The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"), recently passed by the U.S. Senate and the House of Representatives and signed into law by the President on July 21, 2010, significantly changes the regulation and oversight of the financial industry. As discussed below, the Act also contains provisions that seek to increase employment opportunities for minorities and women in the federal government workforce and in those entities doing business with certain specified agencies of the federal government. Included in the Act is Section 342 of Subtitle D of Title III, entitled "Office of Minority and Women Inclusion" (hereinafter "Section 342"). The stated purpose of Section 342 is to "ensure, to the maximum extent possible, the fair inclusion and utilization of minorities, women, and minority-owned and women-owned businesses in all business and activities of the agency at all levels, including in procurement, insurance, and all types of contracts." This legal alert provides an overview of the requirements of Section 342 and its potential effect on those entities doing business with specified agencies of the federal government.
The provisions of Section 342 apply to any entity that provide services "of any kind" to any of the following federal agencies (each, an "Agency"):
- Each of the Offices of the Department of the Treasury;
- The Federal Deposit Insurance Corporation;
- The Federal Housing Finance Agency;
- Each of the Federal Reserve regional banks;
- The Federal Research Board;
- The National Credit Union Administration;
- The Office of the Comptroller of the Currency;
- The Securities and Exchange Commission; and
- The Consumer Financial Protection Bureau.
Each Agency, including the newly created Consumer Financial Protection Bureau, is required, within six months, to establish an Office of Minority and Women Inclusion ("OMWI") which will be responsible for carrying out the requirements of Section 342. In addition, all existing responsibilities of each Agency for matters relating to diversity in management, employment and business activities shall be transferred to the particular Agency's OMWI. Section 342 specifically provides, however, that the OMWI will not have any responsibility for enforcement of civil rights statutes, but will coordinate with the Agency's administrator in fashioning remedies resulting from any such violations. Each OMWI is required by Section 342 to establish standards and procedures for the increased participation of minority-owned and women-owned businesses in the "programs and contracts" of the Agency. The provisions of Section 342 apply to "all contracts of an agency for services of any kind," including:
the services of financial institutions, investment banking firms, mortgage banking firms, asset management firms, brokers, dealers, financial services entities, underwriters, accountants, investment consultants, and providers of legal services. The contracts referred to in this subsection include all contracts for all business and activities of an agency, at all levels, including contracts for the issuance or guarantee of any debt, equity, or security, the sale of assets, the management of the assets of the agency, the making of equity investments by the agency, and the implementation by the agency of programs to address economic recovery.
Some examples of entities doing business with the Federal government that would be subject to Section 342 include mortgage loan servicers that service mortgage loans on behalf of the FDIC or other Agencies and law firms with legal service contracts with the FDIC or other Agencies.
Section 342 requires each Agency to adopt procedures for reviewing and evaluating contract proposals that, to the extent consistent with applicable law, give consideration to the diversity of the prospective contract vendor. Section 342 further requires that the Agency develop the form of a written statement (presumably to be included in all contracts) by which the contractor "shall ensure, to the maximum extent possible, the fair inclusion of women and minorities in the workforce of the contractor and, as applicable, subcontractors."
In addition to requiring each Agency to develop procedures for reviewing the workforce diversity of prospective contract vendors, Section 342 requires each Agency to develop procedures to determine whether existing contract vendors (or subcontractors) have "failed to make a good faith effort to include minorities and women in their workforces." Section 342 provides that if the OMWI determines that a contractor or subcontractor has not made such a good faith effort, it shall make a recommendation to the Agency's administrator that the contract be terminated. Upon receipt of such recommendation, the Agency may (i) terminate the contract, (ii) make a referral to the Office of Federal Contract Compliance Program of the Department of Labor, or (iii) take other appropriate action.
It is important to note that although Section 342 focuses on entities that do business with an Agency, one of its provisions requires each OMWI to develop standards to assess the diversity policies and practices of entities regulated by the Agency. This provision seems out of place in the context of the rest of Section 342, especially in light of the fact that Section 342 goes on to state that this provision shall not be construed to mandate any requirement on or otherwise affect the lending practices of a regulated entity nor require any specific action based on any such assessment. The provision clearly allows the collection of data on the diversity "policies and practices" of any regulated entities, whether or not they are doing business with an Agency, but does not specify what is to be done with the information.
Although there may be substantial differences between Agencies, it should be expected that Section 342 will be aggressively implemented and that the Agencies will commit substantial resources to comply with its mandates. We will also have to wait to see if additional regulations are adopted by the Agencies implementing Section 342.
Section 342 is in many respects vague. For instance, there is little guidance as to what constitutes a "good faith effort" to include minorities and women in an entity's workforce. Critics of the statute have noted that it grants tremendous power to the Agencies and their OMWI, allowing them to void existing contracts based on their view of the diversity efforts of the contract vendor.
All entities doing business with an Agency, or wishing to business with an Agency, should immediately begin assessing their diversity programs, including their written policies and procedures. Those entities that do not have active diversity programs in place should seek assistance in developing and implementing policies and procedures.
Please feel free to contact the attorneys in the Labor & Employment, Financial Institutions & Lending or Public Finance Practice Areas of Hiscock & Barclay, LLP to discuss compliance with the requirements of Section 342.