers.

We need a Consumer Financial Protection Agency to deal with problems like this that the existing federal banking agencies ignored until too late.

Link to story:  http://online.wsj.com/article/SB10001424052748704187204575101703902786706.html?mod=WSJ_hpp_LEFTWhatsNewsCollection 

(ag) Mar. 4, 2010, in Consumer Protection

"Honest Services" - Supreme Court Oral Argument in the Jeff Skilling (Enron CEO) Case

The U.S. Supreme Court heard oral argument in the third "honest services" case to come before the Court this term.  Questions raised by this case include: 

1.   Whether the judge in former Enron CEO Jeff Skillings criminal trial moved too quickly to select a jury and retain the case in Houston despite local publicity about Enron's collapse.

2.  Whether the "honest services" statute is too vague.

 Link to story:  http://www.washingtonpost.com/wp-dyn/content/article/2010/03/01/AR2010030103510.html?wpisrc=nl_politics

(ag) Mar. 2, 2010, in Economy, Corporate Governance, Supreme Court

PSLRA and the Financial Collapse

Corporate governance classes spend significant time reviewing the Private Securities Litigation Act of 1995 (PSLRA) and the Securities Litigation Uniform Standards Act of 1998 (SLUSA) when we discuss the public perception of greedy plaintiff's lawyers and frivolous securities law class action "strike" suits. 

Does the PSLRA heightened pleading standard accomplish a desirable Congressional objective to promote early dismissal of lawsuits filed for settlement value alone or does it go too far in barring even meritorious lawsuits?

Here's a recent article that links these statutes limiting the private cause of action for securities fraud to the financial collapse -- an interesting analysis!

Link to article, "Legal Abandon:  How Limiting Lawsuits Led to the Financial Collapse and What To Do About It."

LInk:  http://www.centerjd.org/archives/studies/LegalAbandonWpaperF.pdf 

(ag) Mar. 1, 2010 in Corporate Governance, Economy, Securities Law