When borrowers struggle to meet their debt obligations, they may negotiate with creditors to modify the terms of their debt instrument. This could involve changes to the interest rate, repayment period, collateral, or other aspects of the debt. However, these modifications could potentially result in a taxable exchange of the original note for a modified one, a fact that may not be immediately apparent to the involved parties.

On June 27, the U.S. Supreme Court released a 6-3 decision in SEC v. Jarkesy, et al., ending the Securities and Exchange Commission’s (SEC) long-standing use of in-house administrative law judge (ALJ) tribunals in cases where the SEC seeks civil penalties. The majority held that for actions in which SEC seeks civil penalties for securities fraud, the Seventh Amendment requires that the action be brought in a court of law where the defendant is entitled to trial by jury.

A bank’s positive, cooperative relationship with its banking regulators is particularly important when seeking regulatory approval for significant transactions, including mergers. An effective communications strategy that promotes an open, consistent and prompt flow of information, specific regulatory issues and areas of risk under review is key to maintaining a good relationship before, during and after the application review process.

On June 28, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) announced a proposed rule aimed at strengthening and modernizing financial institutions’ anti-money laundering and countering the financing of terrorism (AML/CFT) programs. The Treasury’s priority is to promote a more effective risk-based regulatory regime that directs financial institutions to focus their AML/CFT programs on the highest priority threats.

Today, the U.S. Supreme Court issued a landmark decision in Loper Bright Enterprises v. Raimondo overruling the Chevron doctrine. This decision marks a watershed moment in administrative law, fundamentally altering the landscape for judicial review of agency actions under the Administrative Procedure Act (APA).

In the realm of bankruptcy cases, debtors sometimes enter the process with pre-packaged or pre-negotiated plans, offering significant advantages over traditional “free fall” cases. Pre-packaged plans are fully drafted and accepted by necessary creditor classes before filing for bankruptcy, allowing for a swift resolution. Pre-negotiated plans, on the other hand, are negotiated with key creditors prior to filing but are not yet voted on. To ensure the agreed-upon plan is followed, a Restructuring Support Agreement (RSA) is entered into, balancing certainty of outcome and flexibility.

On June 24, the Office of the Comptroller of the Currency (OCC) announced it is requesting comments on proposed amendments to its recovery planning guidelines. A recovery plan’s purpose is to provide a covered bank with a framework to effectively and efficiently address the financial effects of severe stress events and avoid failure or resolution. Among other things, the proposed amendments aim to expand the guidelines to apply to banks with average total consolidated assets between $100 billion and $250 billion. The proposal also seeks to incorporate a testing standard and clarify the role of non-financial risks in recovery planning.

On May 30, the U.S. Supreme Court unanimously decided Cantero, reaffirming and elaborating on the Barnett Bank preemption standard, and remanding the case to the Second Circuit for further proceedings. Cantero addressed whether a New York law requiring the payment of at least 2% per annum interest on mortgage escrow deposits was preempted by federal law as to national banks. The Supreme Court held that the Second Circuit erred when it failed to apply the preemption standard articulated in Barnett Bank of Marion County, N.A. v. Nelson, which was incorporated by Congress into the Dodd-Frank Act. The Court rejected the lower court’s holding “that federal law preempts any state law that ‘purports to exercise control over a federally granted banking power,’ regardless of ‘the magnitude of its effects.’” The Court also rejected the approach argued by the petitioners, explaining it would “yank the preemption standard to the opposite extreme, and would preempt virtually no non-discriminatory state laws that apply to both state and national banks.”