February 2009


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.

Market Crisis Resources, included below, provides links to vital information on the current market crisis.

A Hot Topic is included below to provide guidance on researching an issue of current interest.

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 at Serena.Lynn@wolterskluwer.com.

 

Federal Banking Law Reporter

House Passes TARP Reform Bill
The House of Representatives passed a bill intended to increase the effectiveness of and accountability under the Troubled Asset Relief Program on Jan. 21, 2009, by a vote of 260 to 166. The TARP Reform and Accountability Act of 2009 (H.R. 384) would impose a number of requirements and restrictions on financial institutions that receive TARP funds and require the Treasury Department to take stronger action to reduce mortgage foreclosures. It was introduced by Financial Services Committee Chairman Barney Frank, D-Mass., but considered by the entire House as a Committee of the Whole rather than by his committee. This story is in Issue No. 2303, Jan. 26, 2009 (ip access user).

Treasury Issues Additional TARP Executive Compensation Rules
The Treasury Department has issued interim final rules for reporting and recordkeeping requirements under the executive compensation standards of the Troubled Asset Relief Program's (TARP) Capital Purchase Program (CPP). This story is in Issue No. 2303, Jan. 26, 2009 (ip access user).

FDIC Tells Banks to Track Use of Federal Assistance Funds
Banks have been instructed to create processes that will enable them to monitor how federal capital injections, liquidity supports and financing guarantees have been used. The guidance applies not only to assistance under FDIC programs but also under programs established by the Federal Reserve Board and Treasury Department. The FDIC wants institutions to pay particular attention to how the federal programs have helped banks make loans and avoid mortgage foreclosures. FIL-1-2009 is at ¶63-773J (ip access user).

Supreme Court to Hear Preemption Case
The Supreme Court has granted a request that it consider whether New York could enforce against national banks a state law prohibiting housing discrimination. According to the U.S. Court of Appeals for the Second Circuit, the National Bank Act and regulations adopted by the Office of the Comptroller of the Currency vested exclusive visitorial authority over national banks in the OCC. The case is at ¶100-990 (ip access user).

Additional Guidance on Executive Compensation Limits Issued
The Treasury Department has released further guidance on the executive compensation limits that apply to financial institutions that are receiving funds through programs the Treasury has established under the Emergency Economic Stabilization Act (EESA). Two separate documents have been issued: revised guidelines for institutions receiving assistance under the program for systemically significant failing institutions at ¶67-450 (ip access user), and frequently asked questions under the Capital Purchase Program at ¶67-451 (ip access user).

Treasury Releases TARP Terms for S Corp Financial Institutions
The Treasury Department has issued a term sheet and released answers to frequently asked questions addressing how it will provide relief under the Troubled Asset Relief Program (TARP) to qualified financial institutions that are S Corporations. Unlike previous terms under the TARP, the Treasury will use debt instruments, rather than preferred stock, to assist struggling S Corp financial institutions. This is intended to end concern that S Corp banks, which are typically small community banks, would not share in the relief available to the rest of the financial industry. HP-1354 is at ¶95-665 (ip access user).

Recordkeeping Rules for Qualified Financial Contracts Set
The Federal Deposit Insurance Corp. has issued a final rule intended to improve its ability to monitor and evaluate risks in certain insured depository institutions with qualified financial contracts (QFCs), as well as assure preparedness if such an institution fails. Under the Federal Deposit Insurance Act, QFCs are securities contracts, commodity contracts, forward contracts, repurchase agreements and swap agreements, as well as other agreements specified by the FDIC, that receive special treatment by the FDIC in the event of the failure of an insured depository institution. The notice is at ¶95-622 (ip access user).

Market Crisis Resources

This section provides links to vital information on the current market crisis. We offer a compendium of product coverage, including report letter stories, white papers, primary source documents (for example, agency issuances and legislative developments) and other information to help track and understand the recent market upheavals and ensuing regulatory response.

  • See the new CCH Financial Crisis News Center for news and links to vital information on the current financial crisis, including a repository of primary source material and analytical content. The list below is an excerpt of CCH Subscriber resources found at the Financial Crisis News Center, showing items reported in the Federal Banking Law Reporter during January.

Congress

  • Congressional Oversight Panel Releases Second Report on TARP Accountability, Jan. 9, 2009, ¶95-658 (ip access user)

Department of Housing and Urban Development

Federal Deposit Insurance Corporation

Federal Reserve Board

  • Money Market Investor Funding Facility Changes Announced, Jan. 7, 2009, ¶95-652 (ip access user)
  • Mortgage-Backed Securities Purchase Program Begins, Dec. 30, 2008, ¶95-642 (ip access user)
  • Exemption Granted to Purchase Auction-Rate Securities from Affiliate, Dec. 29, 2008, ¶80-413 (ip access user)
  • Fed Approves Bank Holding Company Conversions: CIT Group Inc, Dec. 22, 2008, ¶101-058 (ip access user); GMAC LLC, Dec. 24, 2008, ¶101-059 (ip access user)
  • Revised Information Released Detailing Operational Aspects of Term Asset-Backed Securities Loan Facility, Dec. 19, 2008, ¶95-623 (ip access user)

Government Accountability Office

Office of Thrift Supervision

  • OTS approves holding company applications, Jan. 8 and 15, 2009, ¶95-656 (ip access user), ¶95-657 (ip access user), ¶95-670 (ip access user)

Treasury Department

  • U.S. Government Finalizes Terms of Citigroup Guarantee, Jan. 16, 2009, ¶95-700 (ip access user)
  • Frequently Asked Questions on Executive Compensation Requirements Under the Capital Purchase Program, Jan. 16, 2009, ¶67-451 (ip access user)
  • Executive Compensation Guidelines for Institutions Participating in the Programs for Systemically Significant Failing Institutions, Jan. 16, 2009, ¶67-450 (ip access user)
  • Treasury Department and Agencies Provide Assistance to Bank of America, Jan. 16, 2009, ¶95-671 (ip access user)
  • TARP Terms For S Corp Financial Institutions, Jan. 14, 2009, ¶95-665 (ip access user)
  • TARP Funds Provided to Local Banks, Jan. 13, 2009, ¶95-660 (ip access user)
  • Kashkari Provides Update on TARP, Jan. 8, 2009, ¶95-655 (ip access user)
  • Fourth Treasury Department Tranche Report to Congress Released, Jan. 7, 2009, ¶95-654 (ip access user)
  • Treasury Department Releases Congressional Report on EESA, Jan. 6, 2009, ¶95-651 (ip access user)
  • Treasury Provides TARP Funds to Local Banks, Jan. 5, 2009, ¶95-648 (ip access user)
  • Guidelines for Targeted Investment Program, Jan. 2, 2009, ¶63-773H (ip access user)
  • Guidelines for Automotive Industry Financing Program, Jan. 2, 2009, ¶63-773I (ip access user)
  • Emergency Economic Stabilization Report Released, Jan. 2, 2009, ¶95-646 (ip access user)
  • Treasury Department Releases Latest Capital Purchase Program Transactions, Dec. 31, 2008, ¶95-661 (ip access user)
  • TARP Transaction Report Released, Dec. 31, 2008, ¶95-650 (ip access user)
  • Treasury Department Responds to Congressional Oversight Panel, Dec. 31, 2008, ¶95-645 (ip access user)
  • TARP Investment in GMAC Announced, Dec. 29, 2008, ¶95-639 (ip access user)
  • Treasury Provides TARP Funds to Local Banks, Dec. 23, 2008, ¶95-635 (ip access user)

White House

  • President Bush Reports on Troubled Assets Relief Program Section 115 Plan to Exercise Authority, Jan. 12, 2009, ¶95-662 (ip access user)

FEDERAL BANKING NEWS SOURCES

  • Advance Release Documents, provides federal Banking highlights of significant current events and regulatory activity (See, for example, Feb. 2, 2009 (ip access user)).
  • The Federal Banking Law Report Summary provides the news of the week (See, for example, Federal Banking Report No. 2288, Oct. 16, 2008 (ip access user)).
  • The Federal Banking QuickChart for Current Developments can be used to find and track regulatory action and legislation (See e.g., under Agency Guidance—Capital, an Oct. 14, 2008, announcement that the Treasury Department, Fed and FDIC announced a plan to purchase up to $250 billion of preferred shares in financial institutions).
  • Bank Digest Online is a comprehensive daily journal of current events and regulatory activity providing an abstract and the full text of the day’s releases (See, for example, Oct. 24, 2008 (ip access user) which includes statements presented at House and Senate hearings).
  • Subprime, Mortgage and Securitization Law Update is a monthly newsletter, with frequent Current Developments updates on the CCH Internet Research NetWork, providing coverage of regulatory, legal and industry developments involving subprime lending, securitization reform and the financial crisis (See, for example, Volume 1, Issue 5, Oct. 2008 (ip access user)).

Subprime, Mortgage and Securitization Law Update

Senate Bill Would Increase TARP Transparency and Mandate Corporate Governance
Senators Dianne Feinstein, D-Calif., and Olympia Snowe, R-Maine, have introduced a bill that would force companies receiving funds under the Troubled Assets Relief Program to publicly report how they spend taxpayer dollars. The TARP Transparency Reporting Act, S.B. 133, is intended to achieve four essential objectives: First, it would prohibit firms receiving loans from the Federal Reserve Board or participating in the TARP from using the loans for lobbying expenditures or political contributions. Second, the bill would require that firms receiving government assistance provide detailed, publicly available quarterly reports to the Treasury Department outlining how taxpayer dollars have been used. Third, the measure would establish corporate governance standards to ensure that firms receiving federal assistance do not waste money on unnecessary expenditures. Finally, the Act would create penalties of at least $100,000 per violation for firms that fail to meet the corporate governance standards established in the bill. This story is in the Jan. 27, 2009, Current Developments (ip access user).

Senior Obama Officials Pledge to Improve TARP Transparency
As outlined by two senior officials, the Obama Administration has vowed to increase the transparency of the Troubled Assets Relief Program and restrict the executive compensation of senior officers of TARP recipients. At least some of the information required by the Treasury Department will have to be reported in 10Qs filed with the Securities and Exchange Commission. At his Senate confirmation hearings, Treasury Secretary Timothy F. Geithner said that the transparency of TARP must be improved. The Administration has outlined a set of commitments to improve transparency in TARP, he said, referencing a letter from National Economic Chair Lawrence H. Summers to Congressional leadership earlier this month. Pursuant to these commitments, the Treasury will make public for each investment the amount of assistance provided, the value of the investment, the quantity and strike prices of warrants received and the schedule of required payments to the government. The Treasury also will report on the terms of pricing for each investment compared to recent market transactions. Summers also pledged in his letter that this information will be posted as quickly as possible on the Treasury's website so that the American people can monitor the status of each investment. This story is in the Jan. 27, 2009, Current Developments (ip access user).

Financial Regulatory System Needs Overhaul, GAO Says
A new report by the Government Accountability Office says that recent events have revealed serious limitations in the current financial regulatory system requiring a modernization of the system. The current economic crisis has shown that "significant reform" is "critical and urgent", the report says, because market developments have "outpaced a fragmented and outdated regulatory structure." The GAO report notes that major changes in financial markets and products in recent decades have revealed weaknesses in the current system. Further, entities such as hedge funds, credit rating agencies and special entities created to hold assets outside of regulated financial institutions "have played significant roles in financial market activities and recent or past crises, but have created challenges for effective oversight." This story is in Vol. 1, Issue 8, January 2008 (ip access user).

Consumer Credit Guide

Flat Finance Charge Not Considered “Interest” Under TILA
A lender who imposed a flat finance charge on a borrower who received a tax refund anticipation loan was not required to refund a portion of the charge as "unearned interest" under the federal Truth in Lending Act (TILA) when the loan was paid off earlier than anticipated. Under the terms of the loan, the borrower was charged a flat fee of $85 on a $1,200 loan that was to be repaid by a deposit of the borrower's income tax refund. There was no requirement that the borrower pay additional finance charges if the tax refund took longer to arrive. Since the borrower's tax refund was paid to the lender 10 days earlier than the due date, the borrower claimed she was entitled to recover 10 days worth of interest under TILA. The U.S. Court of Appeals for the Ninth Circuit disagreed and determined that, although TILA generally requires unearned interest to be repaid, the flat fee constituted a finance charge that did not vary according to the terms of the loan; therefore, the charge did not constitute "interest." Davis v. Pacific Capital Bank, N.A. (9thCir), ¶52,215 (ip access user).

Sale of Consumer’s Closed Account Did Not Violate FCRA
A credit reporting agency did not violate the federal Fair Credit Reporting Act (FCRA) by selling a consumer report to a creditor after the consumer had closed his account with that creditor, the U.S. Court of Appeals for the Eleventh Circuit ruled. The consumer claimed that, since his account was closed, the credit reporting agency violated the FCRA because the agency must have sold the consumer report for an impermissible purpose and failed to maintain reasonable safeguards against such a sale. The court first determined that the credit reporting agency did not violate the FCRA because the FCRA provision is ambiguous; since the provision does not distinguish between open or closed accounts, it was not objectively unreasonable for the agency to interpret it as permitting the sale of a consumer credit report upon a closed account. Second, since that FCRA interpretation was not objectively unreasonable, the agency did not willfully violate the Act by failing to maintain reasonable compliance procedures because "no investigation or procedure would have alerted the credit reporting agency to the possibility of an impermissible use." Levine v. World Financial Network National Bank (11thCir), ¶52,218 (ip access user).

State Regulation of Internet Payday Lender Did Not Violate Commerce Clause
The provision of the Kansas Uniform Consumer Credit Code (Kansas UCCC) authorizing the Office of the State Banking Commissioner to regulate payday loans, and the Kansas provision’s application to a particular payday loan company, did not violate the Commerce Clause of the United States Constitution. While a Utah-based payday loan company did not have any offices, employees, or other physical presence in Kansas, the company provided unsecured payday loans over the Internet to consumers, including Kansas consumers, but did not obtain a Kansas license. The U.S. Court of Appeals for the Tenth Circuit determined that: (1) the Kansas UCCC merely regulates Internet payday lenders who make payday loans with Kansas consumers while they are in Kansas, not when they are in another state; (2) the payday company's cost of obtaining and maintaining a Kansas license—approximately $1,000 per year—was not burdensome; and (3) the company could easily tailor its national Internet business to conform to the Kansas licensing requirements. Quik Payday, Inc. v. Stork (10thCir), ¶52,212 (ip access user).

California Credit Reporting Law Preempted by FCRA
Any private right of action under the California Consumer Credit Reporting Agencies Act (California Act) concerning "furnishers" of wrongful information is preempted by the federal Fair Credit Reporting Act (FCRA), according to a California appellate court. A consumer, who apparently was a victim of identity theft, brought an action under the California Act against a debt collection agency for allegedly furnishing inaccurate and harmful credit information about her to credit reporting agencies. In ruling that the FCRA preempts the California Act without exception, the court noted the congressional objective of nationwide uniformity in the fair credit reporting field. Liceaga v. Debt Recovery Solutions, LLC (CalCtApp), ¶52,219 (ip access user).

State Law Update

Florida: The Department of Financial Services amended a number of its rules governing money services businesses that includes changes to rules relating to deferred presentment providers. The rulemaking implements statutory changes made last year by legislation relating to money services businesses. The Department's action became effective January 13, 2009. Rules beginning at Florida ¶8201B (ip access user).

New York: Employers that obtain an investigative consumer report on a consumer with respect to an offer of employment will be required to include in the notice of procurement or preparation that must be provided to a consumer a copy of the laws governing the employment of persons previously convicted. The law (Ch. 465) was approved August 5, 2008, and is effective February 1, 2009. Law at New York ¶6478 (ip access user), ¶6482 (ip access user).

Washington: The Department of Financial Institutions (DFI) has amended its rules under the Consumer Loan Act to implement legislation enacted last year (Chapters 78 and 108, Laws of 2008) that made changes to the Act. The rulemaking revises bonding requirements, clarifies licensee reporting requirements, and otherwise generally amends the rules for clarity and consistency to better reflect the changing mortgage lending market while maintaining adequate consumer protection. The DFI's action became effective January 23, 2009. Rules beginning at Washington ¶8010. (ip access user).

Smart Charts Highlights

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

· Consumer Credit Topics Smart Charts. The Interest-Usury Topics Smart Chart reflects the current monthly interest rate modifications for February 2009, as well as the annual and semiannual judgment rates for calendar year 2009.

· The Legislative Developments Smart Charts now includes tracking for 2009 as well as archived entries for consumer credit related laws enacted in 2007 and 2008. 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

Creditor Not Entitled to Business Loss Award
A creditor was not entitled to a debtor's settlement award for business losses the debtor sustained as a result of a warehouse fire, despite the fact that the creditor's collateral was damaged in the fire. Although Illinois UCC provides that proceeds of collateral subject to a security interest include claims arising out of the loss or damage to the collateral to the extent of the value of collateral, the settlement award arose out of claims against the packaging company's insurance company for its failure to obtain business-loss insurance. Replacing a business loss is not restoring the value of damaged collateral. Helms v. Certified Packaging Corp. (7thCir) appears at ¶56,173 (ip access user).

Balance Transfers Were Avoidable Preferential Transfers
Balance transfers from two credit card accounts made within 90 days of filing a petition for bankruptcy were avoidable as preferential transfers. Within 90 days before filing a petition for Chapter 7 bankruptcy, two debtors directed their credit card company to transfer $38,000 to another creditor. The Bankruptcy Code provides that a trustee may avoid any transfer of an interest of the debtor in property that is made to the benefit of a creditor for an antecedent debt owed by the debtor on or within 90 days of the filing of a petition for bankruptcy. Because the debtors exercised control over the loan proceeds, the court concluded the transfers were transfers of the debtors' interest in property. In re Marshall; Parks v. FIA Card Services, N.A (10thCir) appears at ¶56,172 (ip access user).

State Law Update

Michigan: The validity of filed financing statements subject to Article 9 of the Michigan UCC has been affected by the enactment of three new laws. The first of the laws provides protection for debtors identified on filed financing statements that may have been filed fraudulently. The second law adds the filing of such a false financing statement to the list of felonies covered under the Michigan criminal procedure laws. Finally, the third law adds new reasons that the secretary of state may use to refuse to accept a record for filing or recording, including the fact that the record is not required or authorized to be filed or recorded with the secretary of state. The laws begin at Michigan ¶R811A (ip access user).

Texas: The rule issued by the Texas Department of Transportation governing application for a motor vehicle certificate of title has been amended to include within its scope "neighborhood electric vehicles." The rule defines the term and specifies that the title requirements are the same requirements prescribed for any other motor vehicle. The regulation appears at Texas ¶1333 (ip access user).

Washington: The Washington Department of Licensing has adopted amendments to its regulation governing the method of delivery of UCC records to the filing office. The regulation deletes reference to express mail delivery, changes the file time for a UCC record delivered by postal service delivery and modifies the provision governing electronic filing of documents. In addition, the regulation adds provisions regarding communication of records relating to direct web page data entry, means of communication and to transmitting utilities. The regulation appears at Washington ¶1453 (ip access user).

Smart Charts Highlights

Latest Changes on the Internet Research Network
The Secured Transactions UCC Filing Fees Smart Chart has been revised to reflect updated summaries for Arizona, Colorado, Delaware, Kansas, Minnesota, Mississippi, New Hampshire, South Dakota and Vermont. The Secured Transactions UCC Administrators Smart Chart has been updated to reflect the most current addresses and websites for state central filing locations.

Product Enhancements

Entire UCC Now Available
The entire text of the Uniform Commercial Code is now available on the CCH Internet Research NetWork. This new module will be available at no charge to all IRN subscribers of the CCH Secured Transactions Guide, Banking Tab and Federal Banking Law Integrated Library. This publication contains the official text of the uniform laws governing commercial transactions contained in Articles 1 through 9 of the UCC, as promulgated by the Uniform Law Commission and American Law Institute. Official Comments follow the uniform provisions.

In 2002 and 2003, the ULC and ALI issued amendments to Articles 2, 2A, 3 and 4, but these amendments have not been enacted in a majority of the jurisdictions. To aid the practitioner, the official text added by the 2002 and 2003 amendments to these articles appears as underlined text and the official text removed by the amendments appears as strikethrough text. This provides users with access to both versions and identifies changes made by the revisions.

The purpose of the UCC is to provide uniformity of law among the various jurisdictions. However, when the Code is enacted by a state, it may be adopted with local modifications deemed necessary by the state legislature. The text of various UCC Articles as adopted by each state may be found in CCH publications providing topical coverage of areas of law. State law versions of selected articles may be found in the following publications:

  • Articles 1, 2A, 6 and 9 in the CCH Secured Transactions Guide
  • Articles 3, 4, 4A, 5 and 8 in the CCH State Banking Law Reporter
  • Article 8 in the CCH Securities Transfer Guide

Financial Privacy Law Guide

GLB Act Preempts Washington Public Records Law
The Gramm-Leach-Bliley Act (GLB Act) expressly preempts Washington's Public Records Act when nonpublic personal information is the subject of a public records disclosure request, a Washington appellate court has held. The court determined that a state qualifies as a nonaffiliated third party subject to the restrictions of the GLB Act any time it receives information from a financial institution. As a result, compliance with the public records law would be inconsistent with the confidentiality provisions of the GLB Act. A story on Ameriquest Mortgage Co. v. State Attorney General (WashCtApp) appears in Privacy Extra, January 30, 2009, (ip access user).

Settlement Award Approved, Claims Were Without Merit
The U.S. Court of Appeals for the Seventh Circuit has approved a $2.4 million settlement in a class-action lawsuit brought against a mortgage company accused of selling the financial information of 1.6 million of its customers to unaffiliated telemarketers. Although the settlement agreement allocated monetary relief to only 190,000 members of the class, it warranted court approval of the settlement agreement, because the claims of the remaining class members were without merit. Mirfasihi v. Fleet Mortgage Corp. (7thCir) appears at ¶100-420 (ip access user).

Dumpster Wrong Place for Consumers' Personal Information
The Federal Trade Commission has charged a mortgage broker with discarding consumers' tax returns, credit reports, and other sensitive personal and financial information in an unsecured dumpster, in violation of the Fair Credit Reporting Act and the Disposal of Consumer Report Information and Records Rule by failing to take reasonable measures to protect consumer information derived from consumer reports against unauthorized access in connection with its disposal. According to the complaint filed by the FTC, approximately 40 boxes containing tax returns, mortgage applications, bank statements, photocopies of credit cards and drivers' licenses and over 200 credit reports were found in a publicly accessible dumpster. A story on the FTC complaint appears in Privacy Extra, January 30, 2009, (ip access user).

Zip Codes Are Not Personal Identification Information
The requesting and recording of a consumer's zip code does not violate California's Song-Beverly Credit Card Act of 1971 (the Act), a California appellate court has held. A consumer's zip code is not protected by the Act as "personal identification information." The court noted that the purpose of the Act is to protect credit cardholders from unauthorized or potentially harmful disclosure of private, personal information. Zip codes, however, are not an individualized set of identification criteria, such as telephone numbers, but rather an identification of a relatively large group. Party City Corp. v. Superior Court of San Diego County (CalCtApp) appears at ¶100-418 (ip access user).

Bankruptcy Law Reporter

Citigroup Supports Bankruptcy Reform Measure
Citigroup Inc., one of the nation's largest mortgage lenders, and Congressional leaders have reached agreement on legislation that will allow homeowners at risk of foreclosure to alter the terms of their mortgage during bankruptcy proceedings. Senator Durbin, Chairman Conyers and Rep. Miller have announced that Citigroup, Inc. is supporting the recently introduced Helping Families Save Their Homes in Bankruptcy Act of 2009, S. 61, and its companion, H.R. 200, with three modifications: the provision will apply to existing loans only; homeowners would be required to certify that they attempted to contact their lender regarding loan modifications before filing for bankruptcy unless the petition is filed less than 30 days before a foreclosure sale; and the amendment to section 502(b) would apply only to Truth in Lending rescission claims, with language that it does not create a negative inference for other debtor rights. The full text of S. 61 as introduced in the Senate is at ¶81,393 (ip access user).

Retention Agreement Pre-Approved, Not Subject to Modification
In an issue of first impression, the U.S. Court of Appeals for the Second Circuit has determined that a bankruptcy court's order was a pre-approval under Bankruptcy Code Sec. 328(a), and no subsequent developments warranted modifying the terms of a law firm's retention. None of the four developments cited by the bankruptcy court were “incapable” of being anticipated at the time the bankruptcy court pre-approved the terms of the law firm's retention. Smart World Technologies (2ndCir) ¶81,387 (ip access user)

Period Between Discharges Measured from Filing Date
The U.S. Court of Appeals for the Sixth Circuit has determined that the four-year look back period of Bankruptcy Code Sec. 1328(f) that bars certain repeat filers from receiving a discharge should be interpreted as running from the date of filing a previous bankruptcy petition to the subsequent filing date rather than from the date of discharge to the subsequent filing date. The court's interpretation of the statute honored the last-antecedent rule and also avoided reading the word "filed" out of the statute. Sanders (6thCir) ¶81,385 (ip access user)

Late Alimony Judgment Not a Domestic Support Obligation
A judgment entered against a debtor that consisted entirely of penalties for late alimony payments was not a domestic support obligation within the meaning of Bankruptcy Code Sec. 101(14A). The debtor's obligation to pay a penalty of $50 per day on late alimony payments was not in the nature of alimony, maintenance or support entitled to priority claim status and exemption from lien avoidance. Smith (Bankr1stCir) is at ¶81,394 (ip access user).

Individual Retirement Plans Guide

Taxpayer Denied Financial Hardship Exception to Tax
An individual was liable for the 10-percent additional tax under Code Sec. 72(t) on an early distribution from her IRA, even though she made the early withdrawal because she lost her job and had large medical expenses. The taxpayer asserted that she should be spared the additional tax due to financial hardship. However, she was held liable because there is no specific exception in cases of financial hardship under Sec. 72(t). Best v. Commissioner is reported at ¶10,336 (ip access user).

Hot Topic of the Month

This month’s Hot Topic of the Month is the Community Reinvestment Act (CRA). The CRA is designed to encourage regulated financial institutions to help meet the credit needs of their entire communities, including low- and moderate-income neighborhoods, consistent with safe and sound operations. Full coverage of CRA requirements is found in the Federal Banking Law Reporter, Bank Digest and the Bank Compliance Guide.

The CRA regulations of the Office of the Comptroller of the Currency (OCC), Federal Reserve Board, Federal Deposit Insurance Corp. (FDIC) and Office of Thrift Supervision (OTS) establish the framework and criteria by which the regulators assess a financial institution’s record of helping to meet the credit needs of its community. The agencies' regulations are interpreted primarily through the "Interagency Questions and Answers Regarding Community Reinvestment."

The Federal Banking Law Reporter Researcher “Lending—Operations/Compliance” division provides CCH explanations on CRA followed by a compilation of CRA Issuances by the federal banking regulators. The CRA Questions and Answers were recently revised. The amendments, which became effective January 6, 2009, along with proposed revisions (comments on the proposal changes must be submitted by March 9, 2009), are found at ¶64-371 (ip access user). The explanations begin at ¶64-321 (ip access user).

The agencies’ rules are reproduced in Federal Banking Law Reporter Regulations in the “Consumer Compliance Regulations” division and codified as follows:

The text of the Community Reinvestment Act, 12 U.S.C. 2901 et seq., is included in Federal Banking Law Reporter Laws in the “Consumer Compliance” division beginning at ¶4101 (ip access user).

Agency announcements of CRA evaluations, as well as speeches and testimony by regulators, are reported in Bank Digest. For example:

  • The OCC released a list of Community Reinvestment Act performance evaluations that became public during the period of Dec. 15, 2008, through Jan. 14, 2009. Of the 18 evaluations made public, three were "outstanding" and 15 were "satisfactory." Bank Digest, January 16, 2009 (ip access user).
  • In remarks by FDIC Chairman Sheila Bair to the New America Foundation conference in Washington, D.C., she addressed the “myth” that the Community Reinvestment Act caused the financial crisis and that working with troubled homeowners to reduce foreclosures lacks urgency and may be akin to a "fool's errand." Regarding the myth that the housing crisis can be ended without modifying troubled mortgages to make them affordable for millions of people facing foreclosure, Bair stated that the "housing crisis was caused by loose lending practices and unaffordable mortgages. And now unnecessary foreclosures are a very serious threat to a housing recovery." Bank Digest, Dec. 18, 2008 (ip access user).

Regulatory action can also be tracked in report letter stories with links to the full text of agency action, such as: