Many of you have read about the power of the president to invoke the Defense Production Act to acquire products or direct the activities of suppliers based on a finding that it is necessary for the federal government to intrude into the commercial market for national security reasons. When the federal government uses this authority to acquire, or direct the production of, supplies (such as ventilators, N95 masks, and pharmaceuticals in the COVID-19 pandemic context), it uses contracts and negotiates, on an expedited basis, prices and terms. Mortgage servicers perhaps would fare better if their services were subjected to the Defense Production Act in order to address the global pandemic’s adverse impact on residential mortgage borrowers. At least then, servicers could seek to negotiate fair and timely compensation and reimbursement of advances in connection with their necessary role in implementing the Congressional mandate to provide forbearance for up to one year to residential mortgage borrowers with “federally backed mortgage loans. Instead, mortgage servicers are required to shoulder the short-term financial burden of the natural consequences of providing forbearance to such residential mortgage borrowers without, in the views of many, the benefit of just compensation from the federal government.

This Of Special Interest provides more detail on servicing advance requirements and servicer compensation in the context of forbearance required to be provided under the CARES Act.

This article was first published in and is reproduced with the kind permission of HousingWire.

Read the Article.

For more information, please contact Laurence E. Platt.

Learn more about Mayer Brown’s Financial Services Regulatory & EnforcementConsumer Financial Services and Structured Finance practices.

Visit us at

The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) suffered an embarrassing setback in federal district court earlier this week, when a federal district judge denied the Bureau’s motion for entry of a consent judgment on the grounds that the proper party had not consented to entry of the judgment on behalf of the defendants. Back in September 2017, shortly before former Director Richard Cordray left the agency, the Bureau filed a complaint along with a consent judgment against 15 student loan securitization trusts (the “Trusts”). The complaint alleged that the Trusts, through servicers and sub-servicers, engaged in unfair and deceptive practices in connection with servicing and collection of private student loans. The action was filed the same day that the Bureau entered into an administrative consent order with one of the Trusts’ successor sub-servicers, Transworld Systems, Inc.

Oddly, rather than also enter an administrative consent order against the Trusts, the Bureau instead filed a complaint and motion for approval of a consent judgment in federal district court. The Bureau’s motion for entry of the proposed consent judgment stated only that the Bureau moved for the Court to approve and enter the judgment, which was described as having been “executed by Plaintiff [the CFPB] and Defendants National Collegiate Student Loan Trusts [the Trusts]”. The proposed consent judgment was signed by two attorneys from the law firm McCarter & English, LLP (“M&E”), purportedly on behalf of the Trusts. The motion said nothing about any dispute regarding M&E’s authority to act on behalf of the Trusts.

Within days of the Bureau’s filings, a number of Trust-related parties intervened in the matter to argue against entry of the proposed consent judgment on various grounds. Among those grounds was that the Owner Trustee of the Trusts had not consented to entry of the proposed consent judgment (because it believed the terms of the judgment violated the terms of the Trust agreements), and that the Trusts could only act through the Owner Trustee. In addition, with respect to one of the Trusts, the Trust instruments provided that consent of the Note Insurer to the Trust was also required for the Trust to enter into such a settlement.

After a lengthy period of discovery and briefing, the district court ruled that under the governing Trust documents and governing Delaware law, the Owner Trustee was the only party with the authority to bind the Trusts. The court found that the beneficial owners of the Trusts had initially directed the Owner Trustee to execute the proposed consent judgment, but the Owner Trustee refused to do so on advice of counsel that the beneficial owners’ instruction was invalid under the Trust agreements. The beneficial owners then instructed M&E to execute the proposed consent judgment. But because the Owner Trustee had not acted for the Trusts, the court held that M&E did not have the authority to agree to the proposed consent judgment on behalf of the Trusts.

In addition, the court found that, with respect to one of the Trusts, consent from the Note Insurer to the Trust was also required in order to bind the Trusts. The court noted that “the CFPB admits as much” and goes on to quote from the CFPB’s brief noting that the Note Insurer’s “approval does not appear to have been given in this case.”

In light of these findings, the district court denied the Bureau’s motion to enter the proposed consent judgment.

It is rare for a court to reject a proposed settlement in an enforcement action that is allegedly consented to by the government and the defendant. Typically, the entry of such judgments is a rubber stamp. It is probably rarer still for a court to find that a government agency “settled” a matter with parties that lacked authority to do so. This embarrassing outcome for the Bureau leaves it with contested litigation on its hands in a matter that it sought to settle years ago. In addition to denying the Bureau’s motion for entry of the proposed consent judgment, the district court has ordered the CFPB to respond to a pending motion to dismiss on the grounds that the Trusts are not “covered persons” and therefore not subject to the prohibition on unfair, deceptive and abusive acts or practices (UDAAP) in the CFPB’s organic statute. The CFPB’s response to that motion is due June 19.

The European Banking Authority (the “EBA”) has recently published its report on the feasibility of a framework for simple, transparent and standardised (“STS”) synthetic securitisations (the “EBA Report”). The EBA Report follows a discussion paper published by the EBA on 24 September 2019 (the “EBA Discussion Paper”). We considered some of the key aspects of the EBA Discussion Paper in a previous legal update.

The EBA has reaffirmed its recommendations in the EBA Discussion Paper for the establishment of a cross-sectoral framework for STS synthetic securitisation, limited to balance-sheet securitisations, and that for any synthetic securitisation to be STS, it should meet the specified STS criteria for such securitisations.  In addition, the EBA has given further consideration to whether STS synthetic securitisations could benefit from differentiated regulatory treatment and has concluded that this could be justified for senior tranches subject to certain conditions.

In this Legal Update, we consider the proposals contained in the EBA Report, including the extent to which they diverge from the draft proposals in the EBA Discussion Paper.

Read the Legal Update here.

For more information about the topics raised in this Legal Update, please contact Merryn Craske on +44 20 3130 3029, Chris Arnold on +44 20 3130 3610, Harjeet Lall on +44 20 3130 3272 or Robyn Llewellyn on +44 20 3130 3990.

Learn more about our Banking & Finance, Derivatives and Structured Finance practices.

Visit us at

On Friday, the United States Office of the Comptroller of the Currency (“OCC”) finalized a regulation regarding the “Permissible Interest on Loans that are Sold, Assigned, or Otherwise Transferred” by national banks and federal savings associations. Initially proposed in November 2019, the regulation provides that interest on a loan that is permissible under provisions of federal banking laws establishing the interest authority of national banks and federal savings associations is not affected by a sale, assignment, or transfer of the loan—effectively permitting subsequent holders of loans originated by OCC-regulated entities to take advantage of the originators’ “Interest Exportation Authority.” The rule will be effective 60 days after publication in the Federal Register.

The OCC’s action represents a long-awaited next step in the national fallout from the Second Circuit’s 2015 Madden v. Midland Funding decision, which called into question the ability of purchasers of bank-originated loans to continue to charge interest at lawfully contracted-for rates. In Madden, the Second Circuit determined that National Bank Act preemption standards that typically protect national banks and federal savings associations from the application of state laws that “significantly interfere” with full exercise of their banking powers under federal law did not prevent the application of state usury laws to a non-bank purchaser of a bank-originated extension of credit. Many industry participants disagreed with the Madden outcome, which they viewed as taking too narrow a view of federal preemption and disregarding non-preemption bases for concluding that a purchaser should be entitled to enforce a validly-originated loan according to its terms (the “valid-when-made” doctrine). Nevertheless, state regulators and private plaintiffs brought usury claims—some of which remain pending—against lending programs involving the sale of bank-originated loans in the years following the Madden decision. For example, last year, two class action lawsuits were filed against the credit card securitization programs of two national banks alleging that the securitization entities purchasing receivables from the national bank were not permitted to collect interest at the rate charged by the national banks under Madden. Addressing underlying policy concerns and ongoing Madden litigation/enforcement, the OCC is now codifying the valid-when-made doctrine as a matter of federal law for loans originated by national banks and federal savings associations, and justifying its rulemaking, in part, by establishing that several other bank powers (including the Interest Exportation Authority and separate powers to enter into contracts and to sell, assign, or transfer loans) combine to support the proposition that the permissibility of the interest rate on bank-originated loans is not affected by subsequent transfers. The move follows industry efforts to mitigate Madden’s adverse effects on lending programs, including lobbying efforts by the Structured Finance Association through a task force for which Mayer Brown attorneys were among the co-chairs.

The OCC’s rule is a positive development for those seeking regulatory certainty for the secondary market in bank-originated loans and defending Madden claims. However, there are still important issues to be resolved before Madden and related litigation can be put to rest for good. First, the OCC’s rule may be challenged by state regulators or private plaintiffs, such that we may not have a final answer on its validity or scope for some time. Second, the Federal Deposit Insurance Corporation (“FDIC”) is still in the process of finalizing a companion proposal that would apply to loans originated by state-chartered, FDIC-insured banks, and that would address not only a “Madden fix,” but also broader issues as to the interest-related authorities of state banks. Now that the OCC has acted, one would expect the FDIC to act in relatively short order, though the breadth of the FDIC’s rulemaking requires some additional analysis by the FDIC.

Finally, we note that neither the OCC rule nor the FDIC proposal would address the related-but-distinct “true lender” issue (i.e., whether, in any given program involving a bank loan being acquired by a non-bank entity, the bank is the true lender such that the Interest Exportation Authority applies in the first place). While there have been attempts to reach legislative or regulatory resolutions to the “true lender” issue in the years since Madden, those efforts have not yet resulted in any changes to federal law that would clarify standards that should be applied to determine the true lender in litigation or enforcement against bank partnership programs.

Notwithstanding open questions, the OCC’s rule makes it clear that the lawful interest rate does not change when a purchaser acquires a loan originated by a national bank or federal savings association. Purchasers have the authority to charge interest at rates that were permissible for the originator; and state regulators, private plaintiffs, and courts should accept that the authority to sell a loan that retains its contracted-for interest rate after sale is a banking power recognized under federal law.

On May 20, 2020, the Federal Reserve Bank of New York (“FRBNY” or the “Fed”) announced the first subscription date, June 17, 2020, in connection with the Term Asset-Backed Securities Loan Facility (“TALF 2020”). The Fed also issued revised Frequently Asked Questions (“FAQs”) and the new Master Loan and Security Agreement (“MLSA”) for the program, along with other updated forms and documents. On May 26, 2020, the Fed again released revised FAQs and a revised issuer/sponsor certification, as further discussed below.

This Legal Update replaces our prior Legal Update published May 18, 2020, and provides a comprehensive summary of the current FAQs, MLSA and related TALF 2020 materials released to date.

Key Highlights in Recent Fed Releases

  • The first TALF loan subscription date will be June 17, 2020, with a settlement date of June 25, 2020;
  • Going forward, the Fed expects to provide two subscription dates per month, each available to all eligible asset classes;
  • Eligible NRSROs have been expanded to include DBRS and Kroll, as long as at least one qualifying rating is received from S&P, Moody’s or Fitch;
  • The forms for TALF borrower certifications as to inadequate credit accommodations, solvency and conflicts of interest have been provided on the TALF website, with further guidance in the FAQs;
  • Details on collateral review, issuer/sponsor certifications, auditor assurances and SBA loan documentation have been provided in the FAQs and in related forms on the TALF website;
  • The Fed updated its Borrower Due Diligence Policy and Conflicts of Interest Policy with specific guidelines and requirements, including with respect to due diligence on Material Investors and Control Persons of Borrowers, as well as the required contents of Conflicts of Interest Plans; and
  • Operational subscription and closing mechanics have been provided, including detailed timing and delivery requirements for all parties.

Continue Reading

For more information about the topics raised in this Legal Update, please contact James J. AntonopoulosAmanda L. BakerChristy L. FreerJulie A. GillespieCarol A. HitselbergerMelissa L. KilcoyneStuart M. LitwinLindsay M. O’NeilEric M. ReillyJan C. StewartRyan Suda or Angela M. Ulum.

Subscribe to our COVID-19 Digest email and our COVID-19 Response Blog and visit our COVID-19 Portal for additional insights on and analysis of the virus’s impact on business worldwide.

Learn more about our Structured Finance practice.

Visit us at

On May 15, House Democrats passed on the Heroes Act, a $3 trillion package that revives, among other things, many of the severe debt collection-related restrictions House Democrats have been pushing since the start of the pandemic.  Although the Heroes Act has no promise of becoming law, the Act, combined with other federal and state debt collection proposals and emergency regulations, may inform future legislative and regulatory proposals as temporary financial services relief programs come to an end. In this Legal Alert, we analyze the various federal and state debt collection-related actions that may offer a glimpse into the future of debt collection as we know it.


Read more at Mayer Brown’s Legal Update.

On May 12, 2020, the Federal Reserve Bank of New York announced the issuance of updated Terms and Conditions and a Frequently Asked Questions document (the “FAQs”) regarding the 2020 Term Asset-Backed Securities Loan Facility (“TALF 2020”). In this Legal Update, we discuss several aspects of the updated TALF 2020 documents with particular relevance to CLOs, including several welcome improvements and a few drawbacks.

Continue Reading

For more information about the topics raised in this Legal Update, please contact Ryan Suda, J. Paul Forrester, Joanna C. Nicholas, Keith F. Oberkfell, Arthur S. Rublin or Sagi Tamir.

On May 12, 2020, the Federal Reserve Bank of New York (the “Fed”) issued new Frequently Asked Questions and a revised term sheet in connection with the Term Asset-Backed Securities Loan Facility (“TALF 2020”). This Legal Update summarizes the FAQs and the revised term sheet, highlighting key changes and noting where further information or materials may be forthcoming from the Fed.

Key Highlights:

  • The revised term sheet and FAQs clarified that investment funds may be eligible borrowers;
  • The Fed will provide monthly public disclosures identifying TALF borrowers, their “Material Investors” (i.e., any direct or indirect owner of 10% or more of any outstanding class of securities of such borrowers), amounts borrowed, interest rates and other information;
  • TALF borrowers must certify that they are unable to secure adequate credit accommodations from other banking institutions;
  • No new asset classes have been added; the FAQs include detailed requirements for CLOs, CMBS and other eligible assets;
  • Only S&P, Moody’s and Fitch are eligible rating agencies under TALF 2020;
  • Collateral review, issuer certifications, auditor assurances and SBA loan documentation have not yet been detailed; and
  • The operational starting date for TALF 2020 has not yet been announced, and a form of the Master Loan and Security Agreement has not been provided.

Continue Reading for the full summary and analysis

For more information about the topics raised in this Legal Update, please contact James J. Antonopoulos, Amanda L. Baker, Christy L. Freer, Julie A. Gillespie, Carol A. Hitselberger, Melissa L. Kilcoyne, Stuart M. Litwin, Lindsay M. O’Neil, Eric M. Reilly, Jan C. Stewart, Ryan Suda or Angela M. Ulum.

Subscribe to our COVID-19 Digest email and our COVID-19 Response Blog and visit our COVID-19 Portal for additional insights on and analysis of the virus’s impact on business worldwide.

Learn more about our Structured Finance practice.

Visit us at

On May 12, 2020, the Federal Reserve (Fed) published updates to the term sheet for the Term Asset-Backed Securities Loan Facility (the TALF), and FAQs regarding the TALF, including additional details regarding borrower and collateral eligibility. Continue Reading Federal Reserve Releases TALF FAQs: Here are the Highlights

On April 30, 2020, the Federal Reserve Board announced expanded loan offerings and terms for the forthcoming Main Street Lending Program. Among other changes, Main Street is now open to larger businesses with up to 15,000 employees or $5 billion in 2019 annual revenue (previously up to 10,000 employees or $2.5 billion in 2019 annual revenue). The minimum size of certain loans was also reduced to $500,000 from $1 million to help provide assistance to smaller businesses. This Legal Update provides an overview of these and other revisions to the program.

Continue Reading

For more information about the topics raised in this Legal Update, please contact Adam C. WolkLogan S. PayneJeffrey P. TaftFrederick C. FisherMatthew D. O’MearaRyan SudaJoanna C. NicholasArthur S. RublinEric T. Mitzenmacher or Alexander J. Warents.