In July, the Federal Deposit Insurance Corporation (the “FDIC”) proposed a change (discussed here) to certain provisions of its securitization safe harbor rule (the “Rule”), which relates to the treatment of financial assets transferred in connection with a securitization or participation transaction.  The proposed change would eliminate the requirement under the Rule that disclosure documents for bank-sponsored securitizations not otherwise subject to Regulation AB’s disclosure requirements (i.e. non-public transactions) comply with Regulation AB.   This could significantly ease the compliance burden associated with non-public bank-sponsored ABS issuances, potentially resulting in a greater volume of such transactions.

Continue Reading Recent credit card ABS disclosure trends

California law restricts the types of instruments in which California cities, districts and other local agencies can invest public funds. Previously, among other requirements, Section 53601 of the California Government Code provided that these municipalities could only invest public funds in asset-backed securities and mortgage-backed securities when (i) issued by an issuer rated at least “A” or its equivalent for its debts by a nationally recognized statistical rating organization (an “NRSRO”) and (ii) such securities had a maximum maturity of five years or less. As described in the Local Agency Investment Guidelines issued by the California Debt and Investment Advisory Commission (available here), Section 53601 has been amended to both (i) eliminate the requirement that a securities issuer be rated at least “A” or its equivalent and (ii) revise the maximum maturity provision to require that asset-backed securities and mortgage-backed securities have a maximum remaining maturity of five years or less, as determined when the municipality acquires the investment. Continue Reading Changes in California law may provide new opportunities for ABS and MBS issuers and California governmental entity investors

The Credit Card Accountability Responsibility and Disclosure Act (CARD Act) requires the CFPB to prepare a biennial report to Congress regarding the consumer credit card market. On August 27th, the CFPB issued its fourth such report (previous reports were issued in 2013, 2015 and 2017) which describes the CFPB’s findings regarding, among other things, the cost and availability of credit, credit card performance trends and innovations in the credit card marketplace. As you might expect, the CFPB compiles a huge amount of credit card data from several sources including federal agencies and credit card issuers.  For those interested in the credit card market, the report contains a wealth of statistics and data points.

Some of the core findings from the report include:

  • “Total outstanding credit card balances have continued to grow and at year-end 2018 were nominally above pre-recession levels. Throughout the post-recession period, including the period since the Bureau’s 2017 Report, purchase volume has grown faster than outstanding balances. After falling to historical lows in the years following the recession, delinquency and charge-off rates have increased over the last two years. Late payment rates have increased for new originations of general purpose and private label cards, both overall and within different credit tiers.”
  • “The total cost of credit (TCC) on revolving accounts has increased over the last two years and in 2018 stood at 18.7 percent, which is the highest overall level observed in the Bureau’s biennial reports. Recent TCC increases are largely the result of increases in the indices underlying variable rates, such as the prime rate. General purpose cards, which generally have interest rates linked to the prime rate, have driven the increase across every credit tier. TCC has fallen over the last two years for private label cards, in part because relatively fewer of these cards have rates linked directly to index rates, offset by a decline in fees as a share of balances.”
  • “Most measures of credit card availability—overall and across credit score tiers—have remained stable or decreased slightly since the Bureau’s 2017 Report. Measured by application volume, consumer demand for credit cards peaked in 2016. Approval rates have also declined slightly since 2016. Driven by lower approval rates, annual growth in the number of credit card accounts opened and the amount of credit line on new accounts has also leveled off. Even so, total credit line across all consumer credit cards reached $4.3 trillion in 2018, nearly equal to its pre-recession high, largely due to the growth in unused line on accounts held by consumers with superprime scores.”

We expect market participants to use the data provided by the CFPB in the report as a benchmark for evaluating performance and regulatory trends for credit card programs.

The US Securities and Exchange Commission (SEC) has announced an increase in the filing fees to be paid by public companies and other issuers during the SEC’s 2020 fiscal year. Effective October 1, 2019, the filing fee rate will increase approximately 7.1 percent from the current rate of $121.20 per million dollars to $129.80 per million dollars for, among other things: (1) the registration of securities under the Securities Act of 1933; and (2) the repurchase of securities in going private transactions pursuant to Section 13(e) of the Securities Exchange Act of 1934 (Exchange Act).

Continue Reading SEC increases filing fees for fiscal year 2020

The Wall Street Journal recently quoted Mayer Brown Partner Matthew F. Kluchenek regarding a federal judge’s demand that the new chairman and two commissioners of the Commodity Futures Trading Commission (“CFTC”) testify in response to a motion for contempt and sanctions. U.S. District Court for the Northern District of Illinois Judge John Robert Blakey ordered CFTC Chairman Heath Tarbert to testify about agency statements regarding a $16 million consent order (“Consent Order”)[1] with Kraft Foods Group Inc. and Mondelez Global LLC (“Kraft and Mondelez”) to settle a 2015 complaint that alleged wheat market manipulation.[2]

Continue Reading Federal judge orders CFTC commissioners to testify about public statements following the issuance of a consent order in CFTC v. Kraft

On August 8, 2019, the US Securities and Exchange Commission proposed amendments to Regulation S-K that are intended to modernize business, legal proceedings and risk factor disclosures (link).  The proposed changes are meant to update the rules to improve the readability of disclosures for investors while discouraging repetition and disclosure of information that is not material to the underlying transaction.

On July 25th, the CFPB announced plans to allow the temporary Qualified Mortgage (QM) status given to loans eligible for purchase by Fannie Mae or Freddie Mac (the GSEs) to expire. However, the agency stated it could allow a short extension past the January 10, 2021 expiration date, and is in any case soliciting public comments on the general QM definition, including its income and debt documentation requirements. Continue Reading CFPB to rip off the patch?

On June 18, 2019, the Securities and Exchange Commission (the “SEC”) issued a concept release requesting public comment on ways to simplify, harmonize and improve the exempt offering process to expand investment opportunities while maintaining investor protections.   The full text of the SEC concept release is here. Continue Reading Concept release on harmonization of securities offering exemptions

On July 16, 2019, the Federal Deposit Insurance Corporation (the “FDIC”) proposed changes to certain provisions of its securitization safe harbor rule (the “Rule”), which relates to the treatment of financial assets transferred in connection with a securitization or participation transaction.  12 C.F.R. § 360.6. The proposed rule (“Proposed Change”) would eliminate the requirement that the securitization documents require compliance with Regulation AB of the Securities and Exchange Commission (“SEC”), 17 C.F.R. §§ 229.1100 et. seq. (“Regulation AB”), in circumstances where Regulation AB by its terms would not apply to the issuance of obligations backed by such financial assets.  This proposed change would modify section 360.6(b)(2)(i)(A) of the Rule to read as follows:

Continue Reading FDIC proposes changes to securitization safe harbor rule