banking header


January 2013

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 Sets Student Lender Exam Procedures
The Consumer Financial Protection Bureau has developed procedures it intends to use when examining both banks and nonbanks that make private student loans. The procedures will focus on ensuring that lenders are:

  • using advertising and marketing materials that are not deceptive, misleading or discriminatory;
  • making the required disclosures at the required times;
  • providing borrowers with accurate account information; and
  • handling inquiries and complaints adequately.

The examination procedures are at ¶1527.

Policy for Trial Consumer Disclosure Programs Proposed
The Consumer Financial Protection Bureau has proposed a policy under which it would approve requests by companies for exemptions from consumer disclosure obligations to allow tests of alternatives that could be more informative or cost-effective. Exemptions would be considered on a case-by-case basis and granted for limited time periods. The test-program exemptions are authorized by the Dodd-Frank Act.  The notice is at ¶200-166.

CFPB Outlines Information Sharing Plans
The Consumer Financial Protection Bureau has issued a statement of intent that describes how it will share information with state regulatory agencies that supervise nonbank participants in financial services businesses. The CFPB also said that when it engages in enforcement actions it intends to provide early notice to, consult with and share information with state agencies. The CFPB statement of intent is at ¶1526.

Regulators Sign Equal Lending Enforcement Agreement
The Department of Justice and Consumer Financial Protection Bureau have signed a memorandum of understanding setting out how they will cooperate in enforcing federal fair lending enforcement laws. Both agencies have jurisdiction to enforce the Equal Credit Opportunity Act, and joint investigations are authorized by the Dodd-Frank Act. According to the CFPB, the bureau has the authority to bring enforcement actions against any individual or entity under its jurisdiction, while the Justice Department has the authority to sue creditors that engage in a pattern or practice of violations and to act on referrals from the other federal financial system regulatory agencies. The CFPB press release and the memorandum are at ¶9529.

CFPB Targets Mortgage Modification Scams
The Consumer Financial Protection Bureau has taken steps to halt two alleged mortgage loan modification scams. The scams targeted financially distressed homeowners in danger of losing their homes, taking in $10 million by charging consumers for services that promised to prevent foreclosures, the bureau said. The CFPB requested that U.S. District Court Judges in California order a halt to both operations, the Gordon Law Firm and the National Legal Help Center, and freeze their assets while the bureau pursues cases against them. The CFPB’s release and related documents are at ¶200-164.

CFPB Guides on Specialty Consumer Reporting Agencies
Nationwide specialty consumer reporting agencies are covered by the obligation to provide consumers with one free report each year, and consumers should avail themselves of their right, according to a post by Consumer Financial Protection Bureau Senior Content Specialist Dan Rutherford. The Fair Credit Reporting Act defines a nationwide specialty consumer reporting agency as a consumer reporting agency that maintains files on consumers on a nationwide basis relating to medical records or payments, residential or tenant history, check writing history, employment history or insurance claims. The FCRA and Reg. V—Fair Credit Reporting (12 CFR 1022) require such agencies to have a streamlined process consumers can use to request free reports that includes, at a minimum, the ability to obtain a report by calling a published toll-free telephone number. Bulletin 2012-09 is at ¶11-517.

Federal Banking Law Reporter

Fed Proposes Rules for Foreign Banks with U.S. Operations
The Federal Reserve Board has proposed rules that are intended to enhance its ability to supervise the U.S. operations of foreign banks. The proposal includes structural requirements, capital and liquidity standards, and risk management obligations. It would apply to two categories of foreign banking organizations with U.S. banking activities, imposing some requirements on those with $50 billion in total assets world-wide and stricter requirements on those with $50 billion in total U.S. assets. This story is in Report No. 2499, Dec. 20, 2012.

Fed Creates New Supervision Regime for Largest Institutions
The Federal Reserve Board has announced a revised framework for the consolidated supervision of large financial institutions. The Fed said the new framework has two primary objectives: enhancing the resiliency of these firms in order to reduce the possibility that they could fail or become unable to act as financial intermediaries; and reducing the harm that a failure or material weakness of such a firm could have on the financial system or the economy. This story is in Report No. 2499, Dec. 20, 2012.

HSBC to Pay $1.92 Billion to Settle Violation Charges
HSBC Holdings plc and its subsidiary HSBC Bank USA N.A. (together HSBC) have agreed to pay civil money penalties totalling $1.92 billion to resolve extensive money laundering and international sanctions violation charges brought by U.S. authorities. The settlement includes a five-year deferred prosecution agreement with the Justice Department under which the U.K. banking company has agreed to strengthen its compliance policies and procedures. Assistant Attorney General Lanny Breuer said that if HSBC fails to comply with the agreement in any way, the government reserves the right to prosecute the bank fully. The Justice Department, Office of the Comptroller of the Currency, Federal Reserve Board, Financial Crimes Enforcement Network and Office of Foreign Assets Control all participated in the settlement. The settlement documents begin at ¶151-923.

FDIC-Insured Banks Show Recovery in Third Quarter
Federal Deposit Insurance Corp.-insured banks and savings institutions showed "gradual but steady recovery" in the third quarter, FDIC Chairman Martin Gruenberg said, as earnings rose 6.6 percent year-over-year to $37.6 billion and the number of "problem list" banks fell for the sixth consecutive quarter. The number of "problem list" banks fell to 694 from 732, representing the first time in three years that the list has contained fewer than 700 banks. This story is in Report No. 2497, Dec. 6, 2012.

OCC Issues 2013 Assessment Schedule
The fee and assessment schedules for national banks, federal savings associations, and branches and agencies of foreign banks have been announced by the Office of the Comptroller of the Currency. Assessments are based initially on each institution’s assets, and the amount based on the first $20 billion in assets has been increased by 1.7 percent to reflect changes in the Gross Domestic Product Implicit Price Deflator, the OCC said. Assessments for independent trust banks and independent credit card banks also have been adjusted for inflation. OCC 2012-40 at ¶43-165.

Consumer Credit Guide

Scope of FTC’s “Red Flags Rule” Narrowed
The Federal Trade Commission recently issued an interim final rule amending the "Red Flags Rule" (16 CFR 681) to narrow the circumstances under which "creditors" are covered by the rule aimed at preventing identity theft. Generally, Congress directed the FTC and several other federal banking agencies to develop regulations requiring "financial institutions" and "creditors" to develop and implement a written identity theft prevention program. The underlying premise of the program is that, by identifying "red flags" for identity theft in advance, businesses will be able to spot suspicious patterns that may arise, and take steps to prevent potential problems from escalating into a major and costly occurrence of identity theft. In keeping with federal legislation narrowing the definition of "creditors" covered by the rule, the FTC’s amended Red Flags Rule now provides that a creditor is covered only if, in the ordinary course of business, it regularly obtains or uses consumer reports in connection with a credit transaction,  furnishes information to consumer reporting agencies in connection with a credit transaction or advances funds to or on behalf of a person, in certain cases. This story appears in Report No. 1157, Dec. 11, 2012.

Documents Combined to Create Enforceable Arbitration Rights
In connection with a consumer’s purchase and financing of a used car, the U.S. Court of Appeals for the Fourth Circuit recently determined that since a "Buyer’s Order" and a motor vehicle retail installment sale contract (RISC) were made a part of a single consumer credit transaction, the documents should be interpreted together under Maryland law, and the arbitration provision in the Buyer’s Order was enforceable. The Fourth Circuit also determined that an assignee of the RISC did not waive its right to compel arbitration of disputes arising from a consumer’s class action against the assignee. Generally, the consumer’s class action alleged that the RISC assignee violated various Maryland consumer protection laws and engaged in other unfair business practices. Rota-McLarty v. Santander Consumer USA, Incorporated (4thCir), ¶52,460.

West Virginia Consumer Credit and Protection Act Construed by State’s Supreme Court

The Supreme Court of Appeals of West Virginia recently interpreted provisions of the West Virginia Consumer Credit and Protection Act in relation to litigation involving a mortgage lender and a consumer borrower. Among other things, the West Virginia Supreme Court determined that, while the lender’s conduct and subprime loan were unconscionable under West Virginia law, the state trial court was not authorized to cancel the loan debt as a remedy. In addition, the court decided that, where punitive damages are available, awarded attorney’s fees and costs are to be included in the "compensatory to punitive damages ratio" for computing the amount. Quicken Loans, Inc. v. Brown (WVaSCt), ¶52,458.

State Law Update

Florida: An amendment to the Retail Installment Sales Act (RISA) adds a licensing exemption for licensees under the Motor Vehicle Retail Sales Finance Act. The amendment essentially allows licensed motor vehicle dealers to finance the sale of aftermarket products without having to obtain an RISA license. The law is at Florida ¶6003.

Illinois: As of Jan. 1, 2013, debt buyers are subject to all provisions and requirements of the state’s Collection Agency Act with specified exceptions. Separate legislation amends the Consumer Installment Loan Act and Payday Loan Reform Act to make loans by an unlicensed lender void. The laws begin at Illinois ¶6053.

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

  • The Legislative Developments Smart Charts now include tracking for 2013 as well as archived entries for previously enacted consumer credit related laws dating back to 2007. The Smart Chart is 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.

Secured Transactions Guide

No Security Interest without Security Agreement
A bankruptcy trustee could avoid a lien on a debtor’s vehicle because there was no evidence of a security agreement that created or provided for the lien. The debtor’s father signed a purchase order and paid for the vehicle on the debtor’s behalf. The debtor separately agreed to repay her parents for the vehicle but made only four payments, totaling $300. On the advice of her bankruptcy attorney, the debtor caused a lien in favor of her parents to be noted on the vehicle’s certificate of title. The bankruptcy trustee sought to have the lien declared invalid. In accordance with South Dakota law, the notation of a lien on the certificate of title to a vehicle is insufficient to create a security interest in the vehicle; a security agreement covering the motor vehicle must also exist separate from the lien notation. A security agreement is an agreement that creates or provides for a security interest. The court concluded the debtor’s untitled agreement was not a security agreement—there was no language in the agreement that demonstrated intent to create a security interest. The court determined the debtor’s untitled agreement was not a security agreement. Although the agreement contained a description of the vehicle, it did not expressly create a security interest in favor of her parents or include any language from which the court could infer an intent to create a security interest. Without a security agreement, the court concluded, the debtor’s parents did not have a lien against the vehicle. In re Irvine-Hedrick; Allred v. Irvine (BankrDSD) at ¶56,299.

Auto Dealer’s Interest in Vehicles Inferior to Lienholder
A dealership could not repossess vehicles it had sold under retail instalment contracts because its interest in the vehicles was inferior to the investment company that purchased in good faith the security interest documents encumbering the vehicles. The dealership sold the vehicles under a retail instalment contract that provided that the vehicles may be repossessed if the customer defaults. A finance company purchased the dealership’s receivables and accompanying security interest documents and sold them to the investment company, assigning the documents to the investment company. After the dealership failed to receive payments from the finance company for the receivables, it began repossessing the vehicles. The investment company filed an action against the dealership, seeking a temporary restraining order to enjoin the dealership from repossessing the vehicles. Because the investment company provided evidence that it possessed the original security interest documents and that it purchased the chattel paper in good faith, in the ordinary course of its business, for new value, and without knowledge that the purchase allegedly violated some interest of the dealership, the investment company established a substantial likelihood that its ownership interest in the vehicles was superior to the dealership’s. FC Funding LLC v. MCJ Auto Sales of Central Florida, Inc. (SDFla) at ¶56,292.

State Update

Illinois: The fee for a certificate of title to a vessel has increased from $7 to $10. The fee for a duplicate certificate of title or a corrected certificate of title to a vessel has increased from $5 to $7. In addition, the fee for a vessel certificate of title search has increased from $5 to $7. The law appears at Illinois ¶1158.

Texas: The Texas Office the Secretary of State has made technical amendments to its regulations relating to notices of liens to remove references to "Chapter 70, Subchapter E" and to substitute the term "utility security interest" for "utility security." The regulations appear at Texas ¶1433 and ¶1438.

Smart Chart Highlights

New Motor Vehicles Topic Added
A new Motor Vehicles Smart Chart, found within the Secured Transactions Topics Smart Charts, compiles the requirements from state motor vehicle laws in the Secured Transactions Guide that govern nonpossessory motor vehicle liens for all 50 states. The customizable chart briefly summarizes the steps required to perfect a motor vehicle lien, the duration and release of a lien, the transfer and assignment of a lien, certificate of title requirements and applicable fees, with links to the applicable state laws and explanations found within the Guide. Users may customize the Motor Vehicles Smart Chart by subtopic and jurisdiction.

UCC Administrators Topic Updated
Updated central filing information for Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Louisiana, Maine, Nebraska, New Hampshire, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Virginia, Wisconsin and Wyoming is reflected.

Financial Privacy Law Guide

Online Game Breach Suit Dismissed Absent Harm
Purchasers of video games failed to allege sufficient facts in a class action suit to make plausible their claim of present harm from the hacking of the game distributor’s online platform by an unknown third party who gained access to personally identifiable information; therefore, a federal district court granted the distributor’s motion to dismiss. The court stated that when personal information is compromised due to a security breach there is no cognizable harm absent actual fraud or identity theft. The mere allegation that a consumer might suffer injury in the future does not demonstrate any level of proof that harm has been suffered. This claim to relief must be one in which the court can reasonably infer from the allegations that the entertainment company is responsible for any injuries that resulted from misconduct. The court noted that this level of plausibility is raised even further in a class action suit. Grigsby v. Valve Corporation (WDWash) at ¶100-611.

Opt-Out Notice Not Required for One-Time, Permitted Fax Headline
The Telephone Consumer Protection Act does not sanction sending a one-time facsimile advertisement when the recipient has given permission to send the communication, even when the facsimile does not contain an opt-out notice, an Ohio Court of Appeals has ruled. Therefore, a listing of quantities of paper and pricing faxed to a printing company at the company’s request did not violate the TCPA, even though it included no opt-out notice. The court noted that the Federal Communication Commission Rules and Regulations implementing the TCPA state repeatedly that “its rule requiring an opt-out notice applies to all unsolicited fax advertisements.” To hold otherwise, the court said, would apply the opt-out rule to situations such as a restaurant sending a customer a menu at the customer’s request. David Fackelman, v. Micronix (OhioCtApp) at ¶100-612.

House Seeks to Eliminate Redundant Privacy Notices
The House has passed H.R. 5817, the "Eliminate Privacy Notice Confusion Act," which would end the annual privacy notice requirement for financial institutions when no changes have been made to their privacy practices over the past year. Currently, privacy notices are required to be sent to customers every year, even if a bank’s privacy policies have not changed and it has not shared a customer’s financial information. This story is in Report No. 138, Dec.19, 2012.

Individual Retirement Plans Guide

Failure to Properly Title IRA Excuses Rollover Delay
The IRS granted a waiver of the 60-day rollover requirement for a taxpayer whose failure to timely roll over funds from one IRA to another IRA was due to the failure of a company to properly title an IRA. The taxpayer requested a transfer of funds from two inherited IRAs into his IRA held by the company as custodian. At that time, the taxpayer’s IRA was not titled as an inherited IRA. Consequently, the funds were rolled over into the taxpayer’s IRA because the company did not recognize the nature of the account due to the incorrect title. Thus, the transfer of funds resulted in a failed rollover because an inherited IRA is not treated as an IRA for rollover purposes. IRS Letter Ruling 201246044 is at ¶6394.