Jones Day explains The Future of Mandatory Consumer Arbitration Clauses

Arbitration as a means of dispute resolution is intended to help consumers and businesses save time and money and achieve fair results when compared to traditional litigation. Millions of contracts for consumer financial products and services have a pre-dispute arbitration clause (“arbitration clause”) that requires consumers and financial institutions to resolve their disputes through arbitration, rather than through the court system.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) required the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) to study arbitration agreements and submit its findings in a report to Congress (“CFPB Study”).[i] In sharp contrast … Read more

PwC highlights Ten Key Points from the Fed’s TLAC Proposal

The Fed proposed its long-awaited Total Loss-Absorbing Capacity (TLAC) requirements on October 30th. As expected, the Fed’s proposal came out tougher than the Financial Stability Board’s (FSB) TLAC standard proposed last year,[1] including limitations on capital distributions and bonus payments, and will likely be tougher than the FSB’s final standard expected next week. In an unusual move, the US issued its proposal before the FSB, suggesting that a consensus could not be reached in line with US regulators’ desire for more stringency.

However, the Fed did not go as far in its quantitative TLAC requirements as some feared it … Read more

Morrison & Foerster explains SEC Proposes Rule Changes to Pave the Way for Intrastate and Regional Offerings

At the same time the Securities and Exchange Commission (the “SEC”) adopted rules implementing Regulation Crowdfunding pursuant to Title III of the Jumpstart Our Business Startups Act (the “JOBS Act”), the agency proposed rule changes that could potentially facilitate intrastate and regional offerings that are subject to state blue sky regulation. In particular, the SEC proposed to modernize Rule 147 under the Securities Act of 1933, as amended (the “Securities Act”), and establish a new exemption to facilitate offerings relying upon recently adopted intrastate crowdfunding exemptions under state securities laws. The SEC also proposed amendments to Rule 504 of Regulation … Read more

Erik Gerding

Volcker’s Covered Fund Rules: When Banking Law Borrows from a Securities Law Statute

The Volcker Rule’s covered fund provisions have not received the attention they deserve. Like the more well-studied proprietary trading rule, the covered funds rule restricts bank investments in the name of limiting their risk-taking and mitigating their contribution to systemic risk. As with proprietary trading, legislators and regulators faced a decision with covered funds on how to define those bank activities that would be off-limits. However, unlike with prop trading, Congress, and federal regulators subsequently, chose to define the scope of the covered funds rule largely by reference to an existing statute.

In a recent short article just published in … Read more

Jo Braithwaite

Legal Perspectives on Client Clearing

In the immediate aftermath of the global financial crisis, the G20 quickly turned its attention to reforming the vast ‘over-the-counter’ (OTC) derivatives markets. The statement issued after the G20’s September 2009 meeting included the declaration that ‘[a]ll standardized OTC derivatives contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest.’

This was an ambitious use of political capital, with the objectives being to increase market resilience, tackle interconnectedness and promote transparency. In a recent paper I consider the implications of this reform program for the market infrastructure it … Read more

Arthur Wilmarth

The Financial Industry’s Bankruptcy Plan for Resolving Failed Megabanks Would Give Unwarranted Benefits to Their Executives and Wall Street Creditors

In a recent post,[1] I summarized my forthcoming article critiquing the financial industry’s plan for resolving failed megabanks under Title II of the Dodd-Frank Act.[2] My article describes the industry’s “single point of entry” (SPOE) strategy for recapitalizing and reorganizing failed megabanks. I argue that the industry’s SPOE strategy is designed to provide full protection for Wall Street creditors of failed megabanks while imposing the costs of rescuing those banks on ordinary investors and/or taxpayers.

The financial industry has also proposed a new “Chapter 14” of the Bankruptcy Code, which would authorize federal bankruptcy courts to adopt an … Read more

Mayer Brown explains Prudential Regulators’ Adoption of Margin Rules for Swaps and Security-Based Swaps

On October 22, 2015, the OCC, the Board of Governors of the US Federal Reserve System, the FDIC, the Farm Credit Administration and the Federal Housing Finance Agency (collectively, the “Agencies”) adopted (i) a joint final rule1 to establish minimum margin requirements for registered swap dealers, major swap participants, security-based swap dealers and major security-based swap participants (collectively, “swap entities”) for which one of the Agencies is the prudential regulator2 (“covered swap entities” or “CSEs”) and (ii) a companion interim final rule3 (and request for comment) to implement margin exemptions added by the Terrorism Risk Insurance Program … Read more

Gibson Dunn analyzes the CFPB’s Rulemaking to Curtail Arbitration Agreements Barring Class Actions in Consumer Financial Contracts

On October 7, 2015, the United States Consumer Financial Protection Bureau announced that it is “launch[ing] a rulemaking process” that is intended to impede the use of “pre-dispute arbitration agreements for consumer financial products and services.”[1] The proposal currently under consideration by the Bureau would (1) “prohibit companies from blocking group lawsuits through the use of arbitration clauses in their contracts;” and (2) “require companies to send to the Bureau all filings made by or against them in consumer financial arbitration disputes” and any resulting decisions, “which might be made public.”[2]

If the CFPB ultimately adopts the current … Read more


Was Bernanke Courageous?

As reflected in the title of the new memoir by Former Federal Reserve Chairman Ben Bernanke, The Courage to Act: A Memoir of a Crisis and Its Aftermath, Bernanke clearly believes that he and other Fed policymakers demonstrated exceptional courage in their handling of the 2007-2009 financial crisis.[1] In a new paper forthcoming in Columbia Law Review and available here, I suggest otherwise. I agree with Bernanke that if one narrows the lens to the Fed’s actions after Lehman Brothers failed in September 2008, the Fed and other financial regulators often displayed great courage and creativity and … Read more

Arnold & Porter explains First DOJ/CFPB Joint Redlining Settlement

On September 24, 2015, the US Department of Justice (DOJ), the Bureau of Consumer Financial Protection (CFPB), and Hudson City Savings Bank (Bank) entered into a consent order which, if approved by the court, would settle allegations that the Bank violated the Equal Credit Opportunity Act and the Fair Housing Act (FHA). The consent order is the latest in a series of actions taken by a number of regulators on both the state and federal level settling allegations of redlining based largely on statistical analysis rather than evidence of denied loans.1

The recent settlement was the result of investigations … Read more

John Crawford and Timothy Karpoff

The Swaps Pushout Rule: Much Ado About the Wrong Thing?

A provision of the Dodd-Frank Act popularly known as the “swaps pushout rule” prohibited FDIC-insured banks from entering into certain types of swaps contracts. Congress recently reversed this provision, so that banks can continue trading in these swaps. The reversal provoked an outcry from parties concerned that it would put “taxpayers right back on the hook for bailing out big banks.”[1]

In a new paper, The Swaps Pushout Rule: Much Ado about the Wrong Thing?, we argue that the rule would have done little to protect taxpayers directly from the risks of these transactions. This is … Read more

Brandon Garret

It Takes a Plan (To End ‘Too Big to Jail’)

“If you only look at the big banks, you will be missing the forest for the trees,” said Hillary Clinton in the debate last night, responding to calls to break up the major banks.  Corporate crime is a broader problem touching every industry and not just Wall Street. Clinton has proposed for the first time a top-to-bottom plan for policing and preventing corporate crime and financial misconduct. We have not seen the likes of it in this campaign or elsewhere. The plan addresses systemic risk in financial institutions, or “too big to fail,” but my interest is in “too big … Read more

PwC discusses Ten Key Points From the SEC’s Proposed Liquidity Risk Management Rule for Mutual Funds

The Securities and Exchange Commission (SEC) has proposed a set of liquidity risk management requirements for registered open-end mutual funds and ETFs. The proposal is part of a broader SEC agenda to modernize the Investment Company Act of 1940 (’40 Act) and to address perceived systemic risk concerns relating to the asset management industry.

1. The proposal addresses liquidity concerns arising in a changing industry. The proposal is a response to recent changes in the asset management industry, including the growing presence of mutual funds in the fixed-income space (now holding nearly 20% of US corporate debt; up from 7% … Read more

Stephen Lubben

Failure of the Clearinghouse: Dodd-Frank’s Fatal Flaw?

As is well known, a key feature of the Dodd-Frank Act is the effort to treat swaps more like commodities. In particular, large categories of swaps are to be centrally cleared, replacing the pre-Lehman OTC model with a commodities model that has worked reasonably well for decades.

But the result is to massively increase the importance of the clearinghouses in the global financial system. Clearinghouses are regulated, but given the vital place of clearinghouses in Dodd-Frank, it is surprising that Dodd-Frank makes no clear provision for the failure of a clearinghouse.

Given the key role that clearinghouses will play in … Read more

Richard Berner

Remarks by OFR Director Richard Berner at the Third Annual Workshop on Financial Interconnectedness

Thank you to the organizers and BIS for the opportunity to address this research conference on “Global Financial Interconnectedness.” The OFR was established to identify, monitor, and assess threats to financial stability, so improving our collective understanding of the interconnectedness of the global financial system is essential for achieving the OFR mission.

The financial crisis exposed critical gaps in our analysis and understanding of the financial system, in the data used to measure and monitor financial activities, and in the policy tools available to mitigate potential threats to financial stability. These gaps in analysis, data, and policy tools contributed to … Read more

Christian Chamorro-Courtland

Collateral Damage: Adopting the LSOC Model and Insurance in the US Futures Markets

It is confounding that futures customers currently receive a lower level of protection than cleared swaps customers under US law. This legal phenomenon has occurred because the law in the US derivatives markets developed in a piecemeal fashion over several decades.

The Commodity Exchange Act (“CEA”) was designed to include protections for the collateral (known as margin) that futures customers post with their Futures Commission Merchants (“FCM”).[1] Section 4d (a) contains a ‘segregation requirement’, which places the margin of a futures customer into a trust account. This prohibits an FCM from “using” a customer’s margin for its own purposes … Read more

Orrick discusses Second Circuit Splitting with Fifth Circuit Setting Up Possible Supreme Court Review of Internal Whistleblowers’ Protection Under Dodd-Frank

On September 10, 2015, a divided panel of the Second Circuit issued an opinion in Berman v. Neo@Ogilvy LLC, No. 14-4626 (2nd Cir. Sept. 10, 2015), creating a split with the Fifth Circuit on an issue that has also divided lower federal courts: whether the anti-retaliation provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act apply to tipsters who claim retaliation after reporting internally, or only to those retaliated against after reporting information to the SEC.  The Second Circuit, granting Chevron deference to SEC interpretive guidance, held that Dodd-Frank protections apply to internal whistleblowers.  This … Read more

Morgan Lewis explains CFTC/SEC Jurisdictional Battle Heats Up Over Dividend Indices

The CFTC recently approved a futures contract on a dividend index as a non-security based index futures contract over the SEC’s objection that the dividend index contract could be a security future; the CFTC’s actions may have implications for market participants in this and other dividend index futures contracts and swaps.

On July 22, the US Commodity Futures Trading Commission (CFTC) issued a conditional order approving a proposed listing by the Chicago Mercantile Exchange (CME) of a futures contract (Index Contract) on the S&P 500 Dividend Index (Dividend Index).[1] In approving the listing of the Index Contract as a … Read more

Cahill discusses how Recent Cases Consider Challenges to Constitutionality of SEC’s Administrative Law Judges

Since the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) expanded the authority of the Securities and Exchange Commission (“SEC”) to seek civil penalties through administrative proceedings,1 the SEC has brought, as one court observed, “an ever increasing number of enforcement actions within its own administrative scheme, rather than in federal court.”2 In 2014, for instance, the SEC initiated 43% of its litigated actions as administrative proceedings.3 This shift may be due, at least in part, to the reported advantage the SEC enjoys before its own Administrative Law Judges (“ALJs”). From October 2010 through … Read more

Arthur Wilmarth

The Financial Industry’s Plan for Resolving Failed Megabanks Will Ensure Future Bailouts for Wall Street

The high-risk business model of large financial conglomerates (frequently called “universal banks”) was an important cause of the financial crisis. Universal banks rely on cheap funding from deposits and shadow banking liabilities to finance their speculative activities in the capital markets. By combining deposit-taking and short-term borrowing with underwriting, market making, and trading in securities and derivatives, the universal banking model creates a strong likelihood that serious problems occurring in one sector of the financial industry will spread to other sectors. To prevent such contagion, federal regulators have powerful incentives to bail out universal banks and protect all of their … Read more