Dodd-Frank News Center

House files Supreme Court motion to defend for-cause removal provision for CFPB director

This story appeared in Bank Digest.                                   

Speaker of the House Nancy Pelosi (D-Calif) and House Financial Services Committee Chairwoman Maxine Waters (D-Calif) have announced a filing by the House of Representatives with the Supreme Court in support of the independence of the Consumer Financial Protection Bureau. As described in Pelosi's press release, the House's motion in Seila Law LLC v. CFPB to file an amicus brief follows a recent announcement by Consumer Financial Protection Bureau Director Kathy Kraninger that the Bureau would no longer defend the constitutionality of the for-cause removal provision regarding the CFPB director, which is designed to provide a degree of independence to the agency and to prevent the President from removing the director at will.

The release said the Justice Department has also urged the Supreme Court to consider the case in order to strike down the for-cause removal protection for the CFPB director.

Questions Continue Regarding Recess Appointments

This story appeared in Bank Digest.

A divided panel of the U.S. Court of Appeals for the Third Circuit has ruled in NLRB v. New Vista Nursing and Rehabilitation that a National Labor Relations Board panel lacked the requisite number of members to exercise the NLRB's authority because one panel member was invalidly appointed during an intrasession break. This latest ruling, along with the Jan. 25, 2013, decision by the U.S. Court of Appeals for the District of Columbia in Noel Canning v. National Labor Relations Board, as well as the Obama Administration's petition for certiorari with the Supreme Court seeking reversal of the D.C. court's decision, further clouds the January 2012 recess appointment of Richard Cordray as Director of the Consumer Financial Protection Bureau and the actions taken by the bureau during Cordray's recess appointment.

CROA Claims May Be Subject to Binding Arbitration Agreements

By Gregg D. Killoren, J.D., CCH State Banking Law Reporter, Bank Digest and Individual Retirement Plans Guide; co-author, Dodd-Frank Wall Street Reform and Consumer Protection Act—Law, Explanation and Analysis.

The Supreme Court has ruled in CompuCredit Corp. v. Greenwood that a binding arbitration clause of a credit card agreement may be enforced under the Credit Repair Organizations Act. Individuals who applied for and received an Aspire Visa credit card marketed by CompuCredit Corporation and issued by Columbus Bank and Trust, now a division of petitioner Synovus Bank, agreed to be bound by an arbitration agreement included in their applications. The cardholders later filed suit against CompuCredit and Columbus, alleging violations of the CROA. The District Court for the Northern District of California denied the defendants' motion to compel arbitration, concluding that Congress intended CROA claims to be nonarbitrable, and, on appeal, the Ninth Circuit Court of Appeals affirmed the lower court's decision.

OCC Clarifies Dodd-Frank Preemption Standards

This story appeared in Bank Digest.

The Office of the Comptroller of the Currency has responded to an inquiry made by Sens. Tom Carper, D-Del., and Mark Warner, D-Va., regarding the preemption provisions added by the Dodd-Frank Act. The OCC’s letter clarified how the agency would interpret particular aspects of the preemption provisions and described the related changes the agency planned to its regulations. The OCC noted that the statutory direction found in Dodd-Frank Act Section 1044 requires that the agency apply the conflict preemption standards articulated in the U.S. Supreme Court case of Barnett Bank of Marion County, N. A. v. Nelson, Florida Insurance Commissioner, et al.. The agency added that precedents, such as judicial decisions, interpretations and the OCC’s rules, which are consistent with the Barnett principles are preserved. In a statement, the American Bankers Association, which originally released the letter, noted, “The OCC's action helps clarify the rules of the road for national banks and how they serve their customers. This means that bank customers—regardless of where they live or work—will have a consistent, high-level set of consumer protections nationwide.”

Reg. Z Did Not Require Advance Notice of Penalty Interest Rate Increase

By Richard Roth, J.D., Editor, the CCH Federal Banking Law Reporter, CCH Bank Compliance Guide, Bank Digest; co-author, Dodd-Frank Wall Street Reform and Consumer Protection Act—Law, Explanation and Analysis, Jan. 24, 2011.

The U.S. Supreme Court has reversed a consumer-friendly decision that a credit card lender violated Reg. Z—Truth in Lending (12 CFR 226) by increasing a delinquent consumer’s interest rate without giving the consumer a contemporaneous notice. Relying on a friend-of-the-court brief filed by the Federal Reserve Board rather than on its own interpretation of Reg. Z, the Court determined that the notice was not needed when the credit card agreement allowed the credit card company to impose an increase after the consumer violated the agreement's terms. However, the decision will have limited effect as it applies to the notice obligations under a version of Reg. Z that no longer is in effect. Under Reg. Z amendments that took effect in 2010, consumers are entitled to 45 days prior notice of rate increases due to defaults.

SEC Asks Supreme Court to Decide the Status of Rule 10b-5 Loss Causation at Class Certification Stage

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter and CCH Derivatives Regulation Law Reporter.

At the invitation of the Supreme Court, the SEC filed an amicus brief asking the Court to resolve a split in the federal circuits over when a plaintiff in a securities fraud action relying on a fraud-on-the-market reliance presumption must demonstrate loss causation to obtain class certification. The brief contends that a Fifth Circuit panel erroneously required the plaintiff to prove loss causation at the class certification stage by a preponderance of the evidence. The petition asks the Court to review the significant threshold issue of the proper procedural standard for loss causation at the class certification stage. The petition will be considered at the Court’s conference on Jan. 7, 2011. Erica P. John Fund, Inc. v. Halliburton Co., et al., Dkt. No. 09-1403.

Business Groups’ Brief Attacks SEC’s Adoption of Proxy Access Rule as Fundamentally Flawed and Unconstitutional

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter and CCH Derivatives Regulation Law Reporter.

The SEC’s adoption of a proxy access rule was based on a fundamentally flawed assessment of the rule’s costs, benefits, and effects on competition and capital formation and effected an arbitrary nullification of state law rights for director elections, said a brief filed jointly by the Business Roundtable and US Chamber of Commerce in their federal appeals court action seeing vacatur of the rule. Filed in the DC Circuit Court of Appeals, the brief also argued that it was arbitrary for the Commission to adopt the rule rather than let shareholders decide for themselves whether to adopt an access mechanism, given the SEC’s stated purpose of empowering shareholders in connection with director elections and its admission that the rules could harm corporate performance. The brief also argued that the proxy access rule violates the First Amendment. On a subsidiary point, the brief contended that the rule arbitrarily and capriciously includes investment companies within its embrace. Business Roundtable and US Chamber of Commerce v. SEC, US Court of Appeals for the District of Columbia Circuit, No. 10-1305, Nov. 30, 2010.

SEC Urges Supreme Court to Hold that Investment Adviser Could Be Liable for Misstatements in the Prospectuses of Funds It Manages

This story appeared in Jim Hamilton's World of Securities Regulation.

An investment adviser to a family of funds could be primarily liable for alleged misleading statements in the funds’ prospectuses, maintained an SEC amicus brief to the Supreme Court, since an investment adviser exercising day-to-day management over a mutual fund cannot be considered a secondary actor for Rule 10b-5 purposes like an accountant or attorney could be. Thus, the investment adviser’s alleged role in the drafting of the funds’ prospectuses was a sufficient basis for concluding that it made the alleged mis­statements contained therein. Unlike a typical second­ary actor such as a lawyer or accountant, reasoned the SEC, an investment adviser’s unique and close relationship with a mutual fund makes it essentially a corporate insider. The adviser was no run-of-the-­mill outside service provider to the funds, but rather a manager of the funds. Oral argument is set for December 7, 2010 and the government has asked for permission to participate in it. Janus Capital Group, Inc. v. First Derivatives Traders, US Supreme Court, Docket No. 09-525.

Legislation Requiring Proxy Disclosure of Company’s Political Donations Reported Out to House Floor

This story appeared in Jim Hamilton's World of Securities Regulation.

Legislation requiring a shareholder vote on a company’s proposed political budget has been favorably reported out of the House Financial Services Committee to the House floor. The Shareholder Protection Act, HR 4790, responds to January’s Supreme Court decision in Citizens United v. FEC that corporations cannot be prohibited from spending general treasury funds on political campaigns because it would violate their free speech rights. Sponsored by Rep. Michael Capuano (D-MA), with 49 co-sponsors, the legislation would give shareholders the ability to vote to approve or reject these expenditures. According to Rep. Capuano, the legislation is a simple and direct way to ensure that corporate political expenditures reflect the will of the shareholders, since the money in question belongs to the shareholders.

Supreme Court Rejects Tenure Provisions of PCAOB

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

The Supreme Court ruled 5 to 4 on June 28, 2010, that the tenure provisions of the Public Company Accounting Oversight Board (PCAOB), which was created as part of a series of accounting reforms in the Sarbanes-Oxley Act of 2002, are incompatible with the Constitution’s separation of powers.