PARKS v. MBNA AMERICA BANKAppellant’s Request for Judicial NoticeCal.May 16, 2012SUPREME COURTCOPY . Case No. S183703 wR Bre ity Pilot ded MAY 1 6 2012 Frederick K. Ohtrich Clerk Deputy SUPREME COURT OF THESTATE OF CALIFORNIA ALLAN PARKS PlaintiffandAppellant, vs. MBNAAMERICA BANK, N.A., Defendant and Respondent After Decision by Fourth District - Division Three Court of Appeal (Case No. Go40798) Reversing Judgment by Orange County Superior Court (Case No. 04CC00598), The Honorable Gail S. Andler Presiding PLAINTIFF/APPELLANT'S REQUEST FOR JUDICIAL NOTICE IN CONJUNCTION WITH SUPPLEMENTAL LETTER BRIEF LAW OFFICE OF MICHAEL R. VACHON,ESQ. Michael R. Vachon, Esq. SBN: 206447 17150 Via Del Campo,Suite 204 San Diego, California 92127 Telephone: (858) 674-4100 Facsimile: (858) 674-4222 Attorneyfor Plaintiff/Appellant Allan Parks I. Motion to Take Judicial Notice of the NBA,As Originally Enacted Under California Rules of Court, Rules 8.520(g), 8.252 and 8.54 and Evidence Code Sections 459, Plaintiff/Appellant Allan Parks ("Parks") requests that the Supreme Court take judicial notice of the following documents: 1. Joint Explanatory Statement of the Committee of Conference, H.R. 111-517 (June 29, 2012). (a true and correct copy of which is attached hereto as Exhibit 1); 2. Letter dated June 27, 2011 by George W. Madison on behalf of the Treasury Departmentto Office of the Comptroller of the Currency(a true andcorrect copy of whichis attached hereto as Exhibit 2); 3. Relevant portions of version of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed by the U.S. Senate (a true and correct copy of whichis attached hereto as Exhibit 3); 4. Relevant portions of version of the Dodd-Frank Wall Street Reform and ConsumerProtection Act passed by the U.S. House of Representatives (a true and correct copy which is attached as Exhibit 4). During the trial court and court of appeal proceedings, Parks did not request that thetrial court take judicial notice of this fact. All of the matters to be noticed relate to proceedings that occurred after the judgment that is the subject of this appeal. They are relevant to this appeal becausetheyare portionsof the legislative history of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the Supreme Court has requested brief the relevance,if any, of this Act and the regulations issued in response to the Act. /// [11 Il. Memorandum Of Points & Authorities Reviewing courts "may take judicial notice of any matter specified in [Evidence Code] Section 452." Under Evidence Code Section 452 (a), judicial notice may be taken of "the decisional, constitutional, and statutory law of any state of the United States and the resolutions and private acts of the Congress of the United States and of the Legislature of this state." Under Evidence Code Section 452 (a), judicial notice may be taken of "official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States.” Because these documents are official acts and records of the United State Congress and the executive department of the United States, judicial notice is appropriate. LAW OFFICE OF MICHAEL R. VACHON,ESQ. Attorney for Plaintiff/Appellant Allan Parks ~~ o~ NN Date: May 15, 2012 SVS. - Michael R. Vachon,Esq. Ill. Declaration ofMichael R. Vachon, Esg. in Support ofMotion to Take Judicial Notice I, Michael R. Vachon, Esq., declare: 1. I am over 18 years of age, and an attorney licensed to practice law in the State of California. I am the attorney of record for Plaintiff/Appellant Allan Parks, and have represented him at all times during this litigation (including during the trial court and court of appeal proceedings). Except as otherwise stated, I have personal knowledgeof the facts contained herein and,if called as a witness, could and would competently testify to such facts. 2. A true and correct copy of the Joint Explanatory Statement of the Committee of Conference is attached hereto as Exhibit 1. 3. A true and correct copy of the letter dated June 27, 2011 by George W. Madison on behalf of the Treasury Department is attached hereto as Exhibit 2, 4. A true and correct copy of the relevant portions of version of the Dodd-Frank Wall Street Reform and ConsumerProtection Act passed by the U.S. Senate is attached hereto as Exhibit 3. 5. A true and correct copy of the relevant portions of version of the Dodd-Frank Wall Street Reform and ConsumerProtection Act passed by the U.S. House of Representatives is attached hereto as Exhibit 4.- On penalty of perjury under the laws of the State of California, I declare that the facts stated in this declaration are true. \ — | TS Date: May 15, 2012 Pe 7 Michael R. Vachon, Esq. JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE The managers on the part of the House and the Senate at the conference on the disagreeing votes of the two Houses on the . amendment of the Senate to the bill H.R. 4173, to provide for fi- nancial regulatory reform, to protect consumers and investors, to enhance Federal understanding of insurance issues, to regulate the over-the-counter derivatives markets, and for other purposes, sub- mit the following joint statement to the House and the Senate in explanation of the effect of the action agreed upon by the managers and recommendedin the accompanying conferencereport: The Senate amendment struck all of the House bill after the enacting clause and inserted a substitute text. The House recedes from its disagreement to the amendment of the Senate with an amendment that is a substitute for the House bill and the Senate amendment. The differences between the House bill, the Senate amendment, and the substitute agreed to in conference are noted below, except for clerical corrections, con- forming changes made necessary, by agreements reached by the conferees, and minor drafting and clarifying changes. TITLE I—FINANCIAL STABILITY Title I, which establishes a specific framework for ensuring financial stability, consists of three subtitles. Subtitle A establishes a Financial Stability Oversight Council to monitor potential threats to the financial system and provide for more stringent regulation of nonbank financial companies and financial activities that the Council determines, based on consideration of risk-related factors, pose risks to financial stability. Subtitle B establishes an Office of Financial Research that supports the Council by collecting informa- tion, conducting research, and analyzing data. Subtitle C provides a specific, more stringent supervisory framework for regulating large, interconnected bank holding companies, nonbank financial companies that the Council subjects to more stringent regulation, and activities and practices that the Council determines may pose systemic threats. TITLE II—ORDERLY LIQUIDATION AUTHORITY Title II establishes an orderly liquidation authority that may be used only if the Secretary of the Treasury (in consultation with the President), based on the written recommendation of two other federal regulators, agrees that doing so is necessary to mitigate se- rious adverse effects on financial stability in the United States. When the authority is used, the FDIC is appointed receiver and mustliquidate the company in a mannerthat mitigates significant risks to financial stability and minimizes moral hazard. All costs (865) 866 of an orderly liquidation underthis title are borne first by share- holders and unsecured creditors, and, if necessary, by risk-based assessments on large financial companies. Taxpayers specifically are protected from losses associated with use of this authority. TITLE ITI—TRANSFER OF POWERS TO THE COMPTROLLER OF THE CURRENCY, THE CORPORATION, AND THE BOARD OF GOVERNORS PRUDENTIAL REGULATOR RESTRUCTURING Title III of the conference report transfers the functions of the Office of Thrift Supervision to the Office of the Comptroller of the Currency, which will now supervise federal thrifts, te the Fed- eral Deposit Insurance Corporation (“FDIC”), which will supervise state-chartered thrifts, and to the Federal Reserve Board, which will supervise thrift holding companies. The conference report also protects employees affected by the regulatory streamlining by preserving pay and benefits, and pro- tecting them from involuntary separation or relocation for a period of time. Title III requires comprehensive coordination of the inte- gration of the agencies, and reporting to the House Financial Serv- ices Committee and Senate Banking Committee regarding the im- plementation of the merger. FEDERAL DEPOSIT INSURANCE REFORMS The title revises the FDIC’s assessment base for deposit in- surance, maintaining the risk-based nature of the assessment structure but transitioning to a broader assessment base for bank premiums based on total assets (minus tangible equity). The con- ference report also includes additional reforms that will enhance FDIC’s ability to manage the Deposit Insurance Fund. The title makes permanent the increase in deposit insurance to $250,000, and makes the increase retroactive to January 1, 2008. Full insurance of noninterest-bearing transaction accounts is also extended for an additional two years and a comparable pro- gram is authorized for credit unions. OFFICE OF MINORITY AND WOMEN INCLUSION The title requires the establishment of offices of Minority and Women Inclusion by the Treasury Department, and the finan- cial regulators, to coordinate technical assistance to minority- owned and women-owned businesses and to promote diversity in the workforce of the regulators. TITLE IV—REGULATION OF ADVISERS TO HEDGE FUNDS AND OTHERS The conference report eliminates the “private adviser” ex- emption in the Investment Advisers Act of 1940 (“IAA”) thus reg- istering advisers to private funds with the U.S. Securities and Ex- change Commission (“SEC”). It expands the advisers’ reporting re- quirements to the SEC as necessary or appropriate in the public interest and for the protection of investors or for the assessment of risk by the Financial Stability Oversight Council. The SEC is au- 867 thorized to take into account the size, governance, and investment strategy of an adviser to the fund to determine if the fund poses a systemic risk. The conference report also amends the IAA to allow the SEC to require investment advisers to disclose the iden- ty, investments, or affairs of their clients for purposes of systemic risk. The report includes exemptions for certain private fund ad- visers. It provides an exemption from registration requirements for advisers. of private funds, each with less than $150 million in as- sets under management, while maintaining reporting requirements as directed by the SEC; an SEC reporting requirement for advisers to venture capital funds, as defined by the SEC and otherwise ex- empt from the framework; and an exemption for Family Offices. The conference report raises the assets threshold for federal regula- tion of investment advisers from $30 million to $100 million. Those advisers who qualify to register with their home state must reg- ister with the SEC should the adviser operate in more than 15 states. Finally, the report clarifies the SEC’s authority to make rules necessary for the exercise of the powers conferred upon the SEC by the IAA. The SEC must adjust for the effects of inflation anydollar amount measures used in making determinations of the qualified client standard. Advisers must comply with the new provisions within one year of enactment of the conference report, though the report al- lows advisers to register earlier with the SEC. TITLE V—INSURANCE Subtitle A, the Federal Insurance Office Act of 2010, creates a Federal Insurance Office (FIO) in the Treasury Department to provide the Executive Branch and the Congress with a source ofin- formation on the national insurance marketplace. FIO is not a fed- eral regulator or supervisor of insurance. Rather, its functions in- clude collecting information about the insurance industry; moni- toring for systemic risk in the insurance industry, including serving in an advisory capacity to the Financial Stability Oversight Coun- cil; and administering the Terrorism Risk Insurance Program. Fur- ther, FIO will consult with the states regarding insurance matters of national importance and prudential insurance matters of inter- national importance. FIO will also coordinate federal efforts and develop federal policy on prudential aspects of international insur- ance matters, including representing the United States in inter- national insurance fora, and assisting the Treasury Secretary in negotiations of international insurance agreements with respect to the business of insurance or reinsurance. FIO will have a narrow and limited preemption power over state insurance measures that are inconsistent with such international insurance agreements. The Federal Insurance Office Act of 2010 expressly provides the Secretary of the Treasury, jointly with the USTR,the authority to negotiate and enter into international insurance agreements. To assure uniform, national application of prudential measures such as reinsurance collateral requirements, the Federal Insurance Of- fice Act provides the Director with the authority to identify and 868 narrowly preempt state insurance measures inconsistent with a de- fined category of international insurance agreements. Subtitle B, the Nonadmitied and Reinsurance Reform Act of 2010, will reform and modernize two important sectors of the com- mercial insurance marketplace, nonadmitted insurance (also known as ‘surpluslines’ insurance) and reinsurance. Specifically, the Non- admitted and Reinsurance Reform Act of 2010 creates a uniform system for nonadmitted insurance premium tax payments based upon the home state of the policyholder, encourages the states to develop a compact or other procedural mechanismfor uniform tax allocation, and establishes regulatory deference for the home state of the insured. The Act adopts uniform eligibility requirernents for nonadmitted insurers as developed and promulgated by the Na- tional Association of Insurance Commissioners (NAIC) in the Non- admitted Insurance Model Act. The Nonadmitted and Reinsurance Reform Act of 2010 will allow direct access to the nonadmitted in- surance markets for certain sophisticated commercial purchasers. The Nonadmitted and Reinsurance Reform Act also streamlines the regulation of reinsurance by applying single state regulation for fi- nancial solvency and credit for reinsurance. Credit for reinsurance determinations will be controlled by the state of domicile of the ceding insurer. Reinsurance solvency regulation will be controlled by the state of domicile of the reinsurer provided such state is NAIC-accredited or has financial solvency requirements substan- tially similar to the requirements necessary for NAIC accreditation. Under the Act, non-domiciliary states are specifically prohibited from applying their reinsurance laws in an extra-territorial man- ner. TITLE VI-IMPROVEMENTS TO REGULATION OF BANK AND SAVINGS ASSOCIATION HOLDING COMPANIES AND DE- POSITORY INSTITUTIONS Title VI improves prudential regulation of banks, saving as- sociations, and their holding companies. The improvements include significant limitations on proprietary trading and sponsoring or in- vesting in hedge funds or private equity funds by banking entities through the Volcker rule, better supervision of nonbank subsidi- aries of holding companies, enhanced restrictions on transactions with affiliates, limits on derivatives and securities lending credit exposure, and a requirement that any company that controls an in- sured depository institution serve as a source of financial strength to the institution. TITLE VII—WALL STREET TRANSPARENCY AND ACCOUNTABILITY The conference report establishes a new regulatory frame- work to cover a broad range of participants and institutions in the over-the-counter derivatives market. The Commodity Futures Trad- ing Commission (“CFTC”) and the Securities and Exchange Com- mission (“SEC”) are authorized to write rules for the swaps and se- curity-based swaps markets, respectively. The Commissions shall consult and coordinate on rules and include the prudential regu- lators, to the extent possible, to assure regulatory consistency and 869 comparability. The Commissions will register participants in the market including dealers, major participants, clearing agencies and organizations, exchanges, swap execution facilities, and trade re- positories. Exemptions and exclusions from registration will apply as outlined in the report or at the discretion of the regulators. The Commissions will have enforcement authority in their jurisdictions while the prudential regulators maintain exclusive authority to en- force provisions for capital and margin for banks and branches or agencies of foreign banks. The report provides definitions for terms used in the Com- modity Exchange Act and Securities Exchange Act of 1934. The regulatory framework outlines provisions for: Mandatory clearing of swaps and security-based swaps for those trades that are eligible for clearing as determined by both the clearing houses and the regulators; Mandatory trading on an exchange or swap. (or security based swap) execution facility should the transactions be cleared and facility will accept it for trading; Public trade reporting of all cleared and uncleared swaps and security-based swaps; Regulators have authority to impose capitalcon dealers and major swap participants; Regulators have authority to impose margin requirements only on dealers and major participants for uncleared swaps, adding safeguards to the system by ensuring dealers and: major swap participants have adequate financial resources to meet obligations; Position limits on swaps contracts that perform or affect a significant price discovery function and requirements to aggre- gate limits across markets; and Prohibitions against market manipulation.: The report includes a prohibition of federal assistance to swaps and security-based swap entities, including federal deposit insurance, access to the Federal Reserve discount. window or Fed- eral Reserve credit facility, to swaps entities in connection with their trading in swaps or securities-based swaps.. The report establishes a code of conductfor all registered swap dealers and major swap participants requiring them to dis- close to the swap entity the material risks and characteristics of a swap and any conflicts of interest or material incentives. When act- ing as counterparties to a pension fund, endowment fund,or state or local government, dealers are to have a reasonable basis to be- lieve that the fund or governmental entity has an independent rep- resentative advising them. The report requires a numberof studies, including studies on international swap regulation, the regulation of carbon markets, stable value contracts, and the effect of position limits on ex- changes. TITLE VITII—-PAYMENT, CLEARING, AND SETTLEMENT SUPERVISION Title VIII establishes a specific framework for promoting uni- form risk-management standards for systemically important finan- cial market utilities (FMUs) and systemically important payment, 870 clearing, and settlement (PCS) activities conducted by financial in- stitutions. The Board of Governorsof the Federal Reserve System (Board), the Securities and Exchange Commission (SEC), or the Commodity Futures Trading Commission (CFTC), as appropriate, is primarily responsible for establishing and enforcing risk-manage- ment standards for FMUs and PCSactivities that the Council iden- tifies as systemically important. If the Board determines that the standards imposed by the SEC or the CFTC or the enforcementac- tions of such agencies are insufficient, then the Council can require the SEC or CFTC to impose additional standards or take additional enforcementactions. TITLE IX—INVESTOR PROTECTIONS AND IMPROVEMENTS TO THE REGULATION OF SECURITIES : Subtitle A—Increasing Investor Protection establishes mecha- nisms to assist investors in their dealings with the SEC by creating an Office of Investor Advocate and an Ombudsman.It also creates an Investor Advisory Committee at the SEC, and clarifies the au- thority of the SEC to engage in investor testing. Subtitle A directs the SEC to study the standards of care applicable to broker-dealers and investment advisers giving investment advice to retail cus- ' tomers, and it authorizes the SEC to promulgate rules imposing a fiduciary duty on broker-dealers and investment advisers to protect retail customers. In addition, the subtitle streamlines filing proce- dures for self-regulatory organizations. Subtitle A also clarifies the authority of the SEC to require investor disclosures before pur- chase of investment products and services. Finally, the subtitle re- quires studies on the enhancement of investment adviser examina- tions, financial literacy, mutual fund advertising, conflicts of inter- est, improved investor access to information on investment advisers and broker-dealers, and financial planners and the use of financial designations. Subtitle B—Increasing Regulatory Enforcement and Rem- edies strengthens the SEC’s authority to conduct investigations, im- pose liability on control persons, and assess penalties for violations of the securities laws. It also makes clear that the intent standard in SEC enforcement actions for aiding and abetting is recklessness, and it requires a study regarding the issue of aiding and abetting liability in private actions. Under subtitle B, the SEC has the au- thority to restrict pre-dispute mandatory arbitration. The subtitle further enhances incentives and protections for whistleblowers pro- viding information leading to successful SEC enforcement actions. Awards to whistleblowers will range from 10 percent to 30 percent of the amountscollected by the SEC in actions where the SEC ob- tained monetary sanctions exceeding $1 million. The subtitle also works to protect the confidentiality of whistleblowers. The subtitle further enhancesthe ability of the SEC to ban violators from all parts of the securities industry, disqualifies fel- ons and other bad actors from using the Regulation D offering ex- emption, and provides for the equal treatment of self-regulatory or- ganization (SRO) rules. It streamlines SRO rule filing procedures by requiring the SEC to complete the process of reviewing and tak- ing action on proposed SROrules within specified time frames. The subtitle enhances the ability of the SEC to issue subpoenas, bring 871 ‘cases against individuals, and share information with other au- thorities. It also updates the law governing the Securities Investor Protection Corporation (SIPC). These reforms include increasing the minimum assessments on SIPC members;raising penalties for fraud; and establishing civil and criminal penalties against any person who misrepresents membership in SIPC. Subtitle B gives the SEC authority to enhance public reporting of aggregate infor- mation on short selling, prohibits manipulative short sales, and re- quires notification to customers that they may choose not to allow their securities to be used in connection with short sales. The sub- title further establishes procedures to notify investors about miss- ing securities, and it requires the SEC to complete investigations and examinations within certain time frames, subject to exceptions for complex cases. Finally, the subtitle requires a study regarding the issue of aiding and abetting liability in private actions for secu- rities fraud. Subtitle C—Improvement to the Regulation of Credit Rating Agencies gives broader powers to the SEC to regulate nationally recognized statistical rating organizations (““NRSROs”). A new Of- fice of Credit Ratings (“Office”) is required to examine NRSROs at least once a year and make key findings public. The Office will. write new rules, including requiring NRSROsto (1) set up internal controls over the process for determining credit ratings; (2) estab- lish an independent boardof directors; (8) make greater disclosures to the public and investors; and (4) develop universal ratings across asset classes and types of issuer. The report also gives the Office the authority to deregister an NRSRO for providing bad ratings over time. New professional standards are established that require ratings analysts to pass qualifying exams and have continuing edu- cation. The report includes provisions to address conflicts of inter- est. It prohibits compliance officers from working on ratings, meth- odologies, or sales and prevents other employees from both mar- keting ratings services and performing the ratings of securities. The subtitle includes on additional conflict of interest mitigation in- cluding a new requirement for NRSROsto conduct a one-year look- back review when an NRSRO employee goes to work for an obligor or underwriter of a security or money market instrument subject to a rating by that NRSRO; and report to the SEC when certain employees of the NRSRO go ‘to work for an entity that the NRSRO has rated in the previous twelve months. The SEC shall make such reports publicly available. To reduce the reliance on ratings, the report amends several statutes to remove references to credit ratings, credit rating agen- cies and NRSROs. The subtitle includes a requirement that all Federal agencies review their regulations, policies and practices that reference credit ratings, credit rating agencies, and NRSROs. After identifying where the agency relies on or makes these ref- erences, the agencies shall modify their regulations by striking these references and substituting a standard of creditworthiness to be established by the agencies. New provisions address information gathering. NRSROs must consider information in their ratings that comes to their at- — tention from a source other than the organizations being rated, if . 872 they find it credible. In addition, the subtitle includes an elimi- nation of the credit rating agency exemption from Regulation Fair Disclosure, commonly known as Reg FD. The report also addresses liability measures for the NRSRO. The report allows investors to bring private rights of action against credit rating agencies for a knowing or reckless failure to conduct a reasonable investigation of the facts or to obtain analysis from an independent source. The report also nullifies Rule 436(g) which provides an exemption for credit ratings provided by NRSROs from being considered a part of the registration statement prepared or certified by a person underthe “expert liability” regime of Section 7 and Section 11 of the Securities Act of 1933. The subtitle requires all references to “furnish” be replaced with the word “file” in exist- ing law. Information that is “furnished” to the SEC is subject to a lower standard of accuracy and liability than information “filed” with the SEC. The report also directs the SEC to establish a system that prohibits issuers of structured finance from selecting the NRSRO that will provide the initial credit rating. The system would man- date that initial rating assignments for structured finance securi- ties be made on a random or semi-random basis, unless the SEC determines, after study, that an alternative system of assigning ratings would better protect investors and serve the public interest. Subtitle D—Improvements to Asset-Backed Securitization Process requires securitizers to retain an economic interest in a material portion of the credit risk for any asset that securitizers transfer, sell, or convey to a third party. Risk retention require- ments and exemptions will be determined by regulators, which will include setting risk retention requirements for different asset class- es that are securitized and allocating risk retention obligations be- tween securitizers and originators. An exemption is provided for qualified residential mortgages, as defined by the regulators, but which can be no broader than the definition of qualified mortgage in Title XTV. Regulators may tailor risk retention requirements as appropriate to the structure of collateralized debt obligations and other complex asset-backed securities. Subtitle D also requires en- hanced disclosure by issuers of asset-backed securities, including data related to the underlying loans or assets. Express exemptions are provided for the Farm Credit System and any residential, mul- tifamily, or health care facility mortgage loan asset or securitization which is insured or guaranteed by the United States or an agency of the United States. Regulators also are required to issue total or partial exemptions from risk retention and disclosure requirements for municipal securities and for securitizations of as- sets issued or guaranteed by federal agencies, as long as the ex- emption is in the public interest and for the protection of investors. Subtitle E—Accountability and Executive Compensation is designed to address shareholder rights and executive compensation practices. In this subtitle, Congress provides shareholders in a pub- lic company with a vote on executive compensationand additional disclosures involving compensation practices. Under the conference report, at least every three years shareholders can cast an advisory vote to approve the compensation of executives and, where appro- priate, golden parachutes for executives. Also under this subtitle, 873 (i) board committees that set compensation policy will consist only of directors who are independent; (ii) companies will tell share- holders about the relationship between the executive compensation the company paid and the company’s financial performance;(iii) companies will be required to have a policy to recover money erro- neously paid to executives based on financials that later have to be restated due to an accounting error; and (iv) companies will be re- quired to disclose in the annual proxy statement whether employ- ees or members of the board may hedgeor offset any decrease in the market value of equity securities granted. This subtitle also re- quires federal financial regulators to monitor incentive-based pay- ment arrangements of federally regulated financial institutions larger than $1 billion and prohibit incentive-based payment ar- rangements that the regulators determine jointly could threaten fi- nancial institutions’ safety and soundnessor could have serious ad- verse effects on economic conditions or financial stability. Finally, subtitle E prohibits brokers who are not beneficial owners of a se- curity from voting through company proxies unless the beneficial ownerhas instructed the broker to vote on the owner’s behalf. Subtitle F—Improvements to the Management of the Securi- ties and Exchange Commission requires several reports designed to assess SEC performance and provide recommendations for im- provements. These involve assessment of the management of the SEC related to internal supervisory controls, personnel manage- ment, financial controls, and oversight of national securities asso- ciations. Subtitle F also creates a suggestion program for SEC em- ployees and requires the Divisions of Trading and Markets and In- vestment Management to have examiners on their staffs. It re- quires the SEC to hire a consultant to study the SEC’s operations and determine whether there is a need for comprehensive reform. Finally, Subtitle F requires the GAO to study issues surrounding employees who leave the SEC to work in the securities industry. Subtitle G—Strengthening Corporate Governance authorizes the SEC to write rules allowing shareholders to nominate can- diddtes for an issuer’s board of directors, and to have such can- didates listed on the issuer’s own proxy materials. In writing such rules, the SEC must consider the burden on small issuers, and may issue exemptions from proxy access rules. Issuers must also dis- close why the issuer has chosen to have a single person, or dif- ferent individuals, serve as CEO and Chairmanof the board of the company. Subtitle H—Municipal Securities requires the registration of municipal financial advisors and subjects them to rules to be pro- mulgated by the Municipal Securities Rulemaking Board (MSRB), which will be enforced by the SEC. An Office of Municipal Securi- ties is created within the SEC. The MSRB will be reconstituted, so that a majority of members are independent of the municipal secu- rities industry. Municipal advisors will have a fiduciary duty to municipal entities. Subtitle H calls for studies of municipal securi- ties markets, and ways to increase disclosure to investors. It also provides a certain source of funding for the Government Accounting Standards Board. - Subtitle I—Public Company Accounting Oversight Board, Portfolio Margining, and Other Matters, subtitle I allows the Public 874 Company Accounting Oversight Board (PCAOB) to examine the auditors of broker-dealers. It further authorizes the PCAOB to share information with foreign authorities. The conference report also authorizes portfolio margining for accounts that hold both se- curities and futures. In response to problems related to securities borrowing and lending, the conference report requires more trans- parency. It also raises the dollar thresholdthat triggers a full “ma- terial loss review” by federal banking regulators’ inspectors gen- eral. Subtitle I improves the coordination,activities, flexibility, and accountability of inspectors general at Federal financial agencies. Subtitle I also exempts small issuers (those with less than $75,000,000 in market capitalization) from the external audit of in- ternal controls requirements of Sarbanes-Oxley Section 404(b), and requires studies on the impact of such an exemption and the ex- emption for mid-sized companies. The subtitle also creates an ex- emption for certain annuities from federal securities regulation. Further, it makes numerous technical and conforming changes to Federal securities laws. : Subtitle J—Securities and Exchange Commission Match Funding maintains the role of the Appropriations Committees in setting the Securities and Exchange Commission’s annual budgets on and after FY2012. Transaction fee receipts would be treated as offsetting collections equal to the amount of the appropriation. Any excess collections would go to the Treasury as general revenue and not offset any current or future appropriations. Subtitle J sets an- nual registration fee targets that will produce $5 billion of reve- nues over ten years that will go to the Treasury general fund. It also requires SEC’s budget to be submitted to Congress concurrent with the earliest submission to the Office of Management and Budget and: submitted unaltered by the President; builds in flexi- bility for multi-year budget authority and unanticipated needs; and authorizes graduated funding level increases for the SEC for FYs 2011-2015. TITLE X—BUREAU OF CONSUMER FINANCIAL PROTECTION Title X establishes the Bureau of Consumer Financial Pro- tection (Bureau), which will be an independent bureau within the . Federal Reserve System. It will be run by a Director who is Presi- dentially appointed and Senate confirmed. The Bureau will have the authority and accountability to ensure that existing consumer protection laws and regulations are comprehensive, fair, and vigor- ously enforced. The Bureau will have authority to issue rules applicable to all financial institutions, including depository institutions that offer financial products and services to consumers. It will also have au- thority to issue rules under existing consumer bankingstatutes, in- cluding the Truth in Lending Act, the Equal Credit Opportunity Act, and the Real Estate Settlement Procedures Act. Furthermore, the Bureau will have authority to regulate unfair, deceptive and abusive practices and consumer products that it identifies (UDAP authority). The Bureau also may issue regulations relating to dis- closures about consumer financial products and services. Title X also establishes the Bureau as the federal agency with examination and enforcement authority over very large banks 875 and nonbank financial institutions for compliance. with the con- sumer protection laws. The prudential regulators will retain this authority for insured depository institutions.and credit unions with assets of $10 billion or less. Exclusions from supervision. and en- forcement are provided for nonfinancial companies, including mer- chants, retailers, attorneys, accountants, and real estate brokers, that finance the purchase of their nonfinancial consumer‘products ‘and services under certain conditions and where the nonfinancial company is not significantly engaged in such financing. There is also an exclusion from the authority of the Bureau for automobile dealers, for which the Federal Reserve Board will continue to write regulations under the enumerated federal consumer laws, to be en- forced by the Federal Trade Commission (FTC). The FTC will also be able to write rules proscribing unfair or deceptive acts or prac- tices with regard to auto dealers under the procedures set out under the Administrative Procedures Act. , The conference report also revises the standard the OCC will use to preempt state consumer protection laws. It codifies the standard in the 1996 Supreme Court case Barnett Bank of Marion County, N.A. v. Nelson to allow for the preemption of State con- sumer financial laws that prevent or significantly interfere with national banks’ exercise of their powers. State Attorneys General also are given authority to enforce the UDAP andother authorities of the Bureau against banks and savings associations. To address consumer protection and fair lending matters, Title X establishes the Office of Fair Lending and Equal Oppor- tunity within the Bureau. This Office will oversee the enforcement of federal laws intended to ensurefair, equitable and nondiscrim- inatory access to credit for individuals and communities, including the Equal Credit Opportunity Act (ECOA) and Home Mortgage Disclosure Act (HMDA). The Office will promote coordination of fair lending enforcement efforts with other federal agencies and State regulators, as appropriate, to provide consistent, efficient and effective enforcement of federal fair lending laws. The Bureau will also include an Office for Financial Edu- cation and an Office the Financial Protection of Older Americans. In addition, Title X provides for enhanced data collection required by HMDA and ECOA. TITLE XI—FEDERAL RESERVE SYSTEM PROVISIONS LIQUIDITY PROGRAMS The Federal Reserve will be able to make 18(3) emergency loans only through widely available programs approved by the Sec- retary of the Treasury, and not to individual firms. FDIC programs to guarantee short-term debt during financial crises will be limited to solvent depository institutions and their holding companies, and can be created only after meeting several conditions including Con- gressional approval. FEDERAL RESERVE GOVERNANCE AND OVERSIGHT The Government Accountability Office will conduct an audit of Federal Reserve 13(8) emergency lending since December 1, 876 2007, and the Federal Reserve will publish details about such lend- ing on December1, 2010. The GAO will have ongoing audit author- ity over Federal Reserve discount window and open market oper- ation transactions, and emergency lending. The Federal’ Reserve will publicly disclose data on discount window andopen marketop-. erations, and details about emergency lending, after a delay that will allow these tools to function effectively. The position of Vice Chairman for Supervision on the Fed- eral Reserve Board of Governors is established, and the Federal Reserve is formally prohibited from delegating its functions for es- tablishing regulatory or supervisory policy to Federal Reserve banks. The presidents of each Federal Reserve Bankwill be elected by the directors selected to represent the public (Class B and C di- rectors), and the directors representing the memberbanks (Class A directors) will no longer be authorized to vote. TITLE XTI—IMPROVING ACCESS TO MAINSTREAM FINANCIAL INSTITUTIONS This title will expand access to safe and affordable bank ac- counts, credit and financial information for low-income, minority and other underserved families. Specifically, the title would ad- dress the following challenges facing low- and moderate-income families with three authorized programs: authorizes a program to help low- and moderate-income in- dividuals open low-cost checking or savings accounts at banks or credit unions; increases access to objective advice through non-profits and others aiding in offering financial advice to consumers; an creates a pool of capital to enable community development financial institutions (CDFIs) to establish and maintain small dollar loan programs, creating an alternative to pay day or car title loans in local communities. TITLE XITI—PAY IT BACK ACT Title XIII, the TARP Pay it Back Act, reduces the amount authorized underthe Troubled Asset Repurchase Program to $475 billion, from the original $700 billion; prohibits Treasury from using repaid TARP funds; and prohibits Treasury from initiating new programs under TARP. TITLE XIV—MORTGAGE REFORM AND ANTI-PREDATORY LENDING ACT Title XTV enacts the Mortgage Reform and Anti-Predatory Lending Act. It sets minimum standards for mortgages by requir- ing lenders to establish that consumers have a reasonable ability to repay at the time the mortgage is consummated.It provides that certain high-quality, low-cost loans (defined as Qualified Mort- gages) are presumed to meet this standard. The Act also prohibits financial incentives (including pay- ments known as “yield spread premiums”) that may encourage mortgage originators, including mortgage brokers and loan officers of lending institutions, to steer consumers to higher-cost and more 877 abusive mortgages. In addition, it prohibits prepayment penalties for any adjustable rate mortgage and other mortgages that do not meet the definition of Qualified Mortgage; limits prepayment pen- alties charged to borrowers who wish to prepay their mortgages (typically to refinance on more affordable terms); bans single pre- mium credit insurance and prohibits mandatory arbitration clauses; and includes protections for renters of foreclosed prop- erties. Finally, title XTV authorizes funds to provide legal assist- ance to homeowners and renters who are experiencing problemsre- lated to foreclosure. Title XIV enhances and expands the scope of consumer pro- tections for high-cost loans under the Home Ownership and Equity - Protection Act (HOEPA) and requires additional disclosures to con- sumers. This title revises the benchmarks for determining loans subject to the heightened HOEPA standards.It also prohibits the financing of points and fees; excessive fees for payoff information, modifications, or late payments; and practices that increase the risk of foreclosure, such as balloon payments, encouraging a bor- rower to default, and call provisions. The title adds a requirement for pre-loan counseling. The Act establishes an Office of Housing Counseling at HUD that will carry out and coordinate homeownership and rental hous- ing counseling programs; requires the launch of a national public- service, multimedia campaign to promote housing counseling and the establishment of a website and toll-free hotline; authorizes the issuance of homeownership and rental housing counseling grants to HUD-approved housing counseling agencies and State housing fi- nance agencies; and requires HUD to update the Mortgage Infor- mation Booklet to provide consumers with a greater understanding of the terms of the home buying process. Additionally, the title re- quires increased information to consumers about the need for home inspections and ways to avoid foreclosure scams. Moreover, Title XIV requires all higher-cost mortgage bor- rowers to have escrow accounts established. It also requires lenders to provide written disclosures about the need to pay taxes and in- surance premiumsto all borrowers if they opt out of creating es- crow accounts. With respect to mortgage servicing reforms, Title XIV updates the Real Estate Settlement Procedures Act to create new consumer protections related to force-placed insurance, swifter responses to inquiries, increased penalties, prompt crediting of pay- ments, and the timely receipt of payoff statement quotes. Concerning appraisal practices, Title XIV prohibits lenders from making a higher-cost mortgage without first obtaining a writ- ten appraisal. Lenders must additionally provide mortgage appli- cants with copies of any and all written appraisal reports and valu- ations developed in connection with a mortgage transaction at least 3 days before the scheduled closing date on the property. Title XIV further creates enforceable Federal appraisal independence stand- ards with penalties within the Truth in Lending Act. These stand- ards prohibit the parties involved in a real estate transaction from influencing the independent judgment of an appraiser through col- lusion, coercion, and bribery, among other activities. The bill also reforms the Federal oversight of the State appraisal regulatory sys- tem. 878 The Act provides $1 billion for “Emergency MortgageRelief,” in the form of loans to homeowners who lose their jobs, to help make mortgage payments while the homeowneris out of work. The Act also provides $1 billion for a third round of funding for the Neighborhood Stabilization Program to enablestate and local gov- ernments to finance the purchase and redevelopment of foreclosed homes and residential properties. In addition, the Act authorizes a HUD-administered grant-making program to help entities that pro- vide legal assistance to low- and moderate-income recipients on home ownership preservation, foreclosure prevention, and the rights of tenants associated with homeforeclosure. TITLE XV—MISCELLANEOUSPROVISIONS Title XV of the conference report includes: RESTRICTIONS ON USE OF U.S. FUNDS FOR FOREIGN GOVERNMENTS The conference report requires the Administration to evalu- ate any proposed loan by the IMF to a middle-income country if that country’s public debt exceeds its annual Gross Domestic Prod- uct, and to oppose the loan if it cannot certify to Congress that the loan is likely to be repaid. EXTRACTIVE INDUSTRIES TRANSPARENCY The conference report requires public disclosure to the SEC of any payment relating to the commercial developmentofoil, nat- ural gas, and minerals made by any person to the U.S. or a foreign government, and includes as a “payment” taxes, royalties, fees, li- censes, production entitlements, bonuses, and other material bene- fits, as determined by the Securities and Exchange Commission. The conference report amends the Securities Exchange Act of 1934 to require the SEC to issue rules requiring each resource ex- traction issuer (an issuer that engages in the commercial develop- mentofoil, natural gas, or minerals) to include in an annual report information relating to any payment made by the issuer, a sub- sidiary or partner, or an entity under its control to the U.S. or a foreign government for the purpose of such commercial develop- ment. Requires such rules, to the extent practicable, to support the U.S. commitment to international transparency promotion efforts relating to such commercial development. CONFLICT MINERALS The conference report requires disclosure to the SEC byall persons otherwise required to file with the SEC for whom minerals originating in the Democratic Republic of Congo and adjoining countries are necessary to the functionality or production of a prod- uct manufactured by such person. Such a public disclosure report by the person must describe the measures taken to exercise due diligence on the source and chain of custody of such materials, the products manufactured, and other matters; requires an inde- pendent audit of the report. , The conference report requires that the Department of State, in consultation with others, submit to Congress a strategy to ad- 879 dress theillicit minerals trade in the region, and a map to address linkages between conflict minerals and armed groups. Section 1503 requires mining companies to disclose mining safety violations that are material to investors. TITLE XVI—SECTION 1256 CONTRACTS The title contains a provision to address the recharacteriza- tion of income as a result of increased exchange-trading of deriva- tives contracts by clarifying that section 1256 of the Internal Rev- enue Code does not apply to certain derivatives contracts trans- acted on exchanges. Compliance with clause 9 of Rule XXI.—-Pursuant to clause 9 of rule XXI of the Rules of the House of Representatives, neither this conference report nor the accompanying joint statement of managers contains any congressional earmarks, limited tax bene- fits, or limited tariff benefits as defined in clause 9 of rule XXI. From the Committee on Financial Services, for consider- ation of the House bill and the Senate amendment, and modifications committed to conference: BARNEY FRANK of Massachusetts, PAUL E. KANJORSKI, MAXINE WATERS, CAROLYN B. MALONEY, Luis V. GUTIERREZ, MELVIN L. WATT, GREGORY W. MEEKS of New York, DENNIS Moors of Kansas, Mary Jo KILROY, GARY C. PETERS, From the Committee on Agriculture, for consideration of subtitles A and B oftitle I, secs. 1803, 1609, 1702, 1703, title III (except secs. 3301 and 3302), secs. 4205(c), 4804(b)(8)(B), 5008, and 7509 of the House bill, and sec. 102, subtitle A of title I, secs. 406, 604(h), title VII, title VIII, secs. 983, 989E, 1027G), 1088(a)(8), 1098, and 1099 of the Senate amendment, and modifications committed to conference: COLLIN C. PETERSON, LEONARD L. BOSWELL, From the Committee on Energy and Commerce,for consid- eration of secs. 3009, 3102(a)(2), 4001, 4002, 4101-4114, 4201, 4202, 4204-4210, 4801-4311, 4314, 4401-4403, 4410, 4501-4509, 4601-4606, 4815, 4901, and that portion of sec. 8002(a)(3) which adds a new sec.313(d) to title 31, United States Code, of the House bill, and that portion of sec. 502(a)(3) which adds a new sec. 318(d) to title 31, United States Code, secs. 722(e), 1001, 1002, 1011-1018, 1021-1024, 1027-1029, 1031-1034, 1036, 1037, 1041, 1042, 1048, 1051-1058, 1061-1067, 1101, and 1105 of the senate amendment, and modifications committed to con- erence: 880 Bossy L. RuSH, From the Committee on the Judiciary, for consideration of secs. 1101(e)(2), 1103(e)(2), 1104G)(5) and G)(6), 1105¢(h) and (i), 1110(c) and (d), 1601, 1605, 1607, 1609, 1610, 1612(a), 3002(c)(3) and (c)(4), 3006, 3119, 3206, 4205(n), 4306(b), 4501-4509, 4608, 4804(b)(8)(A), 4901(c)(8)(D) and (e), 6003, 7203(a), 7205, 7207, 7209, 7210, 7213-7216, 7220, 7302, 7507, 7508, 9004, 9104, 9105, 9106(a), 9110(b), 9111, 9118, 9203(c), and 9403(b) of the House bill, and secs. 112(b)(5)(B), 118(h), 1538), 201, 202, 205, 208-210, 211(a) and (b), 316, 502(a)(3), 712(c), 718(b), 723(a)(3), 724(b), 725(c), 728, 731, 738, 735(b), 744, 748, 753, 7638(a), (c) and (i), 764, 767, 809(f), 922, 924, 929B, 932, 991(b)(5), (c)(2)(G) and (c)(3)(H), 1023(c)(7) and (c)(8), 1024(c)(3)(B), 1027(e), 1042, 1044(a), 1046(a), 1047, 1051-1058, 1063, 1088(a)(7)(A), 1090, 1095, 1096, 1098, 1104, 1151(b), and 1156(c) of the Senate amendment, and modifications com- mitted to conference: JOHN CONYERS,Jr., HowarpD L. BERMAN, From the Committee on Oversight and Government Re- form, for consideration of secs. 1000A, 1007, 1101(e)(3), 1203(d), 1212, 1217, 1254(c), 1609(h)(8)(B), 1611(d), 3301, 3302, 3804, 4106(b)(2) and (g)(4)(D), 4604, 4801, 4802, 5004, 7208(a), 7409, and 8002(a)(3) of the House bill, and secs. 1il(g), @) and G), 152(d)(2), (g) and (k), 210(h)(8), 319, 322, 404, 502(a)(3), 723(a)(3), 748, 763(a), 809(g), 922(a), 988, 989B, 989C, 989D, 989E, 1013(a), 1022(c)(6), 1064, 1152, and 1159(a) and (b) of the Senate amendment, and modifications committed to conference: EDOLPHUS TOWNS, ELIJAH E. CUMMINGS, From the Committee on Small Business, for consideration of secs. 1071 and 1104 of the Senate amendment, and modifications committed to conference: Nypia M. VELAZQUEZ, HEATH SHULER, Managers on the Part of the House. CHRISTOPHER J. DODD, TIM JOHNSON, JACK REED, CHARLES E. SCHUMER, From the Committee on Agriculture, Nutrition, and For- estry: BLANCHEL. LINCOLN, PATRICK J. LEAHY, Tom HARKIN, Managers on the Part of the Senate. O DEPARTMENT OF THE TREASURY WASHINGTON, D.C. GENERAL COUNSEL June 27, 2011 By E-Mail and Messenger The Honorable John Walsh Acting Comptroller of the Currency Office ofthe Comptroller of the Currency 250 E Street, SW Washington, DC 20219 Dear Acting Comptroller Walsh: On behalf of the Treasury Department, | am writing to comment on the Office of the Comptroller of the Currency’s (OCC)proposedrule relating to the federal preemption ofstate consumer financial law. The OCC’s proposedrule raises three principal concerns for Treasury: (1) it is not centered on the key language of the Dodd-Frank Act’s preemption standard, and instead seeks to broaden the standard; (2) even thoughthe proposed rule deletes the OCC’s current “obstruct, impair, or condition” standard, the rule asserts that preemption determinations based on that eliminated standard would continue to be valid; and (3) the rule could be read to preempt categories ofstate lawsin the future, even though Dodd-Frank requires that preemption determinations be made on a “case-by-case” basis, and after consultation with the Consumer Financial Protection Bureau (CFPB) where appropriate. 1. The OCC’s proposedruleis not centered on the key language of Dodd-Frank’s preemption standard and seeks to broaden the standard. Although Congress adopted a specific preemption standard in Dodd-Frank, the OCC’srule articulates a preemption standard that is broader than the languageof the Dodd-Frank standard. Oneofthe most strenuously debated provisions of Dodd-Frank was the scope andextentofthe preemption standard for national banks. In the end, Congress chose to enact a specific preemption standard. In particular, Dodd-Frank states that a state consumerfinancial law may be preempted “only if. . . in accordance with the legal standard for preemption in the decision of the Supreme Court . . . in Barnett Bank ofMarion County, N.A. y. Nelson. . ., the State consumer financial lawprevents orsignificantly interferes with the exercise by the national bank ofits powers.” ! Dodd-Frank Wall Street Reform and ConsumerProtection Act, Pub. L. No. 111-203, § 1044(a) (emphasis added). The OCCrule, however,essentially reads the “prevents or significantly interferes” language out of the statute. Specifically, the rule takes the position that Congress sought to codify the Barnett opinion, but not any particular formulation in the opinion.” This avoidance ofthe specific standard is inconsistent with the plain languageofthe statute andits legislative history.’ Webelieve that, as provided by the plain languageofthe statute, Congress intendedthat a state consumerfinancial law may be preemptedonly if the law “prevents or significantly interferes” with the exercise of a national bank’s powers, as those terms are used in the Barneit opinion. While it is proper to look to the Barnett opinionto interpret the “prevents orsignificantly interferes” standard, we believe that Congress intended “prevents or significantly interferes”(as used in Barnett) to be the relevanttest, not some broadertest encompassingthe entirety of the Barnett opinion. 2. The proposed rule validates all prior preemption determinations, including those based onits deleted “obstruct, impair, or condition” standard. The OCCrule asserts that all prior preemption determinations continue to be valid, including those that were based on the OCC’s previous “obstruct, impair, or condition” standard. In our view, this position is not in accordance with Dodd-Frank. The proposed rule acknowledgesthat the “obstruct, impair, or condition” standard was not drawn directly from the Barnett opinion, and it proposes the deletion of that standard. Nonetheless, the rule maintains that this deleted standard was “an amalgam ofprior precedents relied upon in [Barnett]” and, therefore, argues that determinations based onit are consistent with the new Dodd-Frank standard. According to the preamble of the rule: “To the extent any existing precedentcited those terms in our regulations, that precedent remainsvalid, since the regulations were premised on principles drawn from the Barnett case.” In our view,this position is contrary to Dodd-Frank. As discussed above, Congress chose a specific preemption standard—“prevents or significantly interferes’—from the Barnett opinion. To the extent that a prior preemption determination was basedon the “obstruct, impair, or condition” standard—andis not congruent with the “prevents or significantly interferes” standard—such prior determination does notsatisfy the preemption standard enacted in Dodd- Frank. The rule seemsto take the position that the Dodd-Frank standard has no effect: the proposed rule expressly argues that the new Dodd-Frank standard would not change the outcome of any * Although the preamble ofthe rule discusses this specific standard,it argues that Congress intended to codify the entirety of the Barnett opinion, and not any particular standard. And,significantly, the text of the rule doesnotcite the “prevent or significantly interferes” languageat all. Rather, the proposed rule articulates the relevant test as “consistent with the decision of the Supreme Court in Barnett.” >? The House-passed versionofthe bill contained a specific preemption standard (“prevents, significantly interferes with, or materially impairs”). While the Senate-passed version ofthe bill only contained a reference to the Barnett opinion, without any formulation, the Conference Committee specifically added the “prevents or significantly interferes” standard—further supporting that Congress specifically sought to codify the “prevents or significantly interferes” standard of Barnett. previous determination, and the same logic would apply to any future determination. The notion that the new standard does not have any effect runs afoul of basic canonsofstatutory construction; it is also contrary to the legislative history, which states that Congress sought to “revis[e] the standard the OCC will use to preempt state consumer protection laws.’ 3. The OCC’s proposed rule may not comport with the “case-by-case” requirement. Dodd-Frank requires that each preemptiondetermination be made on a “case-by-case” basis and after consultation with the CFPB where appropriate. Despite this case-by-case requirement, the OCC’s proposal could be read to preempt broad categories of state consumerfinancial laws going forward. The OCC’sintent on this issue is unclear: the proposed rule addresses the case-by-case requirement in the preamble (1.e., acknowledging the requirement), but not tn the text of the proposed rule; as a result, it is unclear how the OCC intends to apply the case-by-case requirement going forward. Nonetheless, the language of the proposed rule could be read to preempt categories of state laws in the future. To the extent that the OCC seeks to preempt categories of state consumer financial laws going forward, rather than through a case-by-case approach(and after consulting with the CFPB in appropriate instances), that would not comply with Dodd-Frank. Thus, we recommendthat youclarify the rule to state that any future determination will be made only on a case-by-case basis, and after consultation with the CFPB to the extent required by Dodd-Frank. * Eo * Onbehalf of the Treasury Department, thank you for your careful consideration of these comments. George W. Madison * H.R. Rep. No. 111-517, at 875 (Conf. Rep.) (emphasis added). 3 AUTHENTICATED U.S. GOVERNMENT INFORMATION GPO II May 27 (legislative day, May 26), 2010 Ordered to be printed as passed In the Senate of the United States, May 20, 2010. Resolved, That the bill from the House of Representa- tives (H.R. 4173) entitled “An Act to provide for financial regulatory reform, to protect consumers and investors, to en- hance Federal understanding of insurance issues, to regulate the over-the-counter derivatives markets, and for other pur- poses.’’, do pass with the following AMENDMENTS: Strike all after the enacting clause and insert the following: 1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.— (a) SHorT TITLE—This Act may be cited as the “Re- storing American Financial Stability Act of2010”. (b) TABLE OF CONTENTS.—The table of contents for n A F b W O W N this Act is as follows: Sec. 1. Short title; table of contents. Sec. 2. Definitions. Sec. 3. Severability. Sec. Sec. See. Sec. See. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Seo. Sec. Sec. Sec. Sec. Sec. Sec. Sec. 4, Effective date. 101. 102. 111. 112. 113. 116. 117. 118. 119. 120. 121. 151. 152. 153. 154. 155. 156. TITLE I—FINANCIAL STABILITY Short title. Definitions. Subtitle A—Financial Stability Oversight Council Financial Stability Oversight Council established. Council authority. Authority to require supervision and regulation of certain nonbank fi- nancial companies. . Registration of nonbank financial companies supervised by the Board of Governors. . Enhanced supervision and prudential standards for nonbank financial companies supervised by the Board of Governors and certain bank holding companies. Reports. Treatment of certain companies that cease to be bank holding compa- nies. Council funding. Resolution ‘of supervisory jurisdictional disputes among member agen- cies. Additional standards applicable to activities or practices for financial stability purposes. Mitigation of risks to financial stability. Subtitle B—Office of Financial Research Definitions. Office of Financial Research established. Purpose and duties of the Office. Organizational structure; responsibilities of primary programmatic units. Punding. Transition oversight. Subtitle C—Additional Board of Governors Authority for Certain Nonbank ‘See. Sec. Sec. See. See. Sec. Sec. Sec. Sec. Sec. Sec. 161. 162. 163. 164, 165. 166. 167. 168. 169. 170. 171. Financial Companies and Bank Holding Companies Reports by and examinations of nonbank financial companies super- vised by the Board of Governors. : Enforcement. Acquisitions. Prohibition against management interlocks between certain financial companies. Enhanced supervision and prudential standards for nonbank financial companies supervised by the Board of Governors and certain bank holding companies. Early remediation requirements. Affiliations. Regulations. Avoiding duplication. Safe harbor. Leverage and risk-based capital requirements. +HR 4173 PP 0 oO o N D A U n f F Ww W W Y F f m b N N N N Y N Y S F S P R F P S P T D P t s Y R S e f C e o w m A D H A F H Y F C S 1333 SEC. 1044, STATE LAW PREEMPTION STANDARDS FOR NA- TIONAL BANKS AND SUBSIDIARIES CL ARI- FIED. (a) IN GENERAL.—Chapteroneof title LXL of the Re- vised Statutes of the United States (12 U.S.C. 21 et seq .) is amended by inserting after section 51386B the followin g new section: “SEC. 5136C. STATE LAW PREEMPTION STAN DARDS FOR NA- TIONAL BANKS AND SUBSIDIARIES CL ARI- FIED. “(q) DEFINITIONS.—For purposes of this section, the following definitions shall apply: “(1) NATIONAL BANK.—The term ‘national bank’ includes— “(A) any bank organized under the laws of the United States; and “(B) any Federal branch established vn ac- cordance with the International Banking Act of 1978. (2) STATE CONSUMER FINANCIAL LAWS.—The term ‘State consumer financial law’ means a State law that does not directly or indirectly discriminate against national banks and that directly and specift- cally regulates the manner, content, or terms and con- ditions of any financial transaction (as may be au- +HR 4173 PP o C CO O S N D N O N R e W D N Y N Y N O N O N O N O R e K F H R K R R P R e E F R e S l e B R W O NN O K F O F O o Ww W I N D B A F P WH O Y N F F C O 1334 thorized for national banks to engage in), or any ac- count related thereto, with respect to a@ consumer. “(3) OTHER DEFINITIONS.—The terms ‘affiliate’, ‘subsidiary’, ‘includes’, and ‘including’ have the same meanings as in section 3 of the Federal Deposit In- surance Act. “(b) PREEMPTION STANDARD.— “(1) IN GENERAL.—State consumer financial laws are preempted, only 1f— “(A) application of a State consumer finan- cial law would have a discriminatory effect on national banks, in comparison with the effect of the law on a bank chartered by that State; “(B) the State consumer financial law 1s preempted in accordance with the legal standard of the decision of the Supreme Court of the United States in Barnett Bank of Marion Coun- ty, N.A. v. Nelson, Florida Insurance Commis- sioner, et al., 517 U.S. 25 (1996), and any pre- envption determination under this subparagraph may be made by a court, or by regulation or order of the Comptroller of the Currency on a case-by-case basis, in accordance with applicable law; or tHR 4173 PP oO o O o NH N DW N O N B P WH O Y P k e N O p o N Y N O N N N O K R R F F e e e R P M m B P W o N O —| § D O O o W O n a D B U H H P W O VP N K H O O 1335 “(C) the State consumer financial law 1s . preempted by a provision of Federal law other than this title. “(2) SAVINGS CLAUSE.—This title and section 24 of the Federal Reserve Act (12 U.S.C. 371) do not preempt, annul, or affect the applicability of any State law to any subsidiary or affiliate of a national bank (other than a subsidiary or affiliate that 1s chartered as a national bank). | “(3) CASE-BY-CASE BASIS.— “(A) DEFINITION.—As used in this section the term ‘case-by-case basis’ refers to a deter- mination pursuant to this section made by the Comptroller concerning the impact of a par- ticular State consumerfinancial law on any na- tional bank that is subject to that law, or the law of any other State with substantively equivalent terms. “(B) CONSULTATION.—When making a de- termination on a case-by-case basis that a State consumer financial law of another State has sub- stantively equivalent terms as one that the Comptroller is preempting, the Comptroller shall first consult with the Bureau of Consumer I- nancial Protection and shall take the views of the +HR 4173 PP oO o w o n N D H O D B P W D N F w b w H Y V Y N Y NH N K H R P R P P e B P R P R P R e M m B B W O NY O K F C O O O W H W D W A F F W N Y Y F O& O 1336 Bureau into account when making the deter- . mination. “(4) RULE OF CONSTRUCTION.—This title does not occupy the field in any area of State law. “(5) STANDARDS OF REVIEW.— “(A) PREEMPTION.—A court reviewing any determinations made by the Comptroller regard- ing preemption of a State law by this title or section 24 of the Federal Reserve Act (12 U.S.C. 371) shall assess the validity of such determina- tions, depending upon the thoroughness evident in the consideration of the agency, the validity of the reasoning of the agency, the consistency with other valid determinations made by the agency, and other factors which the court finds persuasive and relevant to its decision. “(B) SAVINGS CLAUSE.—Except as provided in subparagraph (A), nothing im this section shall affect the deference that a court may afford to the Comptroller in making determinations re- garding the meaning or interpretation of title LXII of the Revised Statutes of the United States or other Federal laws. “(6) COMPTROLLER DETERMINATION NOT DELE- GABLE—Any regulation, order, or determination +HR 4173 PP 0 O N D A N FPF W N m w NH N V N W N N N W N H F K e R e S e F P SF P P e E e e e mA B O Y D =F C o O wm OA KX DA wA FR W N FY OC 1337 made by the Comptroller of the Currency under para- graph (1)(B) shall be made by the Comptroller, and shall not be delegable to another officer or employee of the Comptroller of the Currency. “(¢) SUBSTANTIAL EVIDENCE.—No regulation or order of the Comptroller of the Currency prescribed under sub- section (b)(1)(B), shall be interpreted or applied so as to invalidate, or otherwise declare inapplicable to a national bank, the provision of the State consumer financial law, unless substantial evidence, made on the record of the pro-: ceeding, supports the specific finding regarding the preemp- tion of such provision in accordance with the legal standard of the decision of the Supreme Court of the United States in Barnett Bank of Marion County, N.A. v. Nelson, Florida Insurance Commissioner, et al., 517 U.S. 25 (1996). “(d) PERIODIC REVIEW OF PREEMPTION DETERMINA- TIONS.— “(1) IN GENERAL.—The Comptroller of the Cur- rency shall periodically conduct a review, through no- tice and public comment, of each determination that a provision of Federal law preempts a State consumer financial law. The agency shall conduct such review within the 5-year period after prescribing or other- wise issuing such determination, and at least once during each 5-year period thereafter. After conducting +HR 4173 PP C o w a S N W o O n f F W O Y P N R D O R O O R R S R S l R l R l N O F Y © 3© Oo w W w n N t N W B N F P W O N Y K F O& O 23 1338 the review of, and inspecting the comments made on, the determination, the agency shall publish a notice in the Federal Register announcing the decision to continue or rescind the determination or a proposal to amend the determination. Any such notice of a proposal to amend a determination and the subse- quent resolution of such proposal shall comply with the procedures set forth in subsections (a) and (b) of section 5244 of the Revised Statutes of the United States (12 U.S.C. 48 (a), (b)). “(2) REPORTS TO CONGRESS.—Alt the tvme_ of issuing a review conducted under paragraph (1), the Comptroller of the Currency shall submit a report re- garding such review to the Committee on Financial Services of the House of Representatives and the Com- mittee on Banking, Housing, and Urban Affairs of the Senate. The report submitted to the respective committees shall address whether the agency intends to continue, rescind, or propose to amend any deter- mination that a provision of Federal law preempts a State consumer financial law, and the reasons there- . for. “(e) APPLICATION OF STATE CONSUMER FINANCIAL 24 LAW TO SUBSIDIARIES AND AFFILIATES.—Notwithstanding 25 any provision of this title or section 24 of Federal Reserve +HR 4173 PP O o w o n D n w n F P WY O Y N k e S N B ® w o i ) — © \ O o o ~ ] N n i n o f Q o i ) — S o 1339 Act (12 U.S.C. 371), a State consumer financial law shall apply to a subsidiary or affiliate of a national bank (other than a subsidiary or affiliate that is chartered as a national bank) to the same extent that the State consumer financial law applies to any person, corporation, or other entity sub- ject to such State law. “(f) PRESERVATION OF POWERS RELATED TO CHARG- ING INTEREST.—No provision of this title shall be construed as altering or otherwise affecting the authority conferred by section 5197 of the Revised Statutes of the United States (12 U.S.C. 85) for the charging of interest by a national bank at the rate allowed by the laws of the State, territory, or district where the bank is located, including with respect to the meaning of ‘interest’ under such provision. “(g) TRANSPARENCY OF OCC PREEMPTION DETER- MINATIONS.—The Comptroller of the Currency shall publish and update noless frequently than quarterly, a list of pre- emption determinations by the Comptroller of the Currency then in effect that identifies the activities and practices cov- ered by each determination and the requirements and con- straints determined to be preempted. ”’. (b) CLERICAL AMENDMENT.—The table of sections for chapter one of title LXII of the Revised Statutes of the United States is amended by inserting after the ttem relat- ing to section 5136B the following new item: +HR 4173 PP O o wo n n N D n A f F W O N Y e m a O o . © ~ ] n N N n a S O o N O — S o 1340 “See. 5136C. State law preemption standards for national banks and subsidiaries clarified.”’. SEC. 1045. CLARIFICATION OF LAW APPLICABLE TO NON- DEPOSITORYINSTITUTION SUBSIDIARIES. | Section 5136C of the Revised Statutes of the United States (as added by this subtitle) 1s amended by adding at the end the following: “(h) CLARIFICATION OF LAW APPLICABLE TO NON- DEPOSITORY INSTITUTION SUBSIDIARIES AND AFFILIATES OF NATIONAL BANKS.— “(1) DEFINITIONS.—For purposes of this sub- section, the terms depository institution’, ‘sub- sidiary’, and ‘affiliate’ have the same meanings as in section 3 of the Federal Deposit Insurance Act. “(2) RULE OF CONSTRUCTION.—No provision of this title or section 24 of the Federal Reserve Act (12 U.S.C. 371) shall be construed as preempting, annul- ling, or affecting the applicability of State law to any subsidiary, affiliate, or agent of a national bank (other than a subsidiary, affiliate, or agent that 1s chartered as a national bank).”’. +HR 4173 PP AUTHENTICATED U.S. GOVERNMENT INFORMATION GPO IIB 111TH CONGRESSSe" HR. 4173 IN THE SENATE OF THE UNITED STATES JANUARY 20, 2010 Received; read twice and referred to the Committee on Banking, Housing, and Urban Affairs AN ACT To provide for financial regulatory reform, to protect con- sumers and investors, to enhance Federal understanding of insurance issues, to regulate the over-the-counter de- rivatives markets, and for other purposes. 1 Be it enacted by the Senate and House of Representa- 2 tives of the United States ofAmerica in Congress assembled, 1000 commission or State insurance regulator under State law to adopt rules, initiate enforcement proceedings, or take any other action with respect to a person regulated by such commission or regulator. SEC. 4403. PRESERVATION OF EXISTING CONTRACTS. This title, and regulations, orders, guidance, and in- terpretations prescribed, issued, and established by the Agency, shall not be construedto alter or affect the appli- cability of any regulation, order, guidance, or interpreta- tion prescribed, issued, and established by the Comptroller of the Currency or the Director of the Office of Thrift Supervision regarding the applicability of State law under Federal banking law to any contract entered into on or before the date of the enactment of this title, by national banks, Federal savings associations, or subsidiaries there- of that are regulated and supervised by the Comptroller of the Currency or the Director of the Office of Thrift Supervision, respectively. SEC. 4404. STATE LAW PREEMPTION STANDARDS FOR NA- TIONAL BANKS AND SUBSIDIARIES CLARI- FIED. (a) IN GENERAL.—Chapter one of title L:XII of the Revised Statutes of the United States (12 U.S.C. 21 et 1 seq.) is amended by inserting after section 5136B the following new section: HR 4173 RFS 1001 1 “SEC. 5136C. STATE LAW PREEMPTION STANDARDS FOR NA- 2 TIONAL BANKS AND SUBSIDIARIES CLARI- 3 FIED. 4 ‘“(a) DEFINITIONS.—For purposesofthis section, the 5 following definitions shall apply: 6 “(1) NATIONAL BANK.—The term ‘national 7 bank’ includes— 8 “(A) any bank organized under the laws of 9 the United States; and 10 “(B) any Federal branch established in ac- 11 | cordance with the International Banking Act of 12 1978. 13 “(2) SraTE CONSUMER FINANCIAL LAWS.—The 14 term ‘State consumer financial law’ means a State 15 law that does not directly or indirectly discriminate 16 against national banks and that directly and specifi- 17 cally regulates the manner, content, or terms and 18 conditions of any financial transaction (as may be 19 authorized for national banks to engage in), or any 20 account related thereto, with respect to a consumer. 21 ‘“(3) OTHER DEFINITIONS.—The terms ‘affil- 22 iate’, ‘subsidiary’, ‘includes’, and ‘including’ have the 23 same meaning as in section 3 of the Federal Deposit 24 Insurance Act. 25 ‘“(b) PREEMPTION STANDARD.— HR 4173 RFS oO o c o N I W D O r F H WH O N O K F N O w o N O W N N O K S F f F P F e F F P E e R E l e B R W O N O F H C O O O D W H N H N H F P WH O V P K F O D 1002 “(1) IN GENERAL.—State consumer financial laws are preempted only if— “(A) application of a State consumer fi- nancial law would have a discriminatory effect on national banks in comparison with the effect of the law on a bank chartered by that State; ‘“(B) the State consumer financial law pre- vents, significantly interferes with, or materially impairs the ability of an institution chartered as a national bank to engage in the business of banking. Any preemption determination under this subparagraph may be made by a court or by regulation or order of the Comptroller of the Currency in accordance with applicable law, on a case-by-case basis. Any such determination by a court shall comply with the standards set forth in subsection (d) of this section, with the court making the subsection (d) finding de novo; or “(C) the State consumer financial law is preempted by Federal law other than this Act. (2) SAVINGS CLAUSE.—This Act does not pre- empt or alter the applicability of any State law to any subsidiary or affiliate of a national bank (other HR 4173 RFS 1003 than an institution chartered as a national bank) that is not a depositoryinstitution. “(3) CASE-BY-CASE DETERMINATION.— ‘“(A) DEFINITION.—The term ‘case-by-case determination pursuant to this section’ means a determination made by the Comptroller con- cerning the impact of a particular State con- sumer financial law on any national bank that is subject to that law, or the law of any other State with substantively equivalent terms. “(B) CONSULTATION.—When making case-by-case determination pursuant to this sec- tion that a State consumerfinancial law of an- other State has a substantively equivalent terms as one that the Comptroller is preempting, the Comptroller shall first consult with the Con- sumer Financial Protection Agency and shall take such Agency’s views into account when making the determination. ““(4) RULE OF CONSTRUCTION.—This Act does not occupy the field in any area of State law. ‘““(5) STANDARDS OF REVIEW.— “(A) PREEMPTION.—A court reviewing any determinations made by the Comptroller re- garding preemption of a State law by this Act HR 4173 RFS o O w a n N D H n H H R W O Y N w o N Y V N P N P H H R R R B P K F R e R P l L ll e n A B B W O NH N K K OD O O O ~ ~ A I HD B A F P W O N Y Y F O S 1004 _ shall assess the validity of such determinations depending upon the thoroughness evident in the agency’s consideration, the validity of the agen- cy’s reasoning, the consistency with other valid determinations made by the agency, and other factors which the court finds persuasive and rel- evant to its decision. “(B) SAVINGS CLAUSE.—Except as. pro- vided in subparagraph (A), nothing in this sec- tion shall affect the deference that a court may afford to the Comptroller in making determina- tions regarding the meaning or interpretation of title LXTI of the Revised Statutes of the United States or other Federal laws. (6) COMPTROLLER DETERMINATION: NOT DEL- EGABLE.—Any regulation, order or determination made by the Comptroller of the Currency under sub- section (b)(1)(B) shall be made by the Comptroller and shall not be delegable to another officer or em- ployee of the Comptroller of the Currency. ““(@) SUBSTANTIAL EvIDENCE.—No regulation or order of the Comptroller of the Currency preseribed under subsection (b)(1)(B), shall be interpreted or applied so as to invalidate, or otherwise declare inapplicable to a na- tional bank, the provision of the State consumerfinancial HR 4173 RFS O o f o S Y D O A B P W Y P N m o P O PN P H N V N H N e R e R e B e B P R P e e S F S S n m B P Wo O N O K F C O C O W A T n D A B P W D N P K F C O 1005 law unless substantial evidence, made on the recordof the proceeding, supports the specific finding that the provision prevents, significantly interferes with, or materially im- pairs the ability of a national bank to engage in the busi- ness of banking. “(d) OTHER FEDERAL LAws.—Notwithstanding any other provision of law, the Comptroller of the Currency may not prescribe a regulation or order pursuant to sub- section (b)(1)(B) until the Comptroller of the Currency, after consultation with the Consumer Financial Protection Agency, makes a finding, in writing, that a Federal law provides a substantive standard, applicable to a national bank, which regulates the particular conduct, activity, or authority that is subject to such provision of the State consumerfinancial law. “(e) PERIODIC REVIEW OF PREEMPTION DETER- MINATIONS.—The Comptroller of the Currency shall peri- odically conduct a review, through notice and public com- ment, of each determination that a provision of Federal law preempts a State consumerfinancial law. The agency shall conduct such review within the 5-year period after prescribing or otherwise issuing such determination, and at least once during each 5-year period thereafter. After conducting the review of, and inspecting the comments made on, the determination, the agency shall timely pro- HR 4173 RFS O o O o S N D W W N FB P W W Y N F& F N o N R N N w m o w o y — — i — = — — — — n m B B W O N O K K C O H O W H H D A F P WH O N Y K F O C 1006 pose to continue, amend or rescind it, as may be appro- priate, in accordance with the procedures set forth in sub- sections (a) and (b) of section 5244 (12 U.S.C. 43(a) and (b)). “(f) APPLICATION OF STATE CONSUMER FINANCIAL LAw TO SUBSIDIARIES AND AFFILIATES.—Notwith- standing any provision of thistitle, a State consumerfi- nancial law shall apply to a subsidiary or affihate of a national bank to the same extent that the State consumer financial law applies to any person, corporation, or other entity subject to such State law. ‘“(o) PRESERVATION OF POWERS RELATED TO CHARGING INTEREST.—Noprovision of this title shall be construed as altering or otherwise affecting the authority conferred by section 5197 ofthe Revised Statutes of the United States (12 U.S.C. 85) for the charging of mterest by a national bank at the rate allowed by the laws of the State, territory or district where the bank is located, in- cluding with respect to the meaning of ‘interest’ under such provision. “(h) TRANSPARENCY OF OCC PREEMPTION DETER- MINATIONS.—The Comptroller of the Currency shall pub- lish and update no less frequently than quarterly, a list of preemption determinations by the Comptroller of the Currency then in effect that identifies the activities and HR 4173 RFS N N U A F& F W D b d 1007 practices covered by each determination and the require- ments andconstraints determinedto be preempted.”’. (b) CLERICAL AMENDMENT.—The table of sections for chapter one oftitle L:XII of the Revised Statutes of the United States is amended by inserting after the item relating to section 5136B the following new item: “5136C. State law preemption standards for national banks and subsidiaries clarified.’’. 7 SEC. 4405. VISITORIAL STANDARDS. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Section 5136C of the Revised Statutes of the United States (as added by section 4404) is amended by adding at the endthe following new subsections: ‘“(o) VISITORIAL POWERS.— “(1) RULE OF CONSTRUCTION.—No provision of this title which relates to visitorial powers or oth- erwise limits or restricts the visitorial authority to which any national bank is subject shall be con- strued as limiting or restricting the authority of any attorney general (or other chief law enforcement of- ficer) of any State to bring any action in any court of appropriate jurisdiction— “(A) to enforce any applicable Federal or State law, as authorized by such law; or_ “(B) on behalf of residents of such State, to enforce any applicable provision of any Fed- eral or nonpreempted State law against a na- HR 4173 REFS OF Parks v. MBNAAmerica Bank, N.A. SupremeCourt of California Case No. $183703 Iam overthe age of 18 and not a party to the within action. My business addressis: 17150 Via Del Campo,Suite 204, San Diego, California 92127. On the date shown below, I served the foregoing document(s) described as: PLAINTIFF/APPELLANT'S REQUEST FOR JUDICIAL NOTICE IN CONJUNCTION WITH SUPPLEMENTAL LETTER BRIEF on the interested parties in this action as follows: ARNOLD & PORTER, LLP Sheldon H. Jaffe, Esq. Attn.: Laurence J. Hutt, Esq. Deputy Attorney General 777 South Figueroa Street, 44th Floor State of California Los Angeles, CA 90017-5844 Departmentof Justice (Attorneysfor MBNAAmerica Bank, N.A.) 455 Golden Gate Avenue, Suite 11000 San Francisco, CA 94102-7004 Fax: (415)703-5480 Comptroller of the Currency Clerk of the Court Litigation Department California Superior Court Attn.: Douglas Jordan, Senior Counsel County of Orange 250 E Street SW Civic Complex Center Washington, DC 20219 751 West Santa Ana Blvd. Fax: (202) 874-5279 Santa Ana, CA 92701 District Attorney for the Appellate Coordinator County of Orange Office of the Attorney General 401 Civic Center Drive Consumer Law Section Santa Ana, CA 92701 300S. Spring Street Los Angeles, CA 90013-1230 Clerk of the Court California Court ofAppeal Fourth Appellate District Division Three 601 West Santa Ana Blvd. Santa Ana, CA 92701 [X] (BY MAIL): The envelope was mailed with postage thereon fully prepaid. I am "readily familiar" with the firm's practice of collection and processing correspondencefor mailing. Underthatpractice it would be deposited with U.S.postal service on that same day with postage thereon fully prepaid at San Diego, California inthe ordinary cgurse of business. f ' \ I declare underpenalty of perjury under the laws of the Stat ofC ptorpt that the facts stated in this Proof of Service are true. f || AGho | \ Ny \ i Date: May 15, 2012 \ SvetlanaMcrozovgkaya { }