banking header


May 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 Targets Discriminatory Lending Practices
The Consumer Financial Protection Bureau said it is targeting discriminatory lending practices, and that "all available legal avenues," including disparate impact, will be used to pursue such behavior. CFPB Director Richard Cordray described discrimination as the "marketplace’s silent pickpocket," adding that intentional discrimination "stands as a disgrace to the values our nation was founded upon."

The CFPB has issued guidance in which it reaffirms its commitment to enforcing the Equal Credit Opportunity Act by recognizing the disparate impact doctrine. "This subtle but powerful form of discrimination creates damages that are no less direct than the kind of overt and blatant discrimination that, we hope and assume, is increasingly a relic of a bygone era," Cordray said. Disparate impact occurs when a lender’s practices or policies are facially neutral but have discriminatory effects. Bulletin 2012-04 is at ¶9507.

Bureau Sets Expectations for Managing Service Providers
Both banks and nonbanks supervised by the Consumer Financial Protection Bureau are expected to manage their relationships with third-party service providers "in a manner that ensures compliance with Federal consumer financial law, which is designed to protect the interests of consumers and avoid consumer harm," according to new CFPB guidance. Using a third-party service provider often is an appropriate business choice, the bureau said, but does not absolve the bank or other business from the duty of complying with consumer protection laws. The bureau will "hold all appropriate companies accountable when legal violations occur," it said. According to the guidance, supervised banks and nonbanks are expected to have an effective process in place to manage the risks that can come from relationships with service providers. Bulletin 2012-03 is at ¶1514.

CFPB Considers Mortgage Servicing Rule Provisions

The Consumer Financial Protection Bureau has taken a step toward adopting rules that will govern mortgage loan servicer activities by outlining the basic requirements it intends to propose. The rules being considered are intended to address what the bureau sees as two main underlying problems—lack of transparency and lack of accountability. In discussing the bureau’s intent, CFPB Director Richard Cordray said that "For too long, mortgage servicers have not been held accountable to their customers, and the result has been profoundly punishing to homeowners in distress. It’s time to put the ‘service’ back in mortgage servicing." As described by the CFPB, mortgage servicing comprises a number of tasks to be performed on behalf of the company that owns a mortgage loan. A servicer collects the consumer’s payments, handles customer service, manages escrow accounts and deals with issues related to troubled loans—collections, loan modifications and foreclosures. Consumers almost never have the ability to choose the servicer with which they will deal. The notice is at ¶200-065.

Bureau Proposes Amendment to Limit on Credit Card Fees
The CFPB has issued a proposed rule that would amend Regulation Z—Truth In Lending Act and the official interpretation to the regulation. Reg. Z generally limits the total amount of fees that a credit card issuer may require a consumer to pay with respect to an account, limiting fees to 25 percent of the credit limit in effect when the account is opened. Reg. Z currently states that the limitation applies prior to account opening and during the first year after account opening. The proposal requests comment on whether to amend Reg. Z to apply the limitation only during the first year after account opening. The proposal is at ¶300-042.

Profit-Sharing Plans Not Affected by Loan Originator Pay Limits
Restrictions on payments to loan originators do not prohibit payments to qualified retirement, profit-sharing or employee stock ownership plans, the Consumer Financial Protection Bureau has said. The bureau declined to give guidance on the application of the restrictions to other profit-sharing plans. Loan originators generally may not receive compensation based on any terms or conditions of a mortgage transaction. For example, a loan originator’s compensation cannot be based on a loan’s interest rate, a transaction’s loan-to-value ratio or an applicant’s credit score. The bureau said that it has been asked whether this prohibits an employer from contributing to a qualified plan that benefits a loan originator if the contributions are derived from profits generated by mortgage lending activity. The statutory restriction does not address this situation, the CFPB noted. Bulletin 2012-02 is at ¶24-011.

House Passes Legislation on Confidentiality of Privileged Information
The House unanimously approved by voice vote H.R. 4014, legislation that would protect confidential bank examination information provided to the Consumer Financial Protection Bureau. S.B. 2099 would create a single and consistent standard for the treatment of privileged information submitted to all federal agencies that supervise banks. The bi-partisan legislation would remedy an omission in the Dodd-Frank Act that opens the door for third parties to obtain privileged information provided by financial institutions to the CFPB. The legislation would require the CFPB to preserve the confidentiality of privileged information it receives from financial institutions, as do other banking regulators. This story is in Report No. 32, April 2, 2012.

CFPB Files Amicus Brief in TILA Case

The Consumer Financial Protection Bureau has filed an amicus brief in the U.S. Court of Appeals for the Tenth Circuit in support of plaintiff-appellant and reversal. The bureau asserts that certain borrowers who did not receive important disclosures mandated by the Truth in Lending Act (15 USC 1601 et seq.) may cancel their loans so long as they notify the lender of their intent to cancel within three years. The appeal presents a question concerning the timeliness of lawsuits arising out of a consumer’s exercise of the right to rescind under TILA. At issue is whether a consumer who timely exercises an allegedly valid right of rescission by providing notice to the lender within three years must also file a lawsuit against the lender within three years if the lender does not recognize the rescission. Rosenfield v. HSBC Bank, USA, et al. (10thCir) at ¶100-032.

State Reciprocity for Mortgage Loan Originators Outlined
The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) does permit some reciprocity between states for granting loan originator licenses, according to the Consumer Financial Protection Bureau. In a new bulletin, 2012-05, the bureau said that a state can provide a transitional loan originator license to an individual who already holds a valid license from another state. The individual must comply with the net worth, surety bond or fund contribution requirements of the state issuing the transitional license. However, a transitional license is not permitted for an individual who, as an employee of a federally-regulated institution, was not individually licensed, has left the institution’s employment and now seeks to become a licensed loan originator. Such an individual must obtain a state license before engaging in loan origination activities. CFPB Bulletin 2012-05 is reproduced at ¶21-504.

Federal Banking Law Reporter

Banks Given Increased Leeway to Rent Foreclosed Homes
Current residential market conditions have led the Federal Reserve Board to loosen somewhat the requirements for the disposition of Other Real Estate Owned properties in a way that is intended to facilitate rentals. While banks still are expected to make good faith efforts to sell OREO properties "at the earliest practicable date," they will be permitted to rent residential OREO without having to demonstrate continuous active marketing efforts, the Fed has advised. Such rentals still must be part of an orderly disposition strategy and must comply with holding period restrictions, it was noted. SR 12-5/CA 12-3 and the policy statement are reproduced at ¶62-080B.

Regulators Clarify Volcker Rule Deadline

Entities covered by the Volcker Rule have until July 21, 2014, to conform their activities to the rule’s restrictions on proprietary trading and on relationships with hedge and private equity funds, the federal banking, securities and commodities futures trading regulatory agencies have announced. A further extension of the deadline would be permitted by law, the agencies also noted. The joint announcement is reproduced at ¶69-951.

FDIC Says DIF Restoration on Track
The Federal Deposit Insurance Corp. expects that the Deposit Insurance Fund balance is on track to meet the requirements of the DIF Restoration Plan and the Dodd-Frank Act, noting that the insurance fund has continued to recover as the banking industry’s performance has improved. Under Dodd-Frank, the DIF has until Sept. 30, 2020, to reach the minimum designated reserve ratio of 1.35 percent. The FDIC is projecting that the reserve ratio should reach 1.15 percent in the second half of 2018. The designated reserve ratio is the ratio of the DIF to the estimated insured deposits. This story is in Report No. 2466, April 26, 2012.

Lending Discrimination Enforcement Principles Reaffirmed
The Consumer Financial Protection Bureau has made clear that, in enforcing the Equal Credit Opportunity Act and its implementing regulation, the bureau will rely on all established legal principles including the disparate impact doctrine. The CFPB affirmed its adoption of the 1994 Policy Statement on Discrimination in Lending as part of all of its lending examination procedures. Thus, the bureau will consider not just mortgage lending but also lending for purposes such as education, vehicle purchases and credit cards. CFPB Bulletin 2012-04 is reproduced at ¶33-215.

Fed Simplifies Administration of Reserve Requirements
The Federal Reserve Board has finalized a rule intended to simplify the administration of reserve requirements and reduce administrative and operational costs for depository institutions and Federal Reserve Banks. The rule does not affect the stance of monetary policy. The final rule amending Reg J is at ¶151-287. The final rule amending Reg D is at ¶151-288.

Council Approves Rule on Nonbank Company Oversight
The Financial Stability Oversight Council has approved a final rule and interpretive guidance setting out its process for requiring Federal Reserve Board supervision and regulation of systemically significant nonbank financial companies under the Dodd-Frank Act. Dodd-Frank authorizes the FSOC to require a nonbank financial company to be supervised by the Fed and be subject to heightened prudential standards if either material financial distress at the company or the nature, scope, size, scale, concentration, interconnectedness or mix of the activities of the company could pose a threat to U.S. financial stability. The final rule sets out a three-stage process that will be used to determine which companies will be subject to Fed authority. The FSOC notice is at ¶151-268.

Consumer Credit Guide

Debtor Stated Valid FDCPA Claim Since Loan Servicing Company Was Not a “Creditor”

The U.S. Court of Appeals for the Eleventh Circuit recently ruled that, on the face of his complaint, a debtor stated a valid claim under the federal Fair Debt Collection Practices Act (FDCPA) for a false representation in connection with the collection of a debt, by alleging that a law firm failed to identify the proper creditor in its required debt collection notice to the debtor. In seeking to collect the debt, the law firm sent the required FDCPA notice to the debtor but inaccurately identified the mortgage loan servicing company, instead of the original lender, as the "creditor." Unlike the federal trial court, which viewed the misidentification as a “harmless mistake,” the Eleventh Circuit asserted that the "the identity of the creditor in these notices is a serious matter." In reviewing the definition of a “creditor” under the FDCPA, the Eleventh Circuit determined that the debtor stated a valid claim because the law firm failed to identify the proper creditor to whom the debt was owed, as required by the FDCPA. Bourff v. Rubin Lublin, LLC (11thCir) at ¶52,414.

Law Firm Did Not Violate FDCPA by Its Inaccurate Filings in State Court
The U.S. Court of Appeals for the Eighth Circuit recently held that, although a law firm made inaccurate claims about a consumer’s liability for a credit card account in certain court filings in a state debt-collection lawsuit, the firm did not violate the federal Fair Debt Collection Practices Act (FDCPA). Based on the evidence presented, the judge in the state court litigation found that the consumer never asked to be placed on her husband’s credit card account, never agreed to be liable for the account, never used it, and never received any benefit from it. The consumer then initiated her own, separate federal action against the law firm, claiming the firm, by its state court filings, made misrepresentations and engaged in unfair debt collection practices in violation of the FDCPA. While acknowledging that the law firm made inaccurate claims about the consumer’s liability on the credit card account, the Eighth Circuit determined that, since any false statement was not made directly to the consumer, the liability of an attorney or law firm under the FDCPA for an inaccurate court filing was to be determined on a case-by-case basis. In affirming the dismissal of the consumer’s FDCPA claims, the Eighth Circuit ultimately determined that neither the consumer nor the state court was deceived by the law firm’s filings. Hemmingsen v. Messerli & Kramer, P.A. (8thCir) at ¶52,415.

Repossession Notice Provision of Maryland Law Not Preempted by Federal Law
The U.S. Court of Appeals for the Fourth Circuit recently ruled that a provision of Maryland law, setting forth notification requirements to a consumer before a creditor may repossess personal property securing a loan in default, was not preempted by the National Bank Act or its applicable federal regulations. The consumer brought a class action lawsuit against the bank for allegedly failing to comply with Maryland’s repossession notification requirements. In ruling that the Maryland law was not preempted, the Fourth Circuit determined that the degree to which the Maryland law regulated the lending power of the national bank was merely incidental, primarily pertained to the collection of debts not the extension of credit, did not treat national banks differently than other lenders and did not impose an undue regulatory burden on the national bank. Epps v. JP Morgan Chase Bank, N.A. (4thCir) at ¶52,418.

State Law Update

Delaware: Annual amendments to the state’s legal interest rate provision clarify that the applicable post-judgment interest rate on any judgments entered in cases of personal loans is the lesser of the legal interest rate or the contract rate. The legal rate, which was not changed, remains 5 percent over the Federal Reserve discount rate, including any surcharge. The law appears at Delaware ¶6401.

Indiana: Amendments governing the licensing of collection agencies allow the Indiana Secretary of State to designate a multistate automated licensing system and repository to serve as the sole entity responsible for processing applications for original and renewal licenses. In addition, the legislation provides that a collection agency license expires on the last day of the calendar year in which the license was issued. Currently, a license expires on the last day of the calendar year after the year in which the license was issued. The law is reflected beginning at Indiana ¶6103.

Tennessee: Banking and financial institutions legislation revises various provisions governing payday lenders, including provisions regarding licensing qualifications. The measure authorizes the Department of Financial Institutions to require licensees under the Deferred Presentment Services Act to be licensed through a multi-state automated licensing system. The measure also modifies license expiration and renewal time periods. The law appears beginning at Tennessee ¶7904.

Utah: Stricter registration requirements for payday lenders under the Check Cashing and Deferred Deposit Lending Registration Act will void any loan made by an unregistered lender that is required to be registered under the Act. The measure additionally modifies what a lender is required to report as part of its operations statement. The law appears beginning at Utah ¶6152.

Washington: Conforming amendments to the state’s Fair Credit Reporting Act removes provisions governing adverse action notification in connection with an application for the rental of residential real estate. The law is at Washington ¶6243.

West Virginia: An amendment to the West Virginia Consumer Credit and Protection Act authorizes the Division of Banking (DOB) to impose a fine or penalty upon a regulated consumer lender licensee for violating the Act, the state banking code, or any other law or rule enforced by the DOB governing regulated consumer lenders. The law is at West Virginia ¶5123.

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: Installment Sales Licensing Procedures.
  • Tennessee: Credit Card State Banks.
  • Utah: Industrial Loan Corporations—Lending Limits.
  • Wisconsin: Collection Agencies.

Secured Transactions Guide

Purchaser Must Demonstrate Good Faith for Immunity from Claims
A bank that purchased a debtor’s accounts receivable from a third party creditor at a public auction may not have purchased the encumbered accounts receivable free and clear of the debtor’s defenses, if it could not show that it was a good faith purchaser of the collateral. Section 9-617 provides that, at a valid foreclosure sale after default, a secured party conveys the collateral to a good faith purchaser free and clear of any claims of the account debtor. However, if the bank did not act in good faith, then it did not purchase the receivable free and clear of the debtor’s claim. To establish that it was a good faith purchaser, the bank must demonstrate that it purchased the accounts receivable at a commercially reasonable sale. Bank of America, N.A. v. Illumination Station, Inc. (NDIll) at ¶56,281.

State Lien Provisions Not Preempted by Federal Law
A debtor’s action against a towing company for allegedly violating New Hampshire’s towing and storage lien provisions was not preempted by the Federal Aviation Administration Authorization Act (FAAAA), because the New Hampshire provisions did not regulate the price, route or service of a motor carrier with respect to the transportation of property. The FAAAA, which amended the Interstate Commerce Act, preempts states from enacting any law related to the price, route or service of a motor carrier with respect to the transportation of property. Towing companies, as companies that provide motor vehicle transportation for compensation, are motor carriers as defined by the FAAAA. New Hampshire’s towing and storage lien provisions, which prescribe the process by which a towing company may recover vehicle towing and storage costs, are state laws with respect to the collection of debts, not the transportation of property, the Supreme Court of New Hampshire concluded. Pelkey v. Dan’s City Used Cars, Inc. (NHSct) at ¶56,282.

State Update

Alaska: Alaska has amended its repairman’s lien provisions to remove the requirement that one of the three public locations for the notice of sale of encumbered personal property be at or near the front door of the post office located nearest the place of sale. The law appears at Alaska, ¶1115.

Nebraska: Nebraska has amended its Revised Article 9 to provide that the Nebraska Secretary of State should no longer enter the Social Security number or federal tax identification number of the debtor into its centralized computer system when the office accepts a financing statement for filing. The law appears at Nebraska, ¶R840B.

In addition, section 9-503, which pertains to the name of the debtor, of the Nebraska UCC has been amended to add that a financing statement sufficiently provides the name of an individual if the financing statement contains the individual’s name as it appears on the individual’s state identification card as issued by the Nebraska Department of Motor Vehicles. The section currently provides only for the name as indicated on an individual’s driver’s license. The law, which is not operative until July 1, 2013, appears at Nebraska, ¶R813.

Utah: Utah’s certificate of title provisions have been amended to provide that a certificate of title that has been endorsed or assigned may not be re-endorsed or reassigned. A transferee must instead obtain a new certificate of title to the vehicle, vessel or outboard motor by submitting an application, the properly endorsed certificate of title and any other document the Utah Motor Vehicle Division may require. The law appears at Utah, ¶1041 and ¶1044.
In addition, when a salvage vehicle is not the subject of an insurance settlement, an owner of a self-insured vehicle or an owner of an uninsured vehicle must surrender the certificate of title to the vehicle to the Motor Vehicle Division within 10 days of the damage, regardless of the extent of the damage or how the damage occurred. The requirement formerly applied only to major damage or damage as the result of theft. The law appears at Utah, ¶1047.

West Virginia: The period of time an owner or purchaser of a scrap, compressed, dismantled or destroyed motor vehicle to surrender the certificate of title to the motor vehicle division has been extended from 20 days to 45 days. A purchaser or a person who otherwise acquires the vehicle will also have the option of surrendering a nonrepairable motor vehicle certificate, salvage certificate or a statement of cancellation signed by the seller. The law appears at West Virginia, ¶1051.

Wyoming: The amount of personal property that a person may claim as exempt from execution of judgment has been increased. Wearing apparel increased from $1,000 to $2,000. Furniture, bedding, and other household articles increased from $2,000 to $4,000. The value in a motor vehicle exempt from execution also increased from $2,400 to $5,000. Lastly, the amount in tools, team, implements or stock in trade, used or kept for carrying on a person’s trade or business, and the amount in a professional’s library, instruments or implements each increased from $2,000 to $4,000. The law appears at Wyoming, ¶1025 and ¶1026.

Financial Privacy Law Guide

Supreme Court Finds Agencies Immune from Privacy Act Actions for Emotional Distress
Because the Privacy Act does not unequivocally authorize damages for mental or emotional distress, an individual must establish pecuniary loss in order to maintain an action against a federal agency for potentially violating the Act, the Supreme Court has held. As a result, a pilot who failed to plead monetary damages could not maintain an action against multiple federal agencies for disclosing his medical records without his permission. Federal Aviation Administration v. Cooper (SCt) at ¶100-576.

Telemarketer to Pay $30 Million for Robocalls
A telemarketer has been ordered to pay a total of $30 million in civil penalties and more than $1.1 million the telemarketer received as a result of its violations of the Federal Trade Commission Act and the Telemarketing Sales Rule. The telemarketer made more than eight million robocalls to consumers, including more than 2.7 million phone calls to numbers on the National Do Not Call Registry, and fraudulently informed consumers that they were qualified for cash grants from federal, state and local governments, private foundations and "wealthy individuals." The robocalls directed interested consumers to the telemarketer’s websites, which repeated many of the same deceptive claims. Federal Trade Commission v. Navestad (WDNY) at ¶100-577.

Bank’s Calls to Debtors Were Not Exempt from TCPA
A bank that placed over 100 calls using an automatic dialer to its debtors’ residential telephone line after the debtors defaulted on their mortgage with the bank could not claim that its calls were exempt from the requirements of the Telephone Consumer Protection Act (TCPA) under the FCC’s exemption for debt collection. A federal district court determined that the debtors had terminated their business relationship with the bank before the calls were made, and the bank failed to establish that the calls were made for the sole purpose of collecting its debt. A story on Shupe v. JPMorgan Chase Bank of Arizona (DAriz) appears in Privacy Extra, April 30, 2012.

Individual Retirement Plans Guide

Wife Permitted Trustee-to-Trustee Rollover of Husband’s IRA
A surviving spouse, who was executrix and sole beneficiary of her husband’s estate, was permitted a trustee-to-trustee rollover of her husband’s IRA or a distribution and rollover into an IRA in her name. The husband had executed a will, which designated his wife as the beneficiary of his IRA as a trustee of a testamentary trust. Later, the husband revised the will to eliminate the testamentary trust and to pass his entire estate to the taxpayer free and clear of the trust. The revision updated and revoked the original will in its entirety; however, the husband did not update the IRA beneficiary designation form, which listed the taxpayer as beneficiary of the testamentary trust. The IRS ruled that because the second will designated the spouse as the sole personal representative of the husband’s estate and his IRA, she had the right to direct any and all amounts from the estate without restriction. IRS Notice 201211034 is at ¶6340.