|
November 2011
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 on the Banking and Finance Web page at: http://business.cch.com/updates/bankingFinance.
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
Attorneys General Voice Strong Support for Cordray
State and territorial attorneys general have written to Senate leaders voicing their support for Richard Cordray, the former Ohio attorney general nominated to be the first director of the Consumer Financial Protection Bureau. The 37 AGs cite his aggressive stance toward consumer protection, and describe him as "brilliant and balanced." This story appears in Report 11, Oct. 24, 2011 (IntelliConnect).
CFPB Targets Elderly Financial Abuse
The Consumer Financial Protection Bureau has named former Minnesota attorney general and state senator Hubert H. Humphrey III as the head of its newly established Office of Older Americans. In a conference call held on Oct. 19, 2011, Humphrey said the most important priority for the new office will be to "listen, to hear from our seniors so that we learn and understand exactly what they are facing." Despite the absence of a confirmed CFPB director, Humphrey said, "we have a lot of work to do right now that we can take on." This story appears in Report 11, Oct. 24, 2011 (IntelliConnect).
CFPB Unveils Mortgage Servicer Supervision Approach
The Consumer Financial Protection Bureau released its Mortgage Servicing Examination Procedures on Oct. 13, 2011, which outlines the approach it will take to ensure mortgage servicers are complying with federal consumer financial protection laws. The Bureau said it will focus initially on loans in default. This story appears in Report 10, Oct. 17, 2011 (IntelliConnect).
CFPB Will Be Fact-Based, Transparent, Measured, Says Date
The Consumer Financial Protection Bureau will be "fact-based, transparent, and measured," and will not press a political agenda or reason from ideology, according to CFPB Special Advisor Raj Date. Speaking on Oct. 11, 2011, to the Mortgage Bankers Association, Date said the CFPB will "bring this approach to any new regulations we issue. And we’ll bring this same approach to the task of re-examining the extensive corpus of consumer financial protection regulations that we are inheriting." This story appears in Report 10, Oct. 17, 2011 (IntelliConnect).
Product Enhancements
First Issue of New CFPB Watch Newsletter Available
The CFPB Watch Newsletter, written by the Dewey & LeBoeuf LLP Consumer Financial Services Group, is now available as part of the online version of the Consumer Financial Protection Bureau Reporter. The newsletter can be accessed on IntelliConnect and via push email. The CFPB Watch provides commentary and analysis on developments relating to consumer financial protection issues involving the regulatory authority of the Consumer Financial Protection Bureau and related topics.
Federal Banking Law Reporter
"Volcker Rule" Regulation Proposed
The Federal Reserve Board, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Securities and Exchange Commission have proposed a joint regulation that would implement a Dodd-Frank Act amendment to the Bank Holding Company Act referred to as the "Volcker Rule," which restricts financial institutions' ability to trade securities for their own accounts or own interests in hedge funds and private equity funds. While some activities would be permitted by exemptions, even these would be prohibited if they involve conflicts of interest with an institution's customers or pose a threat to the safety and soundness of the institution or the stability of the U.S. financial system. The joint notice is at ¶98-192 (IntelliConnect, IRN, ip access user).
Agencies Join in Student Loan Guide
The Consumer Financial Protection Bureau and Department of Education have jointly published a new "financial aid shopping sheet" that colleges and universities will be able to use to explain to students the type and amount of aid they qualify for so the students can more easily compare aid packages offered by different institutions. The draft shopping sheet–which the CFPB characterized as a model financial aid disclosure form–is intended to make the costs and risks of student loans clear upfront, before students have enrolled, by outlining a student's total estimated student loan debt and monthly loan payments after graduation. A draft version of the sheet is being made available now, and the agencies intend to use feedback on the draft to make future improvements. This story is in Issue No. 2441, Oct. 28, 2011 (IntelliConnect, IRN, ip access user).
Institutions Reminded of Agricultural Lending Risks
The Federal Reserve Board has issued a new SR Letter to remind financial institutions of both the major risk factors and the supervisory expectations that relate to agricultural lending. According to the Fed, the guidance resulted from a combination of recent high profitability in the agricultural sector and increased risk due to heightened volatility. The Fed noted that farm producers have been more profitable than usual over the last three years, and that their levels of debt remain lower than usual. On the other hand, volatility in agricultural commodity prices, farmland values and farm production costs have combined to raise the level of risk involved in agricultural lending. This means that institutions with a significant exposure to agricultural loans must have strong risk management and capital planning practices. One issue specifically noted by the Fed is that farmland values now are at record high levels, especially in the central United States, which could "reflect overly optimistic long-term expectations.” This story is in Issue No. 2441, Oct. 28, 2011 (IntelliConnect, IRN, ip access user).
FSOC Moves Forward on Non-Bank Systemic Risk Designation
The Financial Stability Oversight Council approved a revised notice of proposed rulemaking setting out the criteria that would be used to decide which non-bank financial institutions should be subject to Federal Reserve Board supervision due to their potential risk to the overall financial system. FSOC Chairman Treasury Secretary Tim Geithner noted that "we're trying to take a comprehensive approach to looking at where risk is in the system and how best we can protect the broader economy from those risks. This is one of those tools, one of the most important of those tools, but it's not the only tool we're going to be relying on." The FSOC's notice is at ¶98-182. (IntelliConnect, IRN, ip access user).
Treasury Proposes to Remove Credit Rating References
The Treasury Department is seeking public comment on a proposed amendment to the regulations issued under the Government Securities Act of 1986 (GSA) to replace references to credit ratings in its rules with alternative requirements. The proposed amendments would implement Section 939A of the Dodd-Frank Act, which requires federal agencies to remove from their applicable regulations any reference to or requirement of reliance on credit ratings and to substitute a standard of creditworthiness as the agency determines appropriate for such regulations. The Treasury notice is at ¶98-152 (IntelliConnect, IRN, ip access user).
Consumer Credit Guide
Collector's Liability, Debtor's Damages Upheld Under FDCPA and California Law
The U.S. Court of Appeals for the Ninth Circuit recently upheld a federal district court's decision imposing liability on a debt collector and awarding statutory damages under both the federal Fair Debt Collection Practices Act (FDCPA) and the California Rosenthal Fair Debt Collection Practices Act (California FDCPA). While the debt collector could not legally report the debts of certain debtors to any credit reporting agencies because the debts were more than seven years old, the collection letters used conditional language—such as "if" or "may"—about the prospect of reporting the debt status to consumer reporting agencies. The Ninth Circuit ruled that, even though the debt collector used conditional language in its collection letters to the class of debtors, under the "least sophisticated debtor" standard, the debt collector impliedly threatened to take an action that could not be legally taken against the debtors in violation of the FDCPA, and the debt collector's letters were misleading in violation of the FDCPA. The court determined that the conditional language, particularly without any accompanying language clarifying or explaining when a debt could be reported to a consumer reporting agency, did not insulate the debt collector from FDCPA liability. In addition, the Ninth Circuit determined that the class of debtors was not prevented from recovering statutory damages against the debt collector under both the FDCPA and the California FDCPA. The court determined that the FDCPA did not preempt the California FDCPA because the federal and state laws were not inconsistent; enforcing both laws would provide greater protection for consumers in keeping with the objectives of each law. Gonzales v. Arrow Financial Services, LLC (9thCir) ¶52,387 (IntelliConnect, IRN, ip access user).
FCRA Preemption Provision Requires Complete Dismissal of State Law Claims
In connection with the federal Fair Credit Reporting Act provision governing the preemption of related state law claims, the U.S. Court of Appeals for the Seventh Circuit ruled that a consumer's state law claims should have been completely dismissed by the lower federal district court. The consumer’s lawsuit alleged that a bank, acting as a "furnisher of information" under the FCRA, told consumer reporting agencies that the consumer was delinquent on her loan payments even though the bank knew that she was current. Unlike the lower court and some other federal district court decisions, the Seventh Circuit did not distinguish between state statutory or state common law claims; all related state law claims were extinguished by the FCRA. Purcell v. Bank of America (7thCir) ¶52,389 (IntelliConnect, IRN, ip access user).
State Law Update
California: In response to concerns regarding the ability of car buyers to rescind contracts when dealers fail to comply with certain disclosure requirements relating to government fees, amendments to the Automobile Sales Finance Act remove rescission as a remedy for those violations. The legislation effectively provides that a motor vehicle conditional sales contract is enforceable notwithstanding the failure to properly disclose specified government fees, including the total of those and other fees. The law is at California ¶6101 (IntelliConnect, IRN, ip access user).
Nevada: Legislation relating to the protection of personal identifying information provides that the last four digits of a driver’s license number or identification card number are not subject to security measures required for certain personal information. The law is at Nevada ¶6604 (IntelliConnect, IRN, ip access user).
New York: The Department of Financial Services was officially launched Oct. 3, 2011, with the announced mission of maintaining New York as the world financial services capital, better protecting consumers, and achieving new efficiencies. The legislation that created the Department of Financial Services—the Financial Services Law—was introduced as part of Governor Andrew M. Cuomo’s 2011 budget, and transferred the functions of the New York State Banking Department and the New York State Insurance Department into the newly created DFS. Selected provisions of the law begin at New York ¶7612 (IntelliConnect, IRN, ip access user).
Smart Charts Highlights
Some of the latest changes reflected in Consumer Credit Smart Charts include:
Secured Transactions Guide
Court Declines to Hear Hanging Paragraph Issue
The U.S. Supreme Court has declined to decide whether the "hanging paragraph" of the federal Bankruptcy Code prevents the bifurcation of secured indebtedness incurred in a consumer automobile finance transaction in which the financing includes negative equity of a trade-in vehicle. In its petition, a creditor had challenged a ruling by the U.S. Court of Appeals for the Ninth Circuit that the hanging paragraph of the Bankruptcy Code did not apply to the negative equity of a trade-in vehicle financed in connected with a debtor’s purchase of a new vehicle, allowing the creditor’s bankruptcy claim to be bifurcated into a secured claim for the amount attributable to the new vehicle and an unsecured claim for the negative equity. A decision by the Court would have resolved a split among the Circuits. AmeriCredit Financial Services, Inc. v. Penrod (Docket No. 10-1443) ¶50,999 (IntelliConnect, IRN, ip access user).
Trustee May Avoid Creditor’s Unperfected Security Interest
In accordance with Article 9 of the Michigan UCC, a creditor’s filing of a financing statement under an assumed name of the debtor, rather than under the corporate name of the debtor, failed to perfect the creditor’s security interest. The debtor was a registered corporation in Michigan with the name "Harvey Goldman & Company" but transacted business as Worldwide Equipment Company. The creditor filed a financing statement listing "World Wide Equipment Co." as the legal name of the debtor. A financing statement is only sufficient to perfect a security interest if it provides the name of the debtor. If the debtor is a registered organization, then the financing statement must state the name of the debtor as indicated on the public record of the debtor’s jurisdiction of organization. Because the financing statement did not provide the correct name of the debtor, the financing statement was insufficient to perfect the creditor’s interest. In re Harvey Goldman & Company; Gold v. Pasternak (BankrEDMich) ¶56,269 (IntelliConnect, IRN, ip access user).
Bank’s Security Interest Not Protected from Prior Lien
The Puerto Rico Assignment of Claims Act (PRACA) did not prevent a creditor from foreclosing on its security interest in a debtor’s accounts receivable, despite the fact that a public bank held a competing interest in the same collateral. The bank, which provided government-funded financing to small and medium-sized businesses, and the debtor had executed a loan agreement, in which the debtor agreed to assign 80 percent of accounts receivable from its government contracts to secure a revolving line of credit. When the bank learned of the creditor’s prior interest in the accounts, it filed suit to accelerate its loan to the debtor, and recover the payments on the contracts. The bank argued that PRACA, which provides that all transfers and assignment of government contracts are void unless certain conditions are met, protected its right as a quasi-government entity. The court disagreed, determining that PRACA was only intended to protect government entities as payors, not payees, and although the bank was tasked with distributing public funds, it was not a government entity PRACA was intended to protect. Thus, in accordance with Article 9 of the Puerto Rico UCC, the creditor’s prior interest was superior to the bank’s interest. Prestige Capital Corporation v. Pipeliners of Puerto Rico, Inc. (DPR), ¶56,270 (IntelliConnect, IRN, ip access user).
State Update
California: The law relating to temporary vehicle permits for commercial vehicles registered outside of California has been amended to provide that such permits can be issued to vehicles registered in any foreign jurisdiction, regardless of whether the jurisdiction has licensing reciprocity with California. The law appears at California ¶1242 (IntelliConnect, IRN, ip access user).
In addition, beginning July 1, 2012, a new vehicle displaying a copy of a report-of-sale may now only be operated in California without license plates or a registration card for a 90-day period commencing on the date of the sale. Prior to amendment, new purchasers could operate a new vehicle without plates for up to a six-month period. The law begins at California ¶1259B (IntelliConnect, IRN, ip access user).
Financial Privacy Law Guide
Data Breach Mitigation Costs Were Cognizable Damages
The U.S. Court of Appeals for the First Circuit determined that out-of-pocket mitigation costs of credit and debit card replacement and credit insurance incurred by data breach victims were reasonably foreseeable expenses and, therefore, constituted a cognizable harm under Maine law. The breach involved a Maine-based supermarket chain operator‘s electronic payment processing system that resulted in the theft of 4.2 million credit and debit card numbers. The First Circuit reversed a federal district court’s dismissal of negligence and implied contract claims arising from the data breach, in which it had determined that the alleged injuries were too unforeseeable and speculative to be cognizable under Maine law. A story on Anderson v. Hannaford Brothers Co. (1stCir) is in Privacy Extra, Oct. 31, 2011 (IntelliConnect, IRN, ip access user).
Supreme Court Asked to Determine Preemption Issue
The U.S. Supreme Court has been asked to determine whether the Fair Credit Reporting Act or the Health Insurance Portability and Accountability Act preempts the privacy requirements of California's Confidentiality Act. In its petition, a debt collector has challenged the decision of the California Supreme Court that an individual's Confidentiality Act claims against the debt collector for the unauthorized disclosure of his family's medical information were not preempted by federal law. In Brown v. Mortensen (CalSCt) the California Supreme Court determined that the FCRA's preemption provisions prohibited only those state laws relating to furnisher accuracy or dispute resolution. A state law, such as the Confidentiality Act, that regulated medical privacy and an entity's obligation to maintain confidentiality would not be preempted. In addition, because the Confidentiality Act contained more stringent requirements than HIPAA's implementing regulations, the Act was not preempted by HIPAA. This story appears in Report No. 124, Oct. 19, 2011. (IntelliConnect, IRN, ip access user).
Collection Calls to Nondebtors Exempt from TCPA
A recipient of multiple prerecorded messages intended for the recipient's daughter could not bring an action against a debt collector for violations of the Telephone Consumer Protection Act, because the TCPA's restrictions do not apply to debt collection calls to debtors and nondebtors. The TCPA provides that it is unlawful for any person to initiate a telephone call to a residential telephone line using a prerecorded message without the prior consent of the called party, unless the call is exempted by the Federal Communications Commission. The FCC created an exception to the TCPA for debt collection calls in "all debt collection circumstances." The court concluded that such language includes debt collection calls made to nondebtors. Thus, the debt collector's calls were exempt from the limitations imposed by the TCPA. Franasiak v. Palisades Collection, LLC (WDNY) is at ¶100-553. (IntelliConnect, IRN, ip access user).
Individual Retirement Plans Guide
Rollover Waiver Granted Due to Medical Condition
A married couple was granted a waiver of the 60-day rollover requirement due to a medical condition. The wife was stricken with a debilitating bacterial infection necessitating visits to physicians on several occasions just prior to the end of the 60-day rollover period and several days after the rollover period ended. The husband was the primary caregiver and was preoccupied with the wife’s care, including transporting her to visits with physicians during the 60-day rollover period, and he was therefore unable to complete the rollover within the 60-day period. IRS Letter Ruling 201135035 is at ¶6294 (IntelliConnect, IRN, ip access user).
