Banking and Finance Update- August 2011

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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.

Product Enhancements

New Reporter Provides Coverage of CFPB

The new Consumer Financial Protection Bureau Reporter is a topically arranged publication that provides in-depth coverage of regulatory oversight of federal consumer financial protection laws administered by the Consumer Financial Protection Bureau. The Reporter provides practice commentary and analysis by Ralph C. Ferrara and Gary Apfel of Dewey & LeBoeuf LLP, as well as explanations written by the Wolters Kluwer Law & Business editorial staff. The full text of pertinent federal statutes, regulations, legislative history, agency issuances and court decisions is included.

The overhaul of U.S. financial regulation enacted as the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, 2010, included Title X, known as the “Consumer Financial Protection Act of 2010.” The centerpiece of Title X was the creation of the CFPB to assume regulatory authority over a broad group of consumer financial laws. Title XIV of the Dodd-Frank Act, the “Mortgage Reform and Anti-Predatory Lending Act,” contained a number of provisions intended to reform consumer mortgage practices. The CFPB assumed most of its regulatory duties on the designated transfer date of July 21, 2011, which includes sweeping powers to implement Titles X and XIV of the Dodd-Frank Act.

For further information, contact: (800) 449-6435.

Richard Cordray Nominated to Be CFPB Director

President Barack Obama nominated Richard Cordray as the Director of the Consumer Financial Protection Bureau at a July 18, 2011, White House event. In a statement, the President said, "American families and consumers bore the brunt of the financial crisis and are still struggling in its aftermath to find jobs, stay in their homes, and make ends meet. That is why I fought so hard to pass reforms to fix the financial system and put in place the strongest consumer protections in our nation's history. Richard Cordray has spent his career advocating for middle class families, from his tenure as Ohio's Attorney General, to his most recent role as heading up the enforcement division at the CFPB and looking out for ordinary people in our financial system." This story is in Issue No. 2427, July 20, 2011 (IntelliConnect, IRN, ip access user).

CFPB Details Large Bank Supervision Program

The Consumer Financial Protection Bureau will begin ensuring that large depository institutions are complying with federal consumer financial protection laws when it launches operations on July 21, 2011. Banks with total assets over $10 billion, which account for over 80 percent of industry assets, will be overseen by the CFPB supervision program. The CFPB said it will provide further information via letter to the 111 banks falling under its jurisdiction in early August. This story is in Issue No. 2426, July 15, 2011 (IntelliConnect, IRN, ip access user).

H.R. 2434 Faces Veto if It Undermines Dodd-Frank

The White House said President Barack Obama would likely veto a House appropriations bill for fiscal year 2012 if it undermines the Dodd-Frank Act through funding limits or other restrictions. In a Statement of Administration Policy regarding H.R. 2434, which makes appropriations for financial services and general government programs, the White House expressed strong opposition to a number of provisions in the bill. This story is in Issue No. 2426, July 15, 2011 (IntelliConnect, IRN, ip access user).

OCC Instructs Banks on Managing Mortgage Foreclosures

National banks have been informed of the Office of the Comptroller of the Currency’s expectations for how mortgage foreclosure activities will be managed. The OCC also has directed all national banks to complete self-assessments of their foreclosure-management practices, if those have not already been done, to ensure that the banks are meeting the agency’s expectations. The agency noted that the new guidance was focused only on foreclosure management practices and did not cover the broader range of workout issues. OCC 2011-29 is at ¶ 63-820L (IntelliConnect, IRN, ip access user).

Guidance on Counterparty Credit Risk Management Issued

The federal bank and thrift regulators have published guidance on how financial institutions should manage the risk that arises from the possibility that a counterparty in a transaction could default or that a counterparty's creditworthiness could decline before the transaction settles. The guidance, which is intended principally for organizations with large derivatives portfolios, emphasizes internal metrics and measurements and comprehensive stress testing. It was issued by the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and Office of Thrift Supervision. Related documents are at ¶62-168 (IntelliConnect, IRN, ip access user).

Federal Agencies Finalize Credit Score Disclosure Requirements

The Federal Reserve Board and the Federal Trade Commission issued final rules to implement the credit score disclosure requirements of the Dodd-Frank Act, which requires creditors to disclose credit scores and related information to consumers in risk-based pricing and adverse-action notices under the federal Fair Credit Reporting Act if a credit score was used in setting the credit terms or taking an adverse action. The final rules amend various federal regulations to revise the content requirements for risk-based pricing notices and to add related model forms reflecting the new credit score disclosure requirements. The final rules take effect on Aug. 15, 2011. Related documents begin at ¶30,196 (IntelliConnect, IRN, ip access user).

FTC Issues Final Policy Statement on Collection of Debts of Deceased Persons

The Federal Trade Commission recently finalized a policy statement clarifying that the FTC will not take enforcement action under the federal Fair Debt Collection Practices Act or the FTC Act against companies that are attempting to collect the debts of deceased consumers, if the companies communicate with someone who is authorized to pay debts from the estate of the deceased. In addition, the FTC's policy statement emphasizes that debt collectors may not mislead relatives to believe that they are personally liable for a deceased consumer's debts, or use other deceptive or abusive tactics. Since family members typically are not obligated to pay the debts of a deceased relative from their own assets, the FDCPA limits the number of persons whom debt collectors may contact after a loved one has died—such as the deceased person's spouse and the executor or administrator of the deceased person's estate. Since the FDCPA was enacted in 1977, state probate laws have changed. In the enforcement policy statement, the FTC sought to reconcile the FDCPA's requirements with current trends in state probate law. While the FTC's policy statement does not have the force or effect of law, it may reflect the FTC's interpretation of a legal requirement. This story is in Report Letter No. 1122, July 26, 2011 (IntelliConnect, IRN, ip access user).

Sixth Circuit Reaches Split Decision on FDCPA Violations

In examining the provision of the federal Fair Debt Collection Practices Act prohibiting false, deceptive, or misleading representations, the U.S. Court of Appeals for the Sixth Circuit recently addressed a law firm's liability under the provision. The Sixth Circuit made two principal rulings. First, the Sixth Circuit determined that the law firm, acting as a debt collector, could be found to have violated the FDCPA when, in a state debt-collection action, the firm served a debtor with a document appearing to be a motion for a default judgment, even though the debtor had not missed the deadline for answering the state court complaint. Second, the Sixth Circuit determined that while the law firm communicated an incorrect figure to the debtor for the outstanding amount on the debtor's account, the firm did not violate the FDCPA for the incorrect amount because the firm's communications were not made "in connection with the collection of any debt" under the FDCPA provision. Grden v. Leikin, Ingber & Winters, P.C. (6thCir), ¶52,369 (IntelliConnect, IRN, ip access user).

Despite Disclaimers, Firm's Collection Letters Violated FDCPA

The U.S. Court of Appeals for the Third Circuit recently held that a law firm's collection letters to a debtor violated the federal Fair Debt Collection Practices Act's general prohibition against "false, deceptive, or misleading" communications because the collection letters did not adequately dispel the impression that the law firm might pursue legal action against the debtor, despite the firm's disclaimer that an attorney had not personally reviewed the debtor's matter. Acting as a debt collector to recover a debt owed on a home equity loan, the law firm sent two collection letters to the debtor. In applying the objective "least sophisticated debtor" standard, the Third Circuit determined that, upon receiving the two collection letters, a debtor would believe the letters had been sent by an attorney who might pursue legal action if the debtor did not satisfy the debt; the firm's disclaimer was insufficient to clarify that the law firm was acting solely as a debt collector and not in any legal capacity. Lesher v. Law Offices of Mitchell N. Kay, P.C. (3dCir), ¶52,368 (IntelliConnect, IRN, ip access user).

Connecticut: Stricter application criteria for various types of consumer credit licenses requires an applicant to provide a complete criminal conviction history and authorizes the Banking Commissioner to conduct a state and federal criminal history records check. The legislation also expands the Banking Commissioner’s authority to deny an application on the basis of criminal convictions, and to consider an application abandoned if an applicant fails to respond to required information requests. The law appears beginning at Connecticut ¶6098 (IntelliConnect, IRN, ip access user).

Louisiana: Lenders under the Louisiana Consumer Credit Law will be able to charge a fee for electronic lien and title services. The fee will not constitute interest and is not to be included in the calculation of interest. The law appears at ¶5042 (IntelliConnect, IRN, ip access user). Also, an amendment to the Louisiana Motor Vehicle Sales Finance Act (MVSFA) will allow federally insured depository institutions, including their subsidiaries, holding companies or affiliates, to charge a loan documentation fee in any amount agreed to in a written agreement signed by the consumer. The current $35 documentation fee cap continues to apply to other extenders of credit under the MVSFA. The law appears at ¶6018 (IntelliConnect, IRN, ip access user).

Minnesota: A recent amendment to the Minnesota Residential Mortgage Originator and Servicer Licensing Act requires residential mortgage transaction agents or servicers to disclose note owner information to borrowers. The law appears at ¶6041 (IntelliConnect, IRN, ip access user).

Oklahoma: The Department of Consumer Credit recently released changes in the dollar amounts of the Oklahoma UCCC that are subject to annual change. The dollar amount changes became effective July 1, 2011. The regulation appears at ¶6582 (IntelliConnect, IRN, ip access user).

Virginia: The State Corporation Commission has adopted changes to its motor vehicle title lending regulations to conform with legislation enacted earlier this year that eliminated restrictions on lenders making loans secured by motor vehicles registered outside of Virginia. The regulations appear beginning at ¶ 8462 (IntelliConnect, IRN, ip access user).

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:
- Connecticut: Dodd-Frank Conforming Amendments.
- Minnesota: Pawnbrokers.

Lease Agreement Did Not Satisfy UCC Bright-Line Test

In accordance with the bright-line test contained in Revised Article 1 of the Colorado UCC, a transaction between a manufacturer and a finance company for the purchase and leaseback of manufacturing equipment was not a transaction creating a security interest per se, because the manufacturer only had the option to own the equipment for more than nominal consideration. The Colorado UCC provides that whether a transaction creates a lease or security interest is determined by the facts of each case, but also contains a bright-line test that if met dictates that the transaction creates a security interest. A transaction creates a security interest per se if: (1) the consideration the lessee is to pay for the goods is an obligation for the term of the lease and is not subject to termination by the lessee; and (2) the lessee has an option to become the owner of the goods for no or nominal consideration. Additional consideration is not considered nominal if the price is stated to be the fair market value of the goods at the time the option is exercised. The lease provided two opportunities to own the equipment: the early buy out provision after five years for $78,464.70 and the end of the lease term for fair market value. Although there was no evidence that $78,000 was the reasonably predictable fair market value of the equipment at the time the option could be exercised, the amount was greater than the cost to complete the term of the lease or return the equipment. The court concluded the lease required the manufacturer to pay more than nominal consideration to become the owner, and thus, the agreement did not satisfy the second prong of the bright-line test. In Gibraltar Financial Corp. v. Prestige Equipment Corp. (IndSCt), ¶56,262 (IntelliConnect, IRN, ip access user).

California: An owner of a self-service storage facility conducting a lien sale of property must advertise the sale in a newspaper of general circulation in the judicial district where the sale is to be held or post the advertisement in at least six conspicuous places in the neighborhood at least 10 days before the sale. The existing law provides that the advertisement be posted in a newspaper of general circulation in the county where the sale is to be held. The law appears at California, ¶1029 (IntelliConnect, IRN, ip access user).

Maine: Maine has amended its certificate of title laws to provide that if a licensed dealer accepts a vehicle in trade and there is an outstanding security interest on the vehicle, the dealer must satisfy the security interest within 10 days. In addition, if a dealer fails to deliver an application for a certificate of title to the Secretary of State within 30 days and send a copy to the lienholder, the dealer may be subject to a fine between $100 and $500. The law begins at Maine, ¶995A (IntelliConnect, IRN, ip access user).

Nevada: A licensed automobile wrecker in Nevada that has filed a bond in the amount of $50,000, and is licensed to do business in the State of Nevada, may participate in Nevada's electronic notification procedures for scrap metal processing. The Nevada requirements for issuing a salvage certificate of title have been amended with reference to the new procedures. The law is at Nevada, ¶1053D (IntelliConnect, IRN, ip access user).

Oregon: The law relating to chattel liens has been amended to provide that if a person is claiming a lien for veterinary services to a domestic animal, the person must retain the animal for at least five days after the lien attaches to the animal before foreclosing on the lien. For purposes of the provision, domestic animal means an animal that has a keeper and is not livestock and for which the veterinary services were requested by an owner or other person with apparent authority regarding care of the animal. The law is at Oregon, ¶1207 (IntelliConnect, IRN, ip access user).

Texas: Texas's self-service storage facility lien law has been amended to add new requirements for notifying tenants of their rights if they are servicemembers or members of the Texas State or National Guard. The summary begins at Texas, ¶430 (IntelliConnect, IRN, ip access user).

Texas’s certificate of title laws have also been amended to provide that a holder of a lien on a motor vehicle or vessel for which a certificate of title is required who retains possession of the vehicle or vessel must give notice to the owner and each lienholder noted on the certificate of title and file a copy of the notice with the county tax assessor-collector's office by the 30th day after the charges accrue. In addition, the county tax assessor-collector now has 15 business days, rather than 10 calendar days, to provide a copy of the notice to the owner and each lienholder. The law is at Texas, ¶1129 (IntelliConnect, IRN, ip access user).

In addition, if an insurance company is not able to obtain a certificate of title to a vehicle of which it has ownership or possession by the 30th day after the date of payment of the claim, the company may now obtain a salvage vehicle title, a nonrepairable vehicle title or a regular certificate of title if the vehicle is not a salvage or nonrepairable vehicle. The law begins at Texas, ¶1043C (IntelliConnect, IRN, ip access user).

Enabling Law Not Needed for Junk Fax Suits in State Court

An Illinois corporation could proceed with an action in Illinois state court under the federal Telephone Consumer Protection Act against a travel agency for sending the corporation unsolicited faxes advertising discounted travel offers, the Illinois Supreme Court has held. The Telephone Consumer Protection Act did not require that the Illinois General Assembly enact enabling legislation before private TCPA claims against senders of unsolicited commercial faxes could be brought and enforced in Illinois state courts. Italia Foods, Inc. v. Sun Tours, Inc. (IllSCt) is at ¶100-542 (IntelliConnect, IRN, ip access user).

Interagency Examination Procedures for Regulation P Revised

The Federal Reserve Board has transmitted examination procedures that reflect a Regulation P interagency rulemaking through which the Fed and seven other federal regulatory agencies adopted a voluntary model privacy notice form designed to make it easier for consumers to understand how financial institutions collect and share nonpublic personal information. Regulation P prohibits a financial institution from disclosing nonpublic personal information about consumers to nonaffiliated third parties, unless it satisfies various notice and opt-out requirements. Regulation P also requires a financial institution to provide notice of its privacy policies and practices to its customers. A financial institution can use the model form to obtain a safe harbor for compliance with the requirements to notify consumers of its information-sharing practices and their right to opt out of certain sharing practices. CA 11-4 is at ¶1535 (IntelliConnect, IRN, ip access user).

Internet Banking Compliance Evaluation Begins in 2012

The Federal Financial Institutions Examination Council has issued a 12-page supplement to its Oct. 8, 2005, Authentication in an Internet Banking Environment guidance. The FFIEC member regulators (Federal Reserve Board, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Office of Thrift Supervision and National Credit Union Administration) have directed examiners to formally assess financial institutions under the enhanced expectations outlined in the supplement beginning in January 2012. The Supplement emphasizes the need for institutions to perform risk assessments, implement effective strategies for mitigating identified risks, and raise customer awareness of potential risks. It does not, however, endorse any specific technology for accomplishing those goals. The FFIEC Supplement is at ¶1534 (IntelliConnect, IRN, ip access user).

Surviving Spouse Granted Rollover to Own IRA

A decedent’s IRA, the proceeds of which were distributed through his estate to a marital trust, was not treated as an inherited IRA with respect to his surviving spouse. The surviving spouse was eligible to transfer or roll over, by means of a trustee-to-trustee transfer, the IRA proceeds that were distributed to the marital trust into her own IRA, provided that the rollover occurred within 60 days of the date of the distribution to the marital trust. No portion of the proceeds rolled over into the surviving spouse’s IRA was required to be included in her gross income for federal income tax purposes. IRS Letter Ruling 201125047 is at ¶6278 (IntelliConnect, IRN, ip access user).