The Securities and Exchange Commission’s Regulation AB II went fully into effect Nov. 23, and the newly disclosed data means plaintiffs “probably haven’t gained any advantages” in disparate impact litigation, said Joe Cioffi, partner at Davis & Gilbert LLP.
The rule requires issuers of auto-backed securitizations to disclose more granular asset-level data about borrowers. Previously, it was difficult for the plaintiffs to provide evidence of disparate impact, which is why newly public information — such as information that could be used to determine a borrower’s income and employment — might provide a “starting point” for litigation, Cioffi told AFN.
However, more lawsuits are unlikely because there just won’t be enough new data, he said. Auto issuances require 72 data points, compared with 270 data points for mortgage ABS issuances, Cioffi explained.
That said, regulatory agencies have a tendency to “divine some evidence” of disparate impact, he cautioned.
Because of the rule’s requirements, securitization volume in 2017 will likely start off slow, R.J. Carlson, partner at Sidley Austin LLP, told AFN.
“You may see a smaller number of transactions in the first quarter of this year compared to what you might normally see, but I don’t think you’ll see a sudden stop in issuances during the first quarter,” Carlson said. “We’ll see it pick back up to a normal pace towards the mid- to back-half of next year as these lenders’ systems have adapted and become more familiar with the rules.”
