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April 2012

From the editors of CCH’s Banking and Finance publications, this update describes significant developments covered in our products in recent reports, as well as product enhancements

Past issues of the Banking and Finance Update can be viewed here.

If you have questions or comments concerning the information provided below, please contact the Banking and Finance Update editor.

Financial Reform Resources


Consumer Financial Protection Bureau Reporter

CFPB Proposes Rule to Protect Institutions’ Privileged Information
The Consumer Financial Protection Bureau has announced a proposed rule that would protect privileged information submitted to the bureau by the financial institutions it regulates. The proposal is intended to codify the assurances the bureau gave these institutions in January when it issued guidance stating that providing privileged information to the bureau will not waive any claims that the information remains privileged. The proposal also would make clear that the bureau’s transfer of privileged information to another federal or state regulatory agency will not waive any privilege that protects the confidentiality of the information.

The proposed rule states that "The submission by any person of any information to the CFPB for any purpose in the course of any supervisory or regulatory process of the CFPB shall not be construed as waiving, destroying, or otherwise affecting any privilege such person may claim with respect to such information under Federal or State law as to any person or entity other than the CFPB." Additional language would preclude claims that the rule implicitly waives any privileges if information is provided under other circumstances. According to the bureau, the rule would be comparable to the federal law that protects the confidentiality of information that is provided to other regulatory agencies. The proposed rule is at ¶300-040.

CFPB Now Taking Checking Account Complaints
The Consumer Financial Protection Bureau has begun accepting consumer complaints about bank accounts, including checking accounts, savings accounts, certificates of deposit and related services. According to the bureau, consumers can file complaints using its website, as well as by mail, fax or telephone.
Almost nine out of ten American households have at least one checking account, and many also maintain a savings account, according to the CFPB. "Yet, despite the fact that they are commonplace, bank accounts can be complex and confusing," the bureau said.

The CFPB said that it expects banks to respond to complaints within 15 days and that it wants to close all complaints within 60 days. Consumers will be given tracking numbers after submitting a complaint. They are then able to log in to the CFPB website at any time and check the status of their case. Each complaint will be processed individually and consumers will have the option to dispute a bank’s resolution. The CFPB’s announcement is at ¶200-056.

CFPB Requests Comments on Payday Lending Transcript
The Consumer Financial Protection Bureau is seeking comments on the transcript from a field hearing on payday lending. The bureau held the hearing on Jan. 19, 2012.

The public is invited to review the transcript and provide feedback to the CFPB. The bureau specifically is seeking feedback to certain questions raised at the hearing. These questions include the following:

  • Does the impact of payday loans and deposit-advance products vary by the type of consumer?
  • Who is helped and who is harmed by deposit advance and payday products?
  • Does the answer vary depending on whether the product is provided by a storefront, a bank or online?
  • How are small-dollar loans and products marketed?

Comments are due by April 23, 2012.

The CFPB’s notice appeared at 77 Federal Register 16817 on March 22, 2012. The CFPB’s comment request is at ¶200-058.

Cordray Speaks on Joint State Attorneys General/CFPB Initiatives
Speaking before the National Association of Attorneys General on March 6, 2012, Consumer Financial Protection Bureau Director Richard Cordray outlined the progress made toward "a strong and lasting partnership between the State Attorneys General and the new Consumer Bureau."

The CFPB director outlined for NAAG members the steps taken to cement the partnership between NAAG and the bureau. These steps include the creation of the Repeat Offenders Against Military database, which will track completed enforcement actions against companies and individuals who repeatedly scam military personnel.

Cordray also mentioned that the CFPB and state attorneys general staff had formed several working groups that meet regularly to discuss challenges posed by payday loans, foreclosure scams, auto loans and debt collection. The groups allow CFPB and state attorneys general staff members staff to keep each other updated and to launch joint initiatives in areas of shared jurisdiction.

Over the next year, Cordray said, the CFPB will be putting into place new mortgage rules to protect consumers.

The CFPB also will be looking at debt collection activities. This story appeared in Report No. 30, March 19, 2012.

Product Enhancements

New CFPB Regulations Reflected in Topical Divisions

The Consumer Financial Protection Bureau’s regulations have been integrated into the pertinent divisions of the Reporter. The CFPB’S consumer protection regulations replace regulations issued by the Federal Reserve Board, the Federal Trade Commission and other financial institution regulators. Under the Dodd-Frank Act, the CFPB assumed the authority to adopt regulations implementing a number of federal consumer financial laws, and the CFPB exercised this authority by essentially republishing a number of interim regulations that are now in effect.

White Paper Details Consumer Financial Protection Bureau Progression
Senior Wolters Kluwer attorney-editor Katalina Bianco, J.D., has authored a white paper entitled, “Consumer Financial Protection Bureau: Evolution of a New Agency with Emerging Regulatory Framework,” that provides a broad overview and analysis of the Bureau from creation to its current focus and numerous related activities.

Topics covered include:
            • Early activities of the Bureau upon its establishment via the Dodd-Frank Act;
            • The nomination of Richard Cordray as Director and related Congressional reactions to his appointment
            • The many initiatives of the Bureau post-appointment; and
            • Corday’s vision for the future of the Bureau.

Click here to download a PDF of the white paper.

Federal Banking Law Reporter

BSA Record Production Demand Not Constitutionally Banned
Requiring an individual to either produce records of his interest in foreign bank accounts or admit that he did not keep the records will not violate his Fifth Amendment privilege against self incrimination, the U.S. Court of Appeals for the Ninth Circuit has determined. Analyzing the issue in the context of a grand jury subpoena demanding the records, the court decided that the Required Records Doctrine provided an exception to the privilege that made it possible for the federal government to demand the individual's records. The court noted that the grand jury investigation followed an agreement between the Justice Department and a Swiss bank under which the bank gave the federal government account records that identified approximately 250 U.S. taxpayers who might have used the bank's services to evade paying taxes. These records revealed that the individual had transferred securities from his account at the bank in question to a different Swiss bank, which resulted in an investigation by the Internal Revenue Service. As part of that investigation, the grand jury issued a subpoena demanding that the individual turn over the records he was required to maintain by the Treasury Department's regulations implementing the Bank Secrecy Act. The individual refused to provide the records and also refused to say that he did not have them, claiming that by responding in either way he would risk incriminating himself. The federal district court then ordered the individual to comply and held him in contempt of court when he refused to do so. The individual subsequently appealed the contempt order. M.H. v. U.S. (9thCir) is at ¶101-310.

Fed Committee Holds Fed Funds Target Steady
Leading its announcement with a description of the state of the economy that was more positive than for many months, the Federal Open Market Committee said it was not changing either its target for the federal funds rate or its policy of continuing to buy mortgage-backed securities and Treasury securities. The fed funds target rate will remain at a range of 0 to .25 percent at least through late 2014, the FOMC projected. This story is in Report No. 2460, March 19, 2012.

FDIC Proposes Rules on Insurance Costs, Receiverships
The Federal Deposit Insurance Corp. has proposed two new rules, one that would affect its authority as receiver for a failed systemically important financial institution and one that would change the calculation of deposit insurance assessments for larger financial institutions.

Under the Dodd-Frank Act, the FDIC may be appointed receiver for an insolvent nonbank financial institution if the institution’s failure would pose a significant risk to the financial stability of the United States. As receiver, the agency has the authority to enforce contracts of subsidiaries or affiliates of the institution despite contract clauses that otherwise would terminate, accelerate or provide other remedies based on the institution’s failure. According to the FDIC, the proposed rule on receivership would make clear that no one could exercise any remedy under a contract simply as a result of the appointment of the receiver and the exercise of the agency’s orderly liquidation authorities as long as the agency complies with the statutory requirements. The change in the calculation of deposit insurance assessments would apply only to large banks and thrifts—those with $10 billion or more in assets.

The proposal on insurance assessments would amend the definitions of leveraged loans and subprime loans used to identify concentrations in higher-risk assets without materially affecting the overall assessments that large institutions pay, the agency said. It also would clarify when an asset would be identified as higher risk and how securitizations are identified. Related documents begin at ¶151-241.

Fed Outlines Path to Improved Supervisory Ratings
The Federal Reserve Board has issued guidelines describing what a smaller bank needs to do if it wishes an upgraded supervisory rating. The guidance is focused on community state member banks but is applicable to other community institutions the Fed supervises. According to the guidance, the Fed generally will examine a bank’s core financial components and overall risk management and the board of directors' oversight to look for a demonstrated and sustainable improvement in the bank's financial condition and risk management practices. SR 12-4 is at ¶37-779.

Bank Managers, Attorneys Warned Against Copying Records

The Federal Deposit Insurance Corp. has reminded bank officers and directors that copying and removing bank records is a breach of their fiduciary duty to the institution and an unsafe and unsound banking practice. It also may violate federal laws and regulations. The FDIC’s letter also reminded attorneys representing banks of their obligation to act in the best interests of those institutions. The FDIC guidance noted recent incidents in which officers or directors of troubled or failing institutions have removed copies of bank records or of the FDIC’s supervisory records for use in subsequent litigation or enforcement proceedings. Directors and officers need access to records to do their jobs, the agency said; however, access to an institution’s records is not appropriate when the information is to be used for personal purposes. The agency added that in some cases the copies, which included confidential information on the bank or its customers, have been left in unsecured locations. FIL-14-2012 is at ¶67-366.

Product Enhancements

Improved Display of Regulations
The display of regulations in the Federal Banking Law Reporter on IntelliConnect has been enhanced with indents and boldface headings that make them much easier to read.

With the dramatic increase in regulatory activity arising from the financial crisis, the regulations of the federal agencies governing banks and thrifts have grown in volume, length and complexity. The new format of the regulations distinguishes different regulation levels so users can easily navigate long, complex regulations with numerous subsections.

New Dodd-Frank Manual Series Book on Thrift Regulation
With regulatory implementation of the Dodd-Frank Wall Street and Consumer Financial Protection Act of 2010 well underway, the Dodd-Frank Manual Series is a way for counsel and their corporate clients to gain a deep understanding of the implications of these regulatory changes on the banking, securities, and financial services sectors. The first banking related title in the Dodd-Frank Manual Series is available now and priced at $99.00 (with quantity discounts available).

Depository Institutions: Title III offers a comprehensive discussion of the new supervisory scheme arising as a result of the abolishment of the Office of Thrift Supervision and the transfer of its powers and authorities for oversight of savings associations and savings and loan holding companies to the Federal Reserve Board, Office of the Controller of the Currency and the Federal Deposit Insurance Corporation. Click here for more details and to order.

Truth in Lending Act—Regulation Z Explanations Revised
The Truth in Lending Act—Regulation Z explanations in the Federal Banking Law Reporter beginning at ¶64-325 have been revised to reflect charges brought about by the Dodd-Frank Act and the Consumer Financial Protection Bureau’s new Truth in Lending regulation. The revisions include a new subdivision dedicated solely to credit card lending beginning at ¶64-391, as well as new explanation sections that address mortgage loan advertising (¶64-435)  and mortgage assistance relief services (¶64-441). The back references for each explanation now relate to the appropriate CFPB rule section, with links to the full text of the underlying laws and regulations.

Consumer Credit Guide

CFPB Establishes Consumer Advisory Board
As required by the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) has established a Consumer Advisory Board to advise and consult with the CFPB in the exercise of its functions under the federal consumer financial laws and to provide information on emerging practices in the consumer financial products or services industry, including regional trends, concerns and other relevant information. The CFPB is seeking nominations for members to serve on the Consumer Advisory Board. In addition, the CFPB anticipates that it may establish other advisory boards, groups or committees in the future to advise and consult in the exercise of its functions. This story appears in Report No. 1137, March 6, 2012.

TILA Rescission Defense to New Jersey Foreclosure Unsuccessful
The Supreme Court of New Jersey ruled that two borrowers failed to establish a meritorious defense, based on their rescission rights under TILA, to a lender’s foreclosure action. The borrowers contended that since their original lender overcharged them by $120 in calculating recording fees at the time of the mortgage loan closing, the borrowers were entitled to the remedy of rescission under TILA and Regulation Z. While acknowledging the application of the TILA and Regulation Z provisions to the borrowers’ factual situation, the New Jersey high court ruled that the trial court did not abuse its discretion in denying the borrowers the TILA remedy of rescission because it was clear from the record that the borrowers were unable to tender the balance of mortgage loan proceeds to the lender. US Bank National Association v. Guillaume (NJSCt), ¶52,411.

Officer of Debt Collection Company That Violated FDCPA Found Personally Liable
The U.S Court of Appeals for the Ninth Circuit decided that not only was a debt collection company liable for its various violations of the federal Fair Debt Collection Practices Act (FDCPA), but an officer of the company was personally liable for certain FDCPA violations as well. Among other things, the Ninth Circuit determined that the officer of the collection company independently qualified as a "debt collector" under the FDCPA because the evidence showed that he was the sole owner, officer, and director of the company and was very involved in the daily operation of the company, including collection duties. In examining the officer’s specific conduct, the Ninth Circuit noted that the officer signed to receive the debtor’s certified letter disputing the debt and refusing to pay, and then later the officer signed one of the collection letters in the name of a company employee and included his own initials next to the signature. By so doing, the officer violated two provisions of the FDCPA, the Ninth Circuit ruled. First, the officer independently and individually violated the FDCPA provision requiring a debt collector to cease collection communications with a debtor after the debtor disputes the debt in writing. Second, since the collection letter the officer signed falsely and misleadingly claimed the debt collection company was entitled to collect interest on the debt when such interest was not permitted under the circumstances under Nevada law, the officer independently violated the FDCPA provision prohibiting false, deceptive, or misleading representations in connection with the collection of a debt. Cruz v. International Collection Corporation (9thCir), ¶52,413.

State Law Update

Indiana: Annual financial institutions related legislation makes various changes to the Uniform Consumer Credit Code as well as other provisions relating to first lien mortgage lenders. The law is reflected beginning at Indiana ¶5002.

New Mexico: Changes to the Collection Agency Regulatory Act will allow foreign collection agencies to maintain their electronic records at the location where the foreign collection agency regularly maintains its records. The law is at New Mexico ¶6314.

Massachusetts: Recently revised debt collection regulations are designed to provide stronger consumer protections by addressing changing technology. The regulations are at Massachusetts ¶9150.

Texas: The Finance Commission of Texas has amended a rule relating to application filing requirements for tax refund anticipation loan facilitators. The rule is at Texas ¶8602.

Smart Charts Highlights
Some of the latest changes reflected in Consumer Credit Smart Charts include:

  • The Legislative Developments Smart Charts are updated regularly as legislation is enacted, allowing users to keep up to date without waiting for a scheduled Report. Links to legislative summaries and to full text of laws amended, repealed or added are provided. Recent updates include:
  • Nebraska: Delayed Deposit Services Licensing Act.
  • Tennessee: Industrial Loans—Acquisition, Handling Charges.
  • Washington: Consumer Loan, Checks Cashers Amendments.

Secured Transactions Guide

Debtors Could Not Avoid Creditor’s Consensual Lien

Two debtors who filed for Chapter 7 bankruptcy protection could not avoid a creditor’s lien in their vehicle, because the creditor held an unavoidable consensual line, in addition to its judicial lien. A bank held a consensual lien in the debtors’ vehicle. The creditor was later granted a judicial lien in the same vehicle, and the creditor paid the bank to satisfy the loans before selling the vehicle. Prior to the sale, the debtors filed a petition for Chapter 7 bankruptcy protection and sought to avoid the creditor’s lien. Under the Bankruptcy Code, a debtor may avoid a judicial lien on the debtor’s property to the extent the lien would impair a property exemption under the Code. Although the creditor’s judicial lien may have impaired the debtors’ allowable exemption for their vehicle, the creditor also held an unavoidable consensual lien. The creditor became the holder of the bank’s consensual lien when it paid off the bank loans. Because the debtors could not have avoided the bank’s lien, they could not avoid the creditor’s lien. In re Carter; Carter v. Estate of Heimer (BAP 8thCir) at ¶56,280.

State Law Update

Illinois: The Illinois Secretary of State has amended its regulation relating to UCC search requests to ensure that searches with the terms "and" or "&" will yield identical results. The regulation appears at Illinois, ¶1309.

South Dakota: The fee for filing and indexing a thresher’s lien or seed grain lien with the South Dakota register of deeds has increased from $10 to the sum of $30 for the first 50 pages plus $2 for each page thereafter. The law appears at South Dakota, ¶1114.

In addition, the South Dakota Secretary of State will now be able to establish and charge a fee for payments returned due to insufficient funds. The law appears at South Dakota, ¶1294.

Virginia: A purchaser of a motor vehicle who is unable to obtain the vehicle’s certificate of title because the motor vehicle dealer who sold the vehicle to the purchaser is no longer engaged in business in Virginia may now petition a court of competent jurisdiction to direct that a person, other than the dealer, release the title to the purchaser. If the court finds that the purchaser has a right to the title superior to that of the person holding the title, the court must order the release of the title and may award reasonable attorney fees, expenses and costs incurred by the purchaser. The law appears at Virginia, ¶1060.

Wyoming: Wyoming has amended section 9-311, which relates to the perfection of security interest in property subject to certain statutes, to add a reference to Wyoming’s certificate of title provisions. The amendment clarifies that the filing of a financing statement is not necessary or effective to perfect a security interest in property subject to the state’s certificate of title provisions. The law appears at Wyoming, ¶R754.

Financial Privacy Law Guide

Circumstantial Evidence Sufficient for Identity Theft Conviction
The government may rely on circumstantial evidence to establish that an individual knowingly committed aggravated identity theft, the U.S. Court of Appeals for the Eleventh Circuit has held. An individual had used two credit cards tied to other individuals’ accounts to make multiple purchases, signing the receipts with a false name. A person commits aggravated identity theft if the person "knowingly transfers, possesses, or uses, without lawful authority, a means of identification of another person." The trial court’s jury instruction said that the government can rely on circumstantial evidence in determining whether the defendant knew that the means of identification belonged to an actual person. The individual argued that the instruction relieved the government of its burden to prove that he knew the data was a means of identification. The court concluded that, because the misuse of an identity can shed light on the offender’s knowledge about that identity, the instruction was not in error. A jury could reasonably infer that the individual knew that the approval of the transactions for the two counterfeit cards meant that they contained data for other persons. Also, the individual’s "repeated and successful testing of the authenticity of the victims’ identifying information that had been encoded on the counterfeit credit cards also provided powerful circumstantial evidence that he knew the identifying information belonged to a real person as opposed to a fictitious one." United States v. Novas (11thCir) at ¶100-575.

Insurer Pays $1.5 Million to Settle HIPAA Privacy Violations
An insurance company has agreed to pay $1,500,000 to settle an action for potential violations of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy and Security Rules. In a resolution agreement with the U.S. Department of Health and Human Services (HHS) and Office of Civil Rights, the insurer also agreed to remediate its HIPAA compliance program. The enforcement action is the first resulting from a breach report required by the Health Information Technology for Economic and Clinical Health Act Breach Notification Rule, the HHS reports. This story is in the March 30, 2012, Privacy Extra.

Identity Theft Tops FTC’s 2011 Complaint List

The Federal Trade Commission has issued its list of top consumer complaints reported to the agency in 2011, and identity theft complaints, comprising 15 percent of the 1.8 million complaints, topped the list for the 12th straight year. Government documents and benefits fraud was the most common form of reported identity theft. The top 10 categories of consumer complaints were: identity theft (15 percent); debt collection complaints (10 percent); prizes, sweepstakes, and lotteries (6 percent); shop-at-home and catalog sales (5 percent); banks and lenders (5 percent); internet services (5 percent); auto related complaints (4 percent); imposter scams (4 percent); telephone and mobile services (4 percent); and advance-fee loans and credit protection/repair (3 percent). Florida had the highest per capita rate of reported identity theft complaints, followed by Georgia and California. This story is in Report No. 129, March 16, 2012.

Individual Retirement Plans Guide

IRS Allows Segregated Beneficiary IRAs
The IRS allowed four children of a decedent to set up separate, segregated beneficiary IRAs in order to ascertain distribution amounts. The decedent’s estate was the beneficiary of her IRA and, after her death, each of the children’s one-fourth interest in the decedent’s IRA was segregated and held in a separate IRA for purposes of determining required minimum distributions. Each of the separate IRAs created by trustee-to-trustee transfers constituted an inherited IRA. The taxpayers were allowed to receive minimum distributions from their respective separate IRAs over the decedent’s remaining life expectancy using the age of the decedent as of her birthday in the year of death. The transfer of each of the
taxpayers’ interests in the decedent’s IRA into separate IRAs did not constitute taxable distributions or rollovers. IRS Notice 201208039 is at ¶6334.