Sources indicate that White House officials have begun considering new measures to stimulate the economy, including an extension of the expired research and development tax credit and new infrastructure spending. However, Democratic Congressional leaders have expressed concern to the White House regarding the difficulties they anticipate in passing even a small stimulus bill, particularly given the success of “Tea Party” Republican candidates in primaries over the August recess. The White House denied a story last week indicating that they are strongly considering a payroll tax holiday geared at getting businesses to start hiring new workers. It remains to be seen what, if any, stimulus measures could get passed by Congress in the current political environment. But with the Congressional midterm elections fast approaching, the push is growing for the White House to take action.

Bernanke Defends Fed’s Role in Financial Crisis

On Wednesday, during testimony before the Financial Crisis Inquiry Commission, Federal Reserve Chairman Ben Bernanke defended the Fed’s policies during the financial crisis in 2008, expressing confidence that the bailout averted a much greater crisis for the U.S. economy. Bernanke also defended the Fed’s involvement in the collapse of Lehman Brothers in September 2008, stating that the Fed did everything within its legal authority to avoid the company’s collapse. With regard to how the Fed’s role will change in the aftermath of the newly enacted Dodd-Frank Wall Street Reform bill, Bernanke said the Fed will have a more active role in managing systemic risk in the economy in order to prevent another collapse such as Lehman’s from happening again.

August Jobs Report Shows Rising Unemployment

On Friday, the Department of Labor released its August jobs report showing the economy lost another 54,000 jobs overall last month, mostly because of the loss of temporary Census Bureau jobs. The report also showed that the unemployment rate rose to 9.6 percent from 9.5 percent. Overall, the government lost 121,000 jobs in August. State and local governments, many of them grappling with severe budget deficits, cut 10,000 jobs, and another 114,000 temporary Census positions came to an end. The total number of unemployed people rose to 14.86 million in August from 14.59 million in July.

More Information
If you have any questions regarding any of these issues, please contact:

Matt Jessee, Policy Advisor
matt.jessee@bryancave.com
(314) 259-2463

Kip Wainscott, Associate Attorney
kip.wainscott@bryancave.com
(202) 508-6172

Related Posts

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2. Financial Services Update - August 6, 2010
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More important to community banks, the FDIC announced the establishment of a department—the Division of Depositor and Consumer Protection (DCP) —that will soon become a household name for smaller insured state nonmember banks.  This unit will be dedicated to the enforcement of consumer protection rules promulgated by the new Consumer Financial Protection Bureau (CFPB) as to banks exempt from that agency’s oversight.

The New Community Bank “Regulator”—FDIC’s DCP

On August 10, 2010, the FDIC Board created two new offices specifically for the purpose of implementing Dodd-Frank:  the Office of Complex Financial Institutions (CFI) and Division of Depositor and Consumer Protection (DCP).  The first will be the FDIC vehicle for carrying out the agency’s role in overseeing systemic and large bank holding company and non-bank financial firms.  The DCP, on the other hand, is in a sense a community bank regulator.  According to the FDIC, this body will be charged with enforcing consumer protection rules promulgated by the CFPB as against banks outside its purview:  those with $10 billion or less in total assets.  In the words of Chairman Bair:

Our depositor protection and compliance examination and enforcement responsibilities are integral to our unique responsibilities as deposit insurer and supervisor of thousands of community banks. The creation of this new division emphasizes the importance we place on these responsibilities and is directly responsive to Congress’s intent in the new legislation.  DCP will also complement the activities of the new Consumer Financial Protection Bureau that is being established within the Federal Reserve. The FDIC supports the CFPB, and we are committed to doing our part in carrying out the consumer responsibilities Congress has entrusted to us.

The CFPB will enforce consumer financial protection laws as to insured depository institutions with more than $10 billion in total assets.  Below that threshold, the CFPB may require related reporting of smaller banks, but Dodd-Frank tasks each institution’s primary federal regulator with this enforcement and supervision authority.  In many cases, these regulators already serve this function—the “consumer financial laws” are vast and include the Electronic Funds Transfer Act and the Equal Credit Opportunity Act—but many enforcement roles will be new (e.g., RESPA and TILA).  What’s even more novel, though, is that the CFPB is authorized to be the primary rulemaker on these laws, and the prudential regulators, in turn, are empowered to enforce “any rule or order” prescribed by the CFPB under any of these laws.  The other bank regulators are directed to coordinate with the CFPB on enforcement, and the CFPB may even “include examiners on a sampling basis” of consumer protection exams conducted of these banks by their federal regulator.  That is why the DCP will soon become a “household name” for most community banks.  Under Dodd-Frank, the CFPB can initiate rulemaking as soon as January of next year.

Dodd-Frank Rulemaking Begins

On August 10, 2010, the four federal banking regulators also issued a joint advance notice of proposed rulemaking (ANPR) regarding alternatives to the use of credit ratings—specifically, those ratings generated by Moody’s and the like—in the formulation of risk-based capital guidelines.  These rules are to be promulgated pursuant to Section 939A of Dodd-Frank, a section which essentially eliminates regulatory reliance on the “big three” rating agencies in developing capital standards. An ANPR is an optional rulemaking step through which a promulgating agency can solicit information and comment on its deliberative process in advance of an actual rule proposal.  Its use is consistent with the agencies’ stated intent to make Dodd-Frank implementation transparent, reiterated this week by the FDIC.

Chairman Bair explained in plain terms why this is the first rulemaking required by Dodd-Frank on which the FDIC has acted:  “Every study of the root causes of the financial crisis highlights the role of credit ratings as a key contributing factor to the problems the led to virtual collapse of the financial sector.”  She also indicated that the agencies’ ongoing work on capital standards will be halted pending feedback on credit rating alternatives.

This ANPR is in a sense the first step in implementing the heightened capital standards required by Dodd-Frank pursuant to the much-publicized Collins amendment.  We have discussed the proposal’s transition periods, grandfathering, and exemptions in the final bill.   The agencies had previously proposed risk-based capital guidelines that integrated the 2004 Basel II standardized approach to calculating credit risk, which relies extensively on credit ratings to assign risk weight to various exposures.   In this week’s ANPR, available in full text here, the agencies indicate that U.S. implementation of the pending Basel III Accord, which also relies heavily on credit ratings, “would be significantly affected by the need for the agencies to comply with section 939A” of Dodd-Frank.  In general, through this ANPR the agencies solicit feedback on alternatives to the use of credit ratings, including the use of broad “risk buckets” assigning exposure risk by category (e.g., corporate versus sovereign debt) or more  sophisticated assignments based on financial metrics (e.g., debt-to-equity ratios).  For community banks, this is a signal that while Dodd-Frank preserved tier 1 capital treatment for certain trust-preferred and other hybrid securities, the international call for financial reform may impact this treatment in the long run.

Related Posts

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Veritec Signs MOU With Global-TV To Market Co-Branded Prepaid Cards to Asian Communities. Veritec, Inc. (PINKSHEETS:VRTC), a developer of mobile banking debit card solutions, has announced that its subsidiary, Veritec Financial Systems, Inc., has entered into a memorandum of agreement with Global-TV Inc. to market the “Global-TV – blinx On-Off” Debit card as one of the co-branded Veritec/Global products.

NBPCA Releases White Paper Examines Usage of General Purpose Reloadable Prepaid Cards. The Network Branded Prepaid Card Association (NBPCA), a non-profit trade organization that works to enhance the environment for the success of network branded prepaid cards, released a white paper that provides a fact-based analysis of the ways people use general purpose reloadable prepaid cards (GPR) in “real life” scenarios. The report outlines why consumers choose the product over alternative financial tools, average GPR transaction patterns and a comparison of the typical fees consumers incur with GPR cards versus other payment tools with similar features.

Acculynk Scores Again, This Time With Its MasterCard Pact. Online PIN-debit is just emerging as a viable payment option for electronic commerce, where consumers use credit and signature debit cards most often but are getting more choices all the time, including automated clearing house ones. In partnering with the leader in the Internet PIN-debit niche, MasterCard, which in 2009 had only 27% of bank debit card purchase volume versus 73% for Visa Inc.

As the Ink Dries on Dodd-Frank, Merchants Gird for Interchange Battle. As President Obama signs the Dodd-Frank Wall Street Reform Act of 2010 into law on Wednesday, at least one major merchant interest group has already fired the opening shot in what promises to be an all-out battle over the fees banks earn on debit card transactions.

Giftango Makes Bold Move into Incentive Virtual Gift Card Market. The Portland, OR based virtual card company announced today that it has signed on 35 national brands and eight incentive houses in its bid to expand further into the incentive and recognition online gift card segment. The brands span multiple categories and include Amazon, Cabelas, JCPenney, Lowes, and Nike, and the incentive houses include Madison Performance Group and BI.

Prepaid Forever Redefined? A Look at the New Regulations.Prepaid stands on the edge. Whether a prepaid debit or calling card, mobile access device or virtual prepaid, several legislative and regulatory actions in recent weeks are likely to have a lasting effect across the broad spectrum of existing and future prepaid products and services. However, it may be many months before the full scope of these actions is understood and their impact felt.

eCommLink to Provide Payment Processing for AllCom To Support GenieCard Program.eCommLink, value-added prepaid debit processor, has signed a 5 year agreement with AllCom, a provider of integrated telecommunications, internet and commerce solutions, to provide the prepaid transaction processing services for AllCom’s GenieCard. This agreement coincides with AllCom’s plans to increase the distribution level of their GenieCard to its existing client base, and to expand its retail distribution network in both the U.S. and Canada.

Blackhawk Study Shows Gift Card Shoppers Wait GiftCardMall.com Expands eGift Card Offering.Blackhawk Network, provider of prepaid and financial payments products for consumers and businesses, says the selection of eGift Cards (gift cards delivered by email) available on GiftCardMall.com has expanded to include many new brands such as The Home Depot, Sephora, Legal Sea Foods and Justice.

Smart Transaction Systems Launches GiftCardGreatness.com. New Site Allows Businesses to Sell Cards Online.Smart Transaction Systems (STS), a provider of gift card and customer loyalty programs for merchants, has introduced GiftCardGreatness.com. GiftCardGreatness.com is a full service solution that allows a small business to start selling its gift cards online without the overhead of launching its own e-commerce site. All aspects of setup and order processing are managed for the merchant.

Transaction Wireless Secures Patent Protects Process for Mobile Gift Card Services. Transaction Wireless, a provider of virtual and mobile gift cards, has been granted a United States patent for its proprietary technology powering their digital gifting and marketing platform. The newly issued patent protects the process and key elements utilized by Transaction Wireless for its gift card programs and services for retailers including the purchasing, delivery, ongoing management and redemption, as well as the personalization and marketing of gift cards.

InteliSpend Prepaid Solutions Expands Rewards Solutions Offers Universal Visa Prepaid Card. InteliSpend is expanding its portfolio of reward solutions through a new relationship with Visa. InteliSpend says its new Universal Visa Prepaid Card gives its customers a versatile new offering for meeting their incentive, reward and promotional needs.

Federal Reserve delays new gift card rules for 5 months.The U.S. Federal Reserve delayed by about five months the implementation of some disclosures governing gift cards. Disclosures that were supposed to take effect Sunday regulating gift cards, certificates and general-use prepaid cards will now take effect Jan. 31, 2011, to permit the sale of existing cards, according to a statement today.

FRB: Electronic Fund Transfer. The Federal Reserve Board on Wednesday announced its approval of an interim final rule implementing recent legislation modifying the effective date of certain disclosure requirements applicable to gift cards under the Credit Card Accountability Responsibility and Disclosure Act of 2009.

Two Years in Coming, an IRS Reporting Rule Takes Effect. While the payment card industry is bracing for debit card interchange and other regulations that will come next year from the Federal Reserve as a result of the new financial-reform law, merchant acquirers on Monday got a long-anticipated reporting rule. Beginning with the 2011 tax year, acquirers must report how much their merchants generate in annual charge volume.

MOBILE/ONLINE PAYMENT SERVICES

Pyramid Releases Report on Prepaid Mobile To Expand Market for Operators in Latin America. In Latin America, mobile broadband has shown significant growth in the last few years and is expected to keep growing at a fast pace, particularly prepaid mobile Internet. However, Mobile operators need to expand their target market in order to generate more service sales and, therefore, revenues, according to a new report from Pyramid Research.

The Web Means the End of Forgetting …. We’ve known for years that the Web allows for unprecedented voyeurism, exhibitionism and inadvertent indiscretion, but we are only beginning to understand the costs of an age in which so much of what we say, and of what others say about us, goes into our permanent and public digital files. The fact that the Internet never seems to forget is threatening, at an almost existential level, our ability to control our identities; to preserve the option of reinventing ourselves and starting anew; to overcome our checkered pasts.

iPhone Payment Peril: Mobile Mayhem Omen? The iPhone retains everything typed into it through its onscreen keyboard, including payment-card data, for as long as a year. And that penchant for holding onto payment-card data is only the latest in a long line of mobile data catastrophes that are slowly materializing as mobile deployments start in earnest.

KeyBank Launches Mobile Money from Fiserv to Entire Customer Base. Fiserv, Inc. (NASDAQ: FISV), the leading global provider of financial services technology solutions, today announced that Cleveland, Ohio-based KeyBank, with assets of approximately $94 billion, is now providing customers with mobile banking services through Mobile Money(TM) from Fiserv. KeyBank is one of the first financial institutions in the U.S. to offer mobile banking to their entire customer base – it’s available to those who use online banking as well as offline clients who use the branch channel.

ViVOtech Offers Voltage Security End-to-End Encryption for Its Contactless Payment Systems. Silicon Valley-based ViVOtech, the leader in Near Field Communication (NFC) mobile payments, loyalty and marketing applications and contactless NFC readers, and Voltage Security, the global leader in end-to-end data protection, today announced that ViVOtech is implementing a Voltage-powered end-to-end encryption point-of-sales (POS) solution in its ViVOpay line of industry-leading contactless NFC payment terminals.

Dialware Announces its Beepcard Solution, the World’s First Reader-Free Smart Card Solution for Secure “Card-Not-Present” Transactions. By communicating its digital cryptogram via sound waves, Dialware’s Beepcard technology enables a credit or debit card to perform highly secure wireless transactions from any PC, telephone, or mobile phone without using any specialized card reader.

Latest ACH Stats Reflect Consumer Shift to Electronic Bill Pay. Overall automated clearing house transaction volumes grew only 1.5% in the second quarter versus the year-earlier period, but most of the electronic-check ACH applications grew faster. The notable exception was ARC, for accounts-receivable conversion of bill payments sent to lockboxes. Continuing a trend that started two years ago and likely is permanent, ARC’s transaction volumes fell 6.6%.

BREACH

Breaches Down, Insider Attacks Up, Verizon Business/Secret Service Study Says PCI compliance, saturation of black market may have driven decline, investigators say. One of the most striking figures in the new study is that even after combining its own numbers with those of the Secret Service, Verizon recognized a drop in the number of records breached last year. After seeing more than 285 million records compromised in 2008 — 361 million records when combined with the Secret Service data — the combined entities saw breaches of only 143 million records in 2009.

Third-Party Content Could Threaten Websites, Study Says. Some 99 percent of travel sites are using widgets, and about 94 percent of publishers rely on them as well, according to the study. Dasient earlier this month reported vulnerabilities that could threaten sites that use widgets. More than four out of 10 websites carry some third-party advertising; publishers carry twice as much, Dasient says. Surprisingly, 41 percent of financial institutions carry third-party ads. “That means if their third-party ad network is infected, they could be subject to drive-by downloads.”

One Breach = $1 Million To $53 Million In Damages Per Year, Report Says. And a separate report called “The Leaking Vault” (PDF) released today by the Digital Forensics Association found that among the 2,807 publicly disclosed data breaches worldwide during the past five years, the cost to the victim firms as well as those whose information was exposed came to whopping $139 billion.

BBVA Compass Extends Fiserv Relationship With Multi-Year Contract for CheckFree RXP Online Bill Payment Solution. –Fiserv, Inc. (NASDAQ:FISV), the leading global provider of financial services technology solutions, today announced that BBVA Compass has renewed its contract for CheckFree RXP. The agreement enables BBVA Compass, a Sunbelt-based financial institution that ranks as the fifteenth largest U.S. commercial bank based on deposit market share, to continue to provide both consumer and small business customers with user-friendly online billing and payment services. BBVA Compass will also continue to utilize FraudNetâ„ from Fiserv, an automated fraud detection system that mitigates the risk of fraudulent online transactions.

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The dispute between the banks arose in 2006 when Atlantic Southern announced it was expanding into Southeast Georgia. Atlantic National had been operating in Southeast Georgia since 1998 using its name with a blue and gold flag logo. Atlantic Southern had operated in central Georgia since 2001 and adopted the Atlantic Southern Bank name and a blue, grey, red and white rectangular logo when it expanded its operations to the Georgia coast and into Northeast Florida.

Atlantic National claimed it had the exclusive right to use “Atlantic” in connection with banking services in Southeast Georgia and demanded that Atlantic Southern not use the term “Atlantic” for its operations there. In hopes of avoiding litigation, Atlantic Southern adopted the trade name Sapelo Southern Bank for its branches in Southeast Georgia. In order to comply with state and federal requirements regarding the disclosure of a bank’s identity, Atlantic Southern also included the disclaimer “A Division of Atlantic Southern Bank” on signs, legal documents and other materials.

After two-years worth of correspondence between the banks’ attorneys, Atlantic National filed its lawsuit in late 2008. Atlantic National asserted seven different claims, including trademark infringement under Georgia and federal law, unfair competition, and trademark dilution, and seeking an injunction, damages and attorney’s fees. Atlantic Southern denied these claims and counterclaimed for declaratory relief that neither its use of the Sapelo trade name and disclaimer nor its use of the Atlantic Southern name infringed or diluted any Atlantic National trademark. Atlantic Southern also sought its attorney’s fees. After seven months of discovery in the case, both banks asked the court for summary judgment.

The U.S. District Court for the Southern District of Georgia granted summary judgment to Atlantic Southern on all claims asserted by Atlantic National and on Atlantic Southern’s counterclaim for a declaratory judgment. As a result, Atlantic Southern can now use the “Atlantic Southern Bank” name in Southeast Georgia without the Sapelo trade name.

The court ruled that the evidence showed there was no likelihood of confusion between the banks’ respective marks and that Atlantic National’s mark was “weak” and therefore could not be diluted. Specifically, the court found that neither Atlantic National nor any other bank has the exclusive right to the term “Atlantic” because it is geographically descriptive, numerous banks use the term and have their own trademark registrations incorporating the term, and Atlantic National admitted this to the U.S. Trademark Office. The court also found that because banking consumers exercise a high degree of care when selecting financial services, only minor differences in trademarks are needed to distinguish between banks and that sufficient differences existed in this case due to the different words, images, designs, colors, fonts, text and taglines. The court also found that Atlantic Southern did not intend to benefit from Atlantic National’s reputation and goodwill, and acted in good faith in trying to accommodate Atlantic National’s repeated concerns. Finally, the court found that the evidence submitted by Atlantic National did not show that consumers were actually confused between the two banks; at most, any confusion was minimal and did not rise to the level of confusion recognized under trademark law.  Atlantic National has the right to appeal the decision to the Eleventh Circuit Court of Appeals. Atlantic Southern has filed a motion for its attorney’s fees.

The case is a reminder that all banks need to be aware of the trademark status of their names and other key slogans, and the trademarks of their competitors.  Bryan Cave has a team focused on advising banks on the availability and risks associated with any particular name, as well as protecting and defending the use of names and other trademarks by community banks.

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Banks participating in the pilot program must offer electronic deposit accounts having the core features identified in the “Model Safe Accounts Template.” The pilot program is expected to last one year, during which participating banks would report to the FDIC on the viability of the accounts, focusing on the volume, use, success and profitability of the accounts.

In its announcement for the pilot program, the FDIC emphasizes the numbers of unbanked and underbanked consumers in the United States and the FDIC’s commitment to ensuring that all U.S. households have access to safe and affordable banking services. Unless banks participating in the pilot report significant and serious losses, there seems to be a real possibility that all banks will be coerced in one way or another to offer these accounts after the program. This post discusses the proposed features of the accounts and the possible difficulties.

Electronic, Checkless Accounts

Under the pilot program, the accounts would be “largely” electronic, purportedly for the purpose of limiting acquisition and maintenance costs. The transactional accounts also would be checkless, allowing withdrawals only through electronic means.

Because the accounts would be checkless, institutions will have somewhat more ability to prevent losses from overdrafts than they otherwise would have. On the other hand, all banks know that it is impossible to block every electronic transaction that results in an overdraft. Moreover, under at least the pilot program, banks would be expected not to impose any overdraft or insufficient funds fees. With consumers having absolutely no economic incentive to avoid overdrafts, it can be expected that banks will incur losses.

Very Low Fees

Monthly maintenance fees for the transactional accounts under the pilot program would be limited to $3, and the bank would not be able to charge any monthly fees for the savings accounts. The minimum monthly balance requirement for the account would be only $1, and it seems safe to assume that the target consumer market for these accounts is unlikely to maintain any significant average daily balances.

The FDIC states the goal of developing “sustainable product offerings” through the pilot program. It is hard to see how a transactional account with these minimal monthly fees, no overdraft fees, and no real expectation of any significant balances could ever be sustainable except by passing the costs on to mainstream consumers.

Stricter Requirements for Paper Statements

There will be no meaningful difference from the consumer’s perspective between the proposed transaction accounts and prepaid cards. In both cases, the account is checkless, withdrawals can be made only electronically, and funds can be spent only after being deposited to the issuer of the account.

However, for the transaction accounts under the pilot program, a bank would be required to provide paper statements unless the consumer consents to electronic statements. These rules for transaction accounts are consistent with existing Electronic Fund Transfer Act regulations applicable to traditional deposit accounts. In contrast, general purpose prepaid cards are not subject to the Electronic Fund Transfer Act and, for those “payroll cards” that are subject to the Act, the issuer is required to provide a paper account history only upon the consumer’s specific request.

For these reasons, it may be more advantageous for a bank to offer prepaid accounts rather than the transaction accounts as proposed by the FDIC, at least for now. But it should be noted that Congress and the bank regulators are busily adding or proposing new regulation of prepaid cards. The regulatory distinctions between prepaid cards issued by banks and traditional deposit accounts offered by banks may be rapidly disappearing.

Expectations After The Pilot Program

As we have seen time and time again, when a regulator issues guidance or best practices suggestions, the guidance soon becomes de facto law. For a recent example, banks throughout the country are currently embroiled in class actions that essentially are based on claims that the banks’ overdraft practices are unfair and deceptive to the extent those practices are inconsistent with regulatory guidance or best practice suggestions.

The FDIC’s announced aim under the program is for banks to develop a “sustainable” product. If the product is adopted by any number of banks after the pilot, those who conclude that they cannot afford to do so may find themselves subject to accusations of deposit-account “redlining” or other impermissible discrimination.

At the very least it seems likely that bank regulators will come to expect banks to offer the product after the FDIC concludes that it is sustainable. And the FDIC is almost certain to reach that conclusion. Because participation in the pilot is voluntary, many of the banks that sign-up might have already concluded that the product could work for them given their overhead, location, and prospective customer base. When those self-selecting banks report success, bank regulators could extrapolate from those few to the industry and conclude that what is good for one bank is good for all.

Related Posts

1. FDIC Issues Interim Rule to Implement the Temporary Liquidity Guarantee Program - October 23, 2008
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Wednesday, September 8, 2010 11:00 AM – 12:00 PM EDT

The Dodd-Frank Wall Street Reform and Consumer Protection Act represents a historic restructuring in the regulation of financial institutions.  This comprehensive reform bill will have substantial effects on all facets of the financial services industry.  The new law requires the development of numerous rules and regulations that will continue to evolve over time.

Join experts from Bryan Cave LLP and BKD, LLP to hear what this reform could mean for you now and in the future.  You will receive insight on specific provisions such as consumer compliance regulations, regulatory agency shifts, the Collins Amendment and other capital requirements.  Other changes covered include those to Federal Deposit Insurance Corporation insurance, affiliate transaction and legal lending limits, private securities offerings and executive compensation.

If you are interested in attending, please register online for this free webinar.

The Presenters

Don Hutson is national industry partner for BKD National Financial Services Group and has more than 30 years of industry experience providing consulting in regulatory issues, profit planning, long-range strategic planning, regulatory report preparation and acquisitions as well as managing audits and directors’ examinations. He chairs the firm’s Financial Services Committee.

Sean Kulczycki is a member of BKD National Financial Services Group, leading the firm’s regulatory compliance team. He has more than 19 years of experience providing customized training on regulatory importance, assisting financial institutions with policy development and assisting clients with obscure regulatory requirements. Sean spent seven years with the FDIC, where he specialized in compliance and Community Reinvestment Act examinations.

Rob Klingler, an associate with Bryan Cave LLP’s Atlanta, Georgia, office, primarily focuses on public company securities compliance and raising capital. He advises public companies, including those on the New York Stock Exchange and the NASDAQ, and private companies on securities-related issues, including report preparation, Section 16 compliance, proxy solicitations and going private transactions as well as corporate governance issues, including Sarbanes-Oxley compliance.

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The new rules will apply to all companies subject to SEC proxy rules, including investment companies and controlled companies, except:

• Companies subject to such rules solely due to debt registered under Section 12 of the Securities Exchange Act of 1934; and
• Where state or foreign law or governing documents prohibit shareholders from nominating a candidate for director.

Foreign private issuers are not covered, as they are exempt from SEC proxy rules.

The new rules will be effective 60 days after publication in the Federal Register, with shareholder access permitted no earlier than 150 days and no later than 120 days prior to the anniversary date of the mailing of prior year’s proxy materials. The rules will be available if the window remains open after their effective date. Accordingly, if the new rules were to become effective on November 1, 2010, they would apply to companies that mailed their 2010 proxy statements after March 1.

Effectiveness of the new rules will be delayed for three years for smaller reporting companies, to allow the SEC time to monitor implementation and make adjustments, if desired.

The text of the new rules is available online as is a print-friendly version of this client alert.

Executive Summary

Eligible shareholders can require a company to include one or more nominees in the company’s proxy materials, unless applicable laws or governing documents prohibit nominations by shareholders. Companies will only be required to include up to the greater of (i) 25% of the company’s directors or (ii) one nominee. The rule sets priorities in case of multiple nominations.

To be eligible, the nominating shareholder or group must, among other requirements, (i) own at least 3% of the total voting power (which may be aggregated among shareholders), (ii) have held such securities for at least three years, and continue to hold them through the shareholder meeting, (iii) not have intent to change control of the company or to gain more board seats than permitted by the rule, and (iv) not have any agreement with the company regarding the nomination.

For purposes of the 3% calculation, only shares over which the holder has both voting and investment power, either directly or through any person acting on their behalf, are counted. In addition, borrowed shares are excluded, short positions must be netted, and shares loaned out will count if they can be recalled and will be recalled if the nominee is included.

To be eligible, (i) the nominee’s candidacy must (x) not violate applicable law or (except as to independence) stock exchange rules and (y) satisfy the objective independence standards of the stock exchange and (ii) the nominee may not have any agreement with the company regarding the nomination.

The nominating shareholder or group must file a Schedule 14N generally no earlier than 150 days and no less than 120 days prior to the anniversary date of mailing the prior year’s proxy statement. The 14N must set forth detailed disclosures regarding the stock ownership and eligibility of the nominating shareholder and nominee, along with biographical and other information. It may also provide a statement in support of the nominee (up to 500 words per nominee) for inclusion in the proxy statement.

Companies may seek to exclude a nominee under limited circumstances using a no-action letter process similar to that for Rule 14a-8 shareholder proposals.

The nominating shareholder or group will be liable for any false or misleading statements in the 14N or other disclosures. The nominating shareholder will have liability regardless of whether that information is ultimately included in the company’s proxy statement. The company will not have liability for information provided by the nominating shareholder and included in its proxy statement even under circumstances in which it knows or has reason to know such information is false.

The SEC adopted new exemptions for certain limited communications by shareholders seeking to form a shareholder group and for nominating shareholders in support of a nominee for director.

The SEC narrowed the existing Rule 14a-8 election exclusion so that companies must include proposals that would amend, or that request an amendment to, a company’s charter or bylaws concerning its nomination procedures or other director nomination disclosure provisions – so long as they do not conflict with new Rule 14a-11 or state, federal or foreign law. A company can exclude certain types of proposals that relate to specific directors or nominees or the upcoming election.

Background

The ability of shareholders to utilize the proxy rules for purposes of nominating directors has been a focus of the SEC for many decades. The new rules are the culmination of a series of proposals that began in October 2003. Since then, the SEC has considered the issue on numerous occasions and conducted a number of forums to solicit input from public companies, investors and commentators, with its most recent proposal made in May 2009.

Three of the five Commissioners believe that facilitating the ability of shareholders to exercise their rights under state law to nominate directors will enhance director accountability. By contrast, the two dissenting Commissioners believe that mandating a federal right of proxy access undermines the traditional state law approach of allowing “private ordering” by shareholders, noting that new rules will not allow a company to adopt bylaws restricting or eliminating proxy access, even if approved by shareholders.

The passage of the Dodd-Frank Act in July gave the SEC authority to prescribe rules to require companies to include in its proxy materials shareholder nominees for election to the board. As a result, the SEC believes the Act removed any doubt as to its authority to adopt a rule such as Rule 14a-11.

New Rule 14a-11

Under new Rule 14a-11, eligible shareholders will be able to require a company to include one or more nominees in the company’s proxy materials, unless shareholders are otherwise prohibited from nominating a candidate for election as a director under applicable state or foreign law or the company’s charter or bylaws.

The rule is mandatory and may not be restricted by applicable state or foreign laws or a company’s governing documents. As a result, companies may not “opt out,” even with shareholder approval.

The new rule does not require a triggering event in order for shareholder access to become available, such as the receipt of significant withhold votes against a director, or the failure of a company to adopt a shareholder nomination procedure that was approved by a majority vote by shareholders. In addition, the rule will apply regardless of whether the company is subject to a concurrent proxy contest; however, the nominating shareholder may not be a member of that group or separately solicit for the nominees in such a contest.

Maximum Number of Nominees

A company will only be required to include up to the greater of (x) 25% of the company’s directors (rounded down to the nearest whole number) or (y) one nominee. To address specific situations, the rule provides as follows:

• Prior Nominees Continuing as Directors. If one or more directors currently serving on the board was elected pursuant to the rule, and his or her term extends past the next annual meeting, that director(s) would be included for purposes of computing the maximum.
• Classified Board. In the case of a classified board, the 25% calculation is based on the total number of board seats.
• Different Voting Rights in Elections. If a company has multiples classes of stock, the maximum number of candidates a shareholder can nominate would be based on the total board size. If shareholders can elect a subset of the full board or the company has multiple classes of eligible securities, then the maximum may not exceed the number of director seats the class held by the shareholder is entitled to elect.
• Inclusion of Shareholder Nominees as Company Nominees. If the nominating shareholder files its notice on Schedule 14N (discussed below) before beginning discussions with the company, nominees that the company agrees to include as a result of such negotiations would count towards the 25% maximum. However, incumbent directors that are re-nominated by the board would not count towards the maximum.
• Priority of Nominations; Multiple Nominations. If a company receives more nominations than required to be included, the company would only be required to include the nominees submitted by the shareholder or group with the highest qualifying voting power percentage. This represents a change from the proposal, which would have favored the first submission. If that shareholder does not nominate the maximum number permitted, the nominee(s) of the nominating shareholder with the next highest percentage would be included, with the rule addressing priorities in specific situations, including if a nominating shareholder or group or nominee withdraws or becomes ineligible. Once a company has commenced printing its proxy materials, it would not be required to include a substitute nominee(s).

Eligible Shareholders

To be eligible, the nominating shareholder or group must meet the following requirements:

• Ownership Threshold. It must own at least 3% of total voting power of shares entitled to vote in director elections (with aggregation of holdings by shareholders permitted). The ownership requirements are changed from the proposal, which had reflected 1%, 3% or 5% ownership levels based on the size of the company. In computing ownership, the SEC adopted several refinements to the proposal:
  • Only shares subject to SEC proxy rules are included, and over which the nominating shareholder has both voting and investment power, either directly or through any person acting on their behalf;
  • Shares loaned to a third party may be included in the total only if the nominating shareholder has the right to recall the loaned shares and will recall such shares upon notice that the nominee(s) will be included in the company’s proxy statement; and
  • Shares sold in a short sale that is not closed out, or that have been borrowed other than a short sale, must be subtracted.
  • In the case of multiple classes of stock with unequal voting rights and the classes vote together on the election of directors, then voting power is based on the collective voting power. In the case of multiple classes that do not vote together (where, e.g., each class elects a subset of directors), then voting power is based on the voting power of the class or classes of stock that vote together for the nominee, rather than the voting power of all classes.
  • Ownership can be demonstrated by (1) record ownership, if applicable, (2) written verification from the “record” holder (within seven days of the notice date), or (3) attaching or incorporating a Schedule 13D or 13G or Form 3, 4 or 5, if applicable.
• Holding Period. It must have held the minimum amount of securities above continuously for at least three years (lengthened from the one year period in the proposal); continue to hold such securities through the shareholder meeting; and represent the intent to continue to hold those securities through the shareholder meeting.
• No Change in Control Intent. It must not hold the securities for the purpose or effect of changing control of the company or to gain a number of seats on the board that exceeds the maximum permitted under the rule, and must certify to that effect. Consistent with the proposal, the term “change in control” remains undefined. The first portion of this certification mirrors the corresponding language in Schedule 13G. It appears that a nominating shareholder would not be restricted from seeking control in the future. As a result, a nominating shareholder would presumably be free to change its mind. In response to concerns regarding potential abuse of the intent requirement, the SEC noted: (1) companies can seek to exclude proposals through the no-action letter process discussed below; (2) nominating shareholders would have liability under the proxy rules for misleading disclosures; (3) companies can seek relief through private litigation; and (4) the SEC can take enforcement action.
• No Agreement with Company. It must not have any agreement with the company regarding the nomination.
  This provision is intended to prevent a nominating shareholder from acting as a surrogate for the company or its management to block usage by others. However, an instruction clarifies that it would not apply to unsuccessful negotiations regarding whether a company is required to include a nominee.
• Required Notice. It must provide the required notice on Schedule 14N within the prescribed window, as discussed below.

The SEC did not adopt two other requirements:

• No Requirement to Attend Meeting. There is no requirement that the nominating shareholder or representatives appear at the meeting and present the nominee. The SEC noted that state law will control what happens if the candidate is not nominated because the proponent does not attend or make other arrangements.
• No Limit on Resubmission. There is no limit on the ability of a nominating shareholder to utilize the rule due to failure to receive significant shareholder votes in a previous election.

A company need not include a nominee if a nominating shareholder or group:

• Becomes a member of any other group with persons soliciting or nominating in connection with the upcoming election;
• Separately solicits, other than pursuant to the new exemption described below, for the shareholders’ nominees or for or against the company’s nominees; or
• Is a participant in another person’s solicitation in connection with the upcoming election.

Eligible Nominees

Eligible nominees to the board of directors must meet the following criteria (subject to potential cure during the 14-day time period provided in the rule):

• Consistent with Applicable Laws. The nominee’s candidacy and, if elected, board membership, must not violate federal or state law (or applicable stock exchange requirements, if any, other than those related to independence).
• Independence Requirements and other Director Qualifications. The nominee must satisfy the objective independence standards of the applicable stock exchange on which the company is listed (subject to cure within the required time period). The nominee need only meet the “objective” standards for independence under stock exchange rules, and not any subjective determinations or any particular definition applicable to audit committee members. Further, the nominee need not meet a company’s own director independence criteria. The SEC believes that disclosure by the company in its proxy materials can address many of the concerns raised as to director qualifications, such as whether a nominee meets the company’s requirements and whether, due to a nominee’s failure to meet additional independence requirements, independent directors may have to assume additional duties or companies may need to increase the size of the board or recruit additional directors.
• No Agreement with the Company. The nominee may not have any direct or indirect agreement with the company regarding the nomination of the nominee.

The SEC did not adopt certain other eligibility criteria:

• No Limit on Relationship between Nominating Shareholder and Nominee. The rule does not restrict any relationships between the nominee and the nominating shareholder or group. The SEC noted that a nominee would have the same duties to the corporation as other directors, if elected, and that companies could disclose any concerns that a nominee may not represent the views of shareholders in its proxy materials opposing the nomination.
• No Limit on Resubmission of Nominees. As discussed above, the rule does not contain any limit on renomination of a candidate who failed to achieve significant shareholder support in a previous election.

Required Notice and Disclosure

The nominating shareholder would be required to notify the company of its intent to nominate a candidate, and file the notice with the SEC on new Schedule 14N, which must disclose:

• the name and address of the nominating shareholder or each member of the group;
• the amount and percentage of securities held and entitled to vote on the election of directors and the voting power derived from such securities and from securities loaned or sold in an open short sale;
• a written statement from the record holder, or broker-nominee, verifying that, within seven days prior to the notice, the shareholder continuously held the qualifying amount of securities for at least three years;
• a representation of intent to continue to hold the qualifying amount of securities through the date of the shareholder meeting;
• a statement of intent with respect to continued ownership after the election (which may be contingent on the election results);
• a statement that the nominee consents to being named in the proxy materials and, if elected, to serve on the board;
• biographical and other information about the nominating shareholder or group and the nominee(s), similar to the disclosure currently required in a contested election, including with respect to certain legal proceedings, if any, related to the nominee, certain of the nominee’s transactions and relationships with the company, and biographical information and disclosure of certain interests of the nominee;
• to the best of the nominating shareholder’s knowledge, whether the nominee meets the director qualifications set forth in the company’s governing documents and a statement that the nominee meets the objective criteria for “independence” of the applicable stock exchange;
• the nature and extent of relationships between the nominating shareholder or group, the nominee and/or the company or an affiliate of the company;
• any website address on which the nominating shareholder may publish soliciting materials;
• if desired to be included in the proxy statement, a statement in support of the nominee(s), which may not exceed 500 words per nominee; and
• a certification regarding the lack of intent to change control or to gain a number of seats on the board that exceeds the maximum permitted under the rule, and that the nominating shareholder and nominee satisfy the applicable requirements of the rule.

The 14N would also be used for disclosure of shareholder nominees when included in company proxy materials pursuant to applicable state law or a company’s governing documents pursuant to new Rule 14a-18, subject to somewhat different deadlines.

Timetable for Submission of 14N and Company Response; New 8-K Item 5.08

The Schedule 14N would need to be filed via Edgar and transmitted to the company no earlier than 150 days and no less than 120 days prior to the anniversary date of mailing the prior year’s proxy statement. This replaces the proposed deadline tied to advance notice bylaws due to concerns that some companies with shorter deadlines may not have enough time to respond, with provision for a window period intended to promote dialogue with the board.

In cases where no annual meeting was held the prior year, or the date is changed by more than 30 calendar days, the nominating shareholder must provide notice a reasonable time before mailing, and the company would be required to disclose the deadline on Form 8-K under new Item 5.08.

If the company will include a nominee, the company is required to notify the nominating shareholder or group no later than 30 calendar days before filing its definitive proxy materials. This is intended to provide the nominating shareholder with sufficient time to engage in soliciting activities.

If the company intends to exclude a nominee or supporting statement, the following process must be followed, with notification required to be postmarked or electronically transmitted by the respective deadlines:

• No earlier than 150 calendar days and no later than 120 calendar days before the anniversary of the date that the company mailed the prior year’s proxy materials – Nominating shareholder or group must provide and file notice on Schedule 14N
• Not later than 14 calendar days after the close of the window period for submission of nominations – Company must notify the nominating shareholder or group (or its authorized representative) of any determination not to include the nominee or nominees or supporting statement
• Not later than 14 calendar days after the nominating shareholder’s or group’s receipt of the company’s deficiency notice – Nominating shareholder or group must respond to the company’s deficiency notice and, where applicable, cure any eligibility or procedural defects
• No later than 80 calendar days before the company files its definitive proxy statement and form of proxy with the SEC (upon showing good cause, the SEC staff may excuse a late notice from the company) – Company must provide notice of its intent to exclude the nominee(s) or supporting statement and the basis for its determination to the SEC and, if desired, seek a no-action letter from the SEC staff as to its determination
• Not later than 14 calendar days after the nominating shareholder’s or group’s receipt of the company’s notice to the SEC – Nominating shareholder or group may submit a response to the company’s notice to the SEC staff
• As soon as practicable – If requested by the company, SEC staff would, at its discretion, provide an informal statement of its views to the company and the nominating shareholder or group
• Promptly following receipt of the SEC staff’s informal statement of its views – Company must provide notice to the nominating shareholder or group stating whether it will include or exclude the nominee

Under the new rule, a company may seek to exclude a nominee using the “no-action” procedure described above because:

• the rule is not applicable to the company;
• the nominating shareholder or group or nominee fail to satisfy the eligibility requirements; or
• including the nominee or nominees would result in the company exceeding the maximum number of nominees it is required to include in its proxy materials.

Submission of a supporting statement exceeding 500 words per nominee would not permit exclusion of the nominee, but the company may exclude such statement, subject to the procedures described above.

Neither the composition of the group nor the nominee may be changed as a means to correct any deficiency. However, if a nominating shareholder submits too many nominees, it may specify which one will be excluded.

Unlike the proposal, the new rule will not allow exclusion of a nominee if any required representation or certification is materially false or misleading. Instead, the SEC expects companies to address such concerns through their own disclosures and, if necessary, through private litigation, as in traditional proxy contests.

Inclusion of a shareholder nominee in the company’s proxy materials would not by itself require the company to file a preliminary proxy statement.

Changes to Proxy Card

As proposed, if a shareholder nominee is included, the company proxy card may not give shareholders the option of voting for or withholding authority for company nominees as a group, but would instead require each nominee be voted on separately. However, companies may identify shareholder nominees as such and recommend whether shareholders vote for, against or withhold vote on those nominees and management nominees.

Liability for and Amendment of Schedule 14N

Although the company would be required to include Schedule 14N disclosures in its proxy materials, the nominating shareholder or group would be liable for any false or misleading statements in the 14N or other disclosures. As changed from the proposal, (1) the nominating shareholder will have liability regardless of whether that information is ultimately included in the company’s proxy statement and (2) the company will not have liability for information provided by the nominating shareholder or group and included in its proxy statement, even under circumstances in which it knows or has reason to know such information is false.

Schedule 14A will provide that such information required to be included will not be deemed incorporated by reference into any other filings, except to the extent specifically incorporated by the company.

The Schedule 14N would be required to be promptly amended for any material change, including withdrawal of a nominating shareholder or nominee, and the reasons for any such withdrawal. In addition, as in the proposal, an amendment would be required within 10 days of announcement of final election results to disclose the nominating shareholder’s intention with respect to continued ownership of its shares.

Additional Reporting Requirements

As noted above, in cases where no annual meeting was held the prior year, or the date is changed by more than 30 calendar days, the nominating shareholder must provide notice a reasonable time before mailing, and the company would be required to disclose the deadline on Form 8-K under new Item 5.08. The 8-K would be due within four business days of determining the anticipated date of the meeting. In addition, if a company were required to include shareholder nominees in proxy materials pursuant to applicable state or federal law, or its governing documents, then it would be required to disclose the date the Schedule 14N would be due pursuant to Rule 14a-18.

Rule 14a-5 is being amended to require companies to also disclose in proxy statements the deadline for submitting nominees for inclusion in proxy materials for the next annual meeting.

Ancillary Exemptions

Solicitation Exemptions. The SEC also adopted new exemptions for certain limited communications by shareholders seeking to form a shareholder group and for nominating shareholders in support of a nominee for director. The first applies to written and oral solicitations by shareholders who are seeking to form a nominating shareholder group and require:

• that the shareholder not have any purpose or effect of changing control of the company, or to gain more seats on the board permitted under Rule 14a-11;
• limiting the content of written communications to certain specified information;
• filing all written soliciting materials sent to shareholders under the exemption with the SEC or, in the case of oral communications, a filing on Schedule 14N with the appropriate box checked before or at the same time as the first solicitation; and
• no solicitations in connection with the election of directors other than pursuant to the provisions of Rule 14a-11 and the new exemption described below.

The second new exemption applies to written and oral solicitations by a nominating shareholder or group after receiving notice that its nominees will be included in the company’s proxy materials pursuant to Rule 14a-11 in favor of shareholder nominees or for or against company nominees. The exemption requires:

• that the nominating shareholder or group does not seek the power to act as a proxy for another shareholder;
• disclosing certain information (including the identity of the nominating shareholder or group, and a prominent legend about availability of the proxy materials) in all written communications;
• filing all written soliciting materials in reliance on the exemption with the SEC under cover of Schedule 14N with the appropriate box checked, no later than the date first published or sent to shareholders; and
• no solicitations in connection with the subject election of directors other than pursuant to the provisions of Rule 14a-11 and this new exemption.

Neither exemption will apply to solicitations for nominees included pursuant to a company’s governing documents or applicable state laws, as opposed to Rule 14a-11.

Schedule 13G. As proposed, a shareholder will not lose eligibility to use Schedule 13G solely as a result of making a nomination, soliciting in favor of a nominee or having a nominee elected under the new rule. The exception would not apply after the election of the nominee. Further, it would not apply to activities other than those specifically exempted, or to nominations pursuant to an applicable state or foreign law or the company’s governing documents.

Status as Affiliate. In contrast to the proposal, the SEC did not adopt a safe harbor for a nominating shareholder from being deemed an “affiliate” under securities laws due to nominating a candidate or soliciting in support.

Expansion of Shareholder Election Proposals

As proposed, the SEC narrowed the existing Rule 14a-8 election exclusion, which permitted companies to exclude shareholder proposals that would result in an immediate election contest or establish a process to conduct future election contests by requiring inclusion of shareholder nominees. The amended rule will require inclusion of proposals from qualifying shareholders that would amend, or that request an amendment to, a company’s charter or bylaws concerning its nomination procedures or other director nomination disclosure provisions – so long as they do not conflict with new Rule 14a-11 or state, federal or foreign law. Consistent with current practice, a company could exclude certain types of proposals that relate to specific directors or nominees or the upcoming election.

The SEC observed that if a company’s charter or bylaws prohibit shareholder nomination rights, shareholders who desire to amend the provision may submit a shareholder proposal, which the company would not be permitted to exclude under Rule 14a-8.

The proposals would not alter the existing eligibility requirements under Rule 14a-8, namely stock ownership of $2,000 in market value (or 1%, if less) for at least one year prior to submitting the proposal.

Related Posts

1. Updated SEC Guidance on “Say-on-Pay” - February 26, 2009
2. SEC Issues Proposed Rule Implementing TARP Say on Pay - July 6, 2009
3. New Proxy Statement Guidance - November 25, 2008

Although much of Dodd-Frank has little to do with prepaid cards, it includes provisions with which the entire prepaid value chain must be familiar – because all will be subject to new requirements that will affect their current business operations.

New York Partner Judith Rinearson authored an in-depth article in the August edition of Paybefore Update explaining the impact of the act on the prepaid card industry. Click here to read her full article, used with permission from Paybefore Update.

On August 16, 2010, the Bryan Cave Prepaid Card team gave a webinar on how the Dodd-Frank Wall Street Reform and Consumer Protection  Act will affect the prepaid card industry. Readers can now access online the presentation slides and webinar audio.

Related Posts

1. Gift Cards and the Credit Card Act - May 7, 2010
2. Federal Reserve Board Issues Final Gift Card Rules - March 29, 2010
3. Dodd-Frank Act Signed into Law - July 21, 2010

On Friday, Fed Chairman Ben Bernanke said that the Federal Open Market Committee, the Fed panel that Bernanke leads and which sets interest rates, could make additional purchases of longer-term securities in order to prevent deflation. In regards to the overall state of the economy, Bernanke said “the pre-conditions for a pickup of growth in 2011 appear to remain in place, as banks increase lending, worries over the European sovereign debt-crisis abate and consumers increase their savings.”

SEC Votes to Give Shareholders “Proxy Access”

On Wednesday, the SEC Commissioners voted along party lines 3-2 to give shareholders what is commonly known as “proxy access,” which requires companies to include the names of all board nominees, even those not backed by the company, directly on the standard corporate ballots distributed before shareholder annual meetings. To win the right to nominate, an investor or group of investors must own at least 3% of a company’s stock and have held the shares for a minimum of three years.

Currently, shareholders who want to oust board members must pay for mailing separate ballots, as well as wage a separate campaign to win shareholder support. The new rule will be in place in time for the 2011 annual meeting season next spring.

However, the final rule did address concerns from the business community. Smaller companies will be exempt from complying with the rule for three years. Investors will be prevented from borrowing stock to meet the 3% threshold and will be restricted to nominating directors for no more than a quarter of a company’s board.

Commerce Department Revises Q2 GDP Growth Down

On Friday, the Commerce Department released its revised second quarter GDP report showing the economy grew at a sluggish 1.6% rate. In July, the Department estimated the growth rate slowed to 2.4% after a 3.7% expansion in the first quarter. However, the report also showed consumer spending rose 2.0 %, above the initial second-quarter estimate of 1.6%. The overall price index for personal consumption expenditures registered no gain in the second quarter, rather than the initial estimate for a 0.1% increase. The price index’s flat rate marked a sharp decline from the 2.1% growth rate during the first three months of the year. Business spending on equipment and software also remained solid, though the second-quarter gain was trimmed to 17.6% from an initial estimate of 21.9% in the second quarter. First-quarter spending was revised down to a 7.8% rise from 20.4%.

July Home Sales Drop

On Wednesday, the Commerce Department released its July home sales report showing new homes sold at an annual rate of 276,000, down 12.4 percent from June’s pace, while plummeting 32.4 percent from a year earlier. Housing experts attributed the weak results to the expiration of the home buyers’ tax credit in April. There were however regional disparities in the report showing that the Northeast led all regions by a 35 percent drop, followed by a decline of 25.5 percent in the Midwest, 15.1 percent in the South and 9.8 percent in the West. The Department also reported that the average price of a new home dropped to $253,300, the lowest reading since early 2003.

More Information 

If you have any questions regarding any of these issues, please contact: 

Matt Jessee, Policy Advisor
matt.jessee@bryancave.com
202.508.6341 

Patricia Ross, Policy Assistant
patricia.ross@bryancave.com
202.508.6054

Related Posts

1. Financial Services Update - September 7, 2010
2. Financial Services Update - July 30, 2010
3. Financial Services Update – Issue 7 - February 27, 2010

On Friday, the Department of Labor announced that the unemployment rate fell in 18 states during the month of July. The Department also said the jobless rate rose in 14 states and stayed the same in the remaining 18 states. Nationwide, the unemployment rate remained stuck at 9.5 percent in July. New York and Massachusetts reported strong job gains with Massachusetts reporting that it added 19,200 private-sector jobs in July, the largest monthly gain for any state in more than 20 years.　

On Tuesday, the Departments of Treasury and HUD invited a cross section of housing and banking industry participants to Washington for a summit on the future of the housing finance industry. The industry representatives voiced overwhelming support for the government to maintain a large role in supporting the nearly $11 trillion mortgage market. Participants expressed support for a new program that would allow homeowners to refinance their mortgages at lower interest rates through Fannie Mae and Freddie Mac, although Treasury officials indicated they have no plans to enact such a program.

Sources indicate the Administration aims to submit its proposal for reforming the housing industry to Congress early next year. Representative Barney Frank (D-MA), Chairman of the House Financial Services Committee, said after the summit that the housing system should not include public-private companies like Fannie Mae and Freddie Mac, that the government should make explicit its subsidies for low-income housing, and that a federal guarantee program for conventional mortgages should finance itself through fees. While Frank said that he intends to move legislation next year, he acknowledged that the midterm elections could cause political changes that would make his legislation’s passage more difficult.　

More Information 

If you have any questions regarding any of these issues, please contact: 

Matt Jessee, Policy Advisor
matt.jessee@bryancave.com
202.508.6341 

Patricia Ross, Policy Assistant
patricia.ross@bryancave.com
202.508.6054

Related Posts

1. Financial Services Update – Issue 11 - March 26, 2010
2. Financial Services Update - August 13, 2010
3. Financial Services Update – Issue 17 - May 7, 2010