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financial regulation

Legal Battle On Horizon Over CFPB's Power

The scope of the power of the Consumer Finanical Protection Bureau is under challenge by a New Jersey lender, which is arguing the CFPB Director Richard Cordary illegally imposed a $109 million penalty against it, The Wall Street Journal's Yuka Hayashi reports.

An in-house CFPB judge originally ruled that PHH Corp. took "kickbacks" from mortgage insurers and increased costs for mortgage borrowers. The CFPB says PHH referred borrowers to mortgage-insurance companies and would collect up to 40 percent of the premiums. On appeal, Cordray imposed a penalty that was 18 times more than the in-house judge had sought. Cordray concluded that PHH had violated the law each time it received a monthly payment.

The case is now pending before the U.S. Court of Appeals for the D.C. Circuit and "revolves around the CFPB’s new hard-line interpretation of the four-decade-old Real Estate Settlement Procedure Act, designed to keep lenders and realtors from inflating home-sale transaction costs."

Connecticut Supreme Court Rejects Regulation of Debt Negotiation Law Firms

The Connecticut Supreme Court has struck down a state law that gave the Department of Banking authority to regulate law firms engaged in debt collection, The Connecticut Law Tribune's Christian Nolan reports.

The Supreme Court ruled that only the judiciary can regulate the conduct of law firms. The law limited the fees that law firms could charge and required law firms to pay $800 annual licenses for helping consumers renegotiate credit card debt.

Judge: SEC's Internal Tribunal Likely Unconstitutional

U.S. District Judge Richard Berman of the Southern District of New York ruled last week that the Securities and Exchange Commission is likely to lose the fight to defend its use of in-house judges as constitutional, The Wall Street Journal's Eaglesham reports. Berman, who previously ruled the SEC’s system of having its in-house judges named by the staff, rather than the agency’s commissioners, may violate the constitution, said he thinks the SEC's appeals will fail.

The SEC in-house courts have been criticized as unfairly biased in favor of the agency's position in cases.

Bitcoin Determined to Be a Commodity By Regulator

The Commodity Futures Trading Commission has determined that virtual money is a commodity  that can be regulated, Bloomberg's Luke Kawa reports. That determination was made as part of the CFTC settling charges against a Bitcoin exchange for facilitating the trading of options contracts.

That means that a company that wants to operate a trading platform for Bitcoin derivatives or futures must register as a swap execution facility or designated contract market, Kawa reports.

FHA Trying to Coax Banks Back to Mortgage Lending to Risky Borrowers

The federal government is trying to coax banks into making more mortgage loans to risky borrowers by assuring them that minor mistakes on mortgages won't result in penalties, The Wall Street Journal's Joe Light reports. The Justice Department has been claiming in several lawsuits that there have been mistakes by banks in loans backed by the Federal Housing Administration, resulting in billions of dollars of penalties and lenders making fewer loans througy the FHA program. The FHA has now proposed new documents for certifying loans, which FHA leader Edward Golding said would leave "room for minor errors while still letting the government pursue damages in the event of significant mistakes."

Apple Likely Heading For Another Appeal with E-Books Ruling

The Second Circuit, 2-1, has upheld a finding that Apple violated antitrust laws with its e-book pricing, Fortune's Philip Elmer-DeWitt reports.

The majority found that the Sherman Antitrust Act was violated if a conspiracy results in higher prices to consumers--no matter other factors, he notes. Dissenting Judge Dennis Jacobs argued that market conditions like competitor Amazon's e-book monpoly and Apple's status as a book distibutor should be considered.

Philip Elmer-DeWitt notes that Apple can either seek en banc review by the Second Circuit or seek the slender chance it will be granted certiorari by the Supreme Court.

SEC Defends Its In-House Courts

The Securities and Exchange Commission is defending its use of in-house courts to handle enforcement of financial regulations, The Wall Street Journal's Jean Eaglesham reports: "The SEC accused several defendants of 'judge shopping' by trying to get a case heard in a particular court and in another instance asked one of its own judges to submit a formal statement about whether he has ever felt pressure to favor the agency."

Seven cases have been brought by defendants against those in-house courts, and they argue the administrative-law process denies them important protections. One federal judge has said the process is likely unconstitutional.

Barriers Lifted on Investors of Modest Means

Investors of modest means are now going to be able to take a chance on startups the way that venture capitalists and angel investors can, The New York Times' Stacy Cowley reports. Companies seeking to raise up to $50 million--even though they are not yet publicly traded--will be able to advertise to investors online and through social media. Under the old regulations, companies that didn't want to have to file reports with the Securities and Exchange Commission only could sell shares to "accredited investors with an annual income of more than $200,000 or a net worth of at least $1 million."

Big Banks Facing New Restrictions on Mortgage Businesses

JPMorgan Chase, Wells Fargo, HSBC, US Bank, Santander and EverBank are facing new restrictions on their mortgage-lending businesses for failing to clean up their foreclosure practices, The Washington Post's Danielle Douglas-Gabriel reports. The restrictions were announced this week by the Office of the Comptroller of the Currency.

The banks are being barred from servicing loans for which they handle payments on behalf of other financial institutions that hold those mortgages on their books.

Wells Fargo failed to comply with 15 of 98 items banks have been asked to fix by regulators, while HSBC failed to comply with 45 of 98 items, Douglas-Gabriel reports..

SEC Clarifies When In-House Judges Are Used

For the first time, the Securities and Exchange Commission has provided guidance on when it chooses in-house judges to preside over securities cases, the Wall Street Journal's Aruna Viswanatha reports. The SEC revealed "it would consider bringing cases before its in-house courts when the alleged misconduct was old or if it presented unsettled legal issues."

The SEC got the ability to bring cases before administrative law judges in the 2010 Dodd-Frank law. The SEC has won 90 percent of those cases.

Defendants are arguing that the SEC's administrative-law process violates their due process rights.


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