January 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

New Credit Card Rules Approved by Regulators
Federal regulators have approved final rules aimed at protecting consumers from unfair credit card practices, such as raising the interest rate on an existing credit card balance despite the consumer paying the bill on time. The new rules will also improve the disclosures consumers receive regarding their accounts. The changes will go into effect on July 1, 2010, although regulators are urging institutions to make their best efforts to conform as soon as practical, particularly with respect to the provisions related to high-fee cards. Related documents begin at ¶95-625 (ip access user).

Revised Disclosure Rules for Mortgage Loans Proposed
The Federal Reserve Board has proposed changes to Reg. Z—Truth in Lending (12 CFR 226) that would revise the disclosure requirements for mortgage loans. The revisions would implement the Mortgage Disclosure Improvement Act (MDIA), which was enacted in July 2008 as an amendment to the Truth in Lending Act (TILA). The Fed's notice is reported at ¶95-601 (ip access user).

TARP Funds to Be Used for Auto Bailout
The White House said the federal government will grant a total of $17.4 billion in loans to General Motors Corp. and Chrysler, LLC, under the condition that the companies have three months to put in place plans to make themselves financially viable. The loans will be made available from the Troubled Asset Relief Program (TARP). If a company fails to come up with a viable plan by March 31, 2009, it will be required to repay its federal loans. Under the plan, the auto companies would receive $13.4 billion in short-term financing from the TARP, with an additional $4.0 billion available in February contingent upon drawing down the final tranche of TARP funds. Related documents are at ¶95-620 (ip access user).

OTS Under Scrutiny for Allowing IndyMac to Backdate Infusion
The Treasury Department Inspector General is investigating why the Office of Thrift Supervision allowed IndyMac Bank to backdate an April 2008 capital infusion to March 31, 2008, thereby allowing the bank to meet the 10-percent "well-capitalized" minimum threshold. The information was disclosed in letters released by Sen. Charles Grassley, R-Iowa, ranking member of the Senate Finance Committee. IndyMac was closed by the OTS on July 11, 2008. The Federal Deposit Insurance Corp. estimated that the resulting loss to the deposit insurance fund stood at $8.9 billion. This story appears in Issue No. 2299, Dec. 24, 2008 (ip access user).

Open Market Committee Allows Fed Funds Target of Zero
The Federal Open Market Committee settled on a large reduction in the target for the federal funds rate at its meeting ending Dec. 16, 2006. Rather than setting a specific target as it usually does, the FOMC established a target range of 0 to .25 percent—the lowest the target has ever reached. The Committee noted that economic conditions had deteriorated broadly since its last meeting, with consumer spending, business investment and industrial production all falling and the labor market weakening as well. This story appears in Issue No. 2298, Dec. 18, 2008 (ip access user).

FinCEN Amends CTR Exemptions in BSA Regulation
The Financial Crimes Enforcement Network has adopted a final rule to amend the Bank Secrecy Act (BSA) regulation that allows depository institutions to exempt transactions of certain persons from the requirement to report transactions in currency in excess of $10,000. Modification of the exemption procedures is a part of the Treasury Department's continuing effort to increase the efficiency and effectiveness of its anti-money laundering and counter-terrorist financing policies. The FinCEN notice is at ¶95-595 (ip access user).

GAO Says Treasury Department Must Address TARP Issues
The Treasury Department has yet to address a number of critical issues with respect to the Troubled Asset Relief Program (TARP), the Government Accountability Office reported on Dec. 2, 2008. Those issues include how the Treasury Department will ensure that the Capital Purchase Program (CPP) is achieving its intended goals, as well as monitoring compliance with limitations on executive compensation and dividend payments. Further actions also are needed to formalize transition planning efforts and establish an effective management structure and an essential system of internal control, GAO said. The report is at ¶95-590 (ip access user).

Bair Says "Exit Strategy" Needed for Financial Rescue Plan
The government needs to think through an "exit strategy" for its financial rescue plan because guarantees given to banks and other institutions could easily become "crutches" that impair the economy's long-term health, Federal Deposit Insurance Corp. Chairman Sheila Bair warned on Dec. 2, 2008. In response to questions at a Fortune and Time Inc. forum in Washington D.C., Bair stressed that weaker financial institutions need to fail or else be merged into stronger ones. "We need to be mindful that in an effort to stabilize the weak we don't impair the ability of the strong to serve the economy. Deciding who gets support now and then how to get out of it, I think those are the two biggest challenges," Bair said. This story appears in Issue No. 2296, Dec. 4, 2008 (ip access user).

TARP Oversight Panel Calls for More Accountability
The Treasury Department should be responsible for holding individual financial institutions accountable for how they use funds received under the Troubled Asset Relief Program (TARP), according to the first report from the Congressional Oversight Panel for Economic Stabilization. The panel, which presented its findings to the House Financial Services Committee on Dec. 10, 2008, took issue with Treasury Department's "general metrics" approach to monitoring, which looks at the overall economic effects of the disbursed funds. Such an approach presents a "difficult challenge" over both the short and long term, the report said. The report is at ¶95-609 (ip access user).

 

Product Enhancements

News Feature Added to Current Developments QuickChart
A new main category of “News” has been added to the Federal Banking QuickChart for Current Developments. All new developments are reflected in the “News” category immediately. This enables users to see anything new without having to scroll through the entire chart. This category is also used for items of passing, but not permanent, interest.

Financial Crisis Explanations Detail Legislative and Agency Actions
The discussion of credit availability in the “Lending—Operations/Compliance” division has been updated with new explanations discussing the Emergency Economic Stabilization Act of 2008 and the federal banking agency initiatives that have been taken to implement the “bailout.” The credit and liquidity crisis is discussed at ¶63-771 (ip access user). The Emergency Economic Stabilization Act of 2008 is discussed at ¶63-772 (ip access user). Treasury Department credit crisis initiatives and implementation of EESA are discussed at ¶63-773 (ip access user). Federal Reserve Board credit crisis initiatives are discussed at ¶63-774 (ip access user). Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and Office of Thrift Supervision credit crisis initiatives are discussed at ¶63-775 (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.

Analytical Resources
CCH Explanations

White Papers

  • Financial Regulation Reform: What to Expect in the 111th Congress, by James Hamilton, (Nov. 2008) (ip access user)
  • The Other Bailout: How the Fed is Financing the Financiers, and Related SEC Disclosure (Nov. 2008), Mark S. Nelson, (J.D.) White Paper (ip access user)
  • The Economic Bailout: An Analysis of the Emergency Economic Stabilization Act (Oct. 2008), Katalina M. Bianco J.D. and John M. Pachkowski J.D. White Paper (ip access user)
  • Money Laundering and Mortgage Fraud: The Growth of a Merging Industry (Sept. 2008), Katalina M. Bianco, J.D. White Paper (ip access user)
  • Market Crisis Focus on Short Selling: SEC Adopts Rules to Curb Abusive Practices, by James Hamilton (September 2008) (ip access user)
  • Comprehensive Housing Bill Signed into Law (Aug. 2008), John M. Pachkowski (J.D.) White Paper (ip access user)
  • Congress Overhauls Regulatory Regime for Fannie Mae and Freddie Mac, by James Hamilton (August 2008) (ip access user)
  • The Subprime Lending Crisis: Causes and Effects of the Mortgage Meltdown (April 2008), Katalina M. Bianco, J.D. White Paper (ip access user)
  • Treasury Releases Blueprint to Overhaul Financial Regulation (April 2008), John M. Pachkowski, J.D. White Paper (ip access user)
  • Foreclosure Rescue Scams Rise as Foreclosure Numbers Soar (March 2008), Katalina M. Bianco, J.D. White Paper (ip access user)

Congress
Laws

Legislative Materials

  • Congressional Oversight Panel Poses Questions Regarding Use of EESA Funds, Dec. 10, 2008, ¶95-609 (ip access user)
  • Text of the Emergency Economic Stabilization Act of 2008, Public Law 110-343, Oct. 3, 2008, ¶75-114 (ip access user)
  • Section-by-Section Analysis of the Emergency Economic Stabilization Act of 2008, Oct. 3, 2008, ¶75-119 (ip access user)
  • Summary of the Emergency Economic Stabilization Act of 2008, Oct. 3, 2008, ¶75-118 (ip access user)
  • House of Representatives Floor Debate of H.R. 1424—Emergency Economic Stabilization Act of 2008, Oct. 3, 2008, ¶75-117 (ip access user)
  • Senate Floor Debate of H.R. 1424—Emergency Economic Stabilization Act of 2008, Oct. 1, 2008, ¶75-116 (ip access user)
  • House of Representatives Floor Debate of H.R. 3997—Emergency Economic Stabilization Act of 2008, Sept. 29, 2008, ¶75-115 (ip access user)
  • Text of the Housing and Economic Recovery Act of 2008. Public Law 110-289, July 30, 2008, July 30, 2008, ¶75-113 (ip access user)

Federal Deposit Insurance Corporation
Agency Issuances

Regulations

Federal Housing Finance Agency
Agency Issuances

Regulations

Federal Reserve Board
Agency Issuances

  • Approval of Proposal by Bank of America to Acquire Merrill Lynch, Nov. 26, 2008, ¶101-056 (ip access user)
  • Chairman Bernanke Discusses the Federal Reserve Board’s Policies on the Financial Crisis, Dec. 1, 2008, ¶95-585 (ip access user)
  • Fed Creates Term Asset-Backed Securities Loan Facility, Nov. 25, 2008, ¶95-576 (ip access user)
  • Fed to Purchase Direct Obligations of Housing-Related GSEs, Nov. 25, 2008, ¶95-575 (ip access user)
  • Fed, Banco Central do Brasil, Banco de Mexico, Bank of Korea and Monetary Authority of Singapore Establish Temporary Reciprocal Currency Arrangements, Oct. 29, 2008, ¶95-504 (ip access user)
  • Federal Reserve and Reserve Bank of New Zealand announce the establishment of a temporary reciprocal currency arrangement, Oct. 28, 2008, ¶95-503 (ip access user)
  • Correction to Interim Final Rule on Treatment of Perpetual Preferred Stock Issued to U.S. Treasury Under Emergency Economic Stabilization Act, Oct. 27, 2008, ¶95-491 (ip access user)
  • Board issues statement concerning its approval of the proposal by Wells Fargo and Company to acquire Wachovia Corporation, Oct. 21, 2008, ¶95-482 (ip access user)
  • Money Market Investor Funding Facility Created, Oct. 21, 2008, ¶95-481 (ip access user)
  • Interim final rule to allow bank holding companies to include senior perpetual preferred stock issued to the Treasury Department in Tier 1 capital, Oct. 22, 2008, ¶95-480 (ip access user)
  • Approval of proposal by Wells Fargo & Company to acquire Wachovia Corporation, Oct. 12, 2008, ¶95-457 (ip access user)
  • Board announces that it will begin to pay interest on depository institutions required and excess reserve balances, Oct. 9, 2008, ¶95-449 (ip access user)
  • Policy statement on equity investments in banks and bank holding companies, Sept. 23, 2008, ¶13-844 (ip access user)
  • Board issues statement concerning its approval of the proposal by Mitsubishi UFJ Financial Group to acquire voting shares of Morgan Stanley, Oct. 6, 2008, ¶95-438 (ip access user)
  • Fed Approves Interim Rules to Provide Liquidity to Markets, Sept. 26, 2008, ¶95-416 (ip access user), ¶95-417 (ip access user)
  • Goldman Sachs, Morgan Stanley Become Bank Holding Companies, Sept. 21, 2008, ¶101-046 (ip access user), ¶101-047 (ip access user)
  • Fed Increases the Capacity of Member Banks to Enter into Securities Financing Transactions with Affiliates, Sept. 19, 2008, ¶95-402 (ip access user)
  • Holding Company, Subsidiary Given Exemptions from Affiliate Transaction Limits, Capital Requirements, Apr. 1, 2008, ¶80-388 (ip access user)

Regulations

  • Appendix A to Part 208, Capital Adequacy Guidelines for State Member Banks: Risk-Based Measure, ¶12-891 (ip access user)
  • Appendix B To Part 208, Capital Adequacy Guidelines for State Member Banks: Tier 1 Leverage Measure, ¶12-892 (ip access user)
  • 12 CFR 223.42, What Covered Transactions Are Exempt From the Quantitative Limits, Collateral Requirements, and Low-Quality Asset Prohibition? ¶13-635B (ip access user)
  • 12 CFR 223.56, What Transactions Are Exempt from the Market-Terms Requirement of Section 23B?, ¶13-636F (ip access user)
  • 12 CFR 225.144, Policy Statement on Equity Investments in Banks and Bank Holding Companies, Sept. 23, 2008, ¶13-844 (ip access user)
  • Appendix A to Part 225, Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure, ¶13-871 (ip access user)
  • Appendix D to Part 225, Capital Adequacy Guidelines for Bank Holding Companies: Tier 1 Leverage Measure, ¶13-874 (ip access user)

Government Accountability Office

  • GAO Reports on the Troubled Asset Relief Program, Dec. 3, 2008, ¶95-590 (ip access user)
  • 2009 Congressional and Presidential Transition -- Efficiently Managing and Overseeing the Troubled Asset Relief Program, Nov. 6, 2008, ¶95-532 (ip access user)

Interagency Statements

  • Agencies Urge Banks to Lend to Sound Borrowers, Nov. 12, 2008, ¶63-758 (ip access user)
  • Federal Reserve Board and Treasury Department announce restructuring of financial support to AIG, Nov. 10, 2008, ¶95-539 (ip access user)
  • Regulatory Capital Impact of Losses on Fannie Mae and Freddie Mac Preferred Stock, Oct. 24, 2008, ¶47-500 (ip access user), Oct. 31, 2008, ¶47-500A (ip access user)
  • Agencies Seek Public Comment on Proposed Rulemaking to Lower Risk Weights for Claims on, or Guaranteed by, Fannie Mae and Freddie Mac, Oct. 27, 2008, ¶95-490 (ip access user)
  • Deduction of Goodwill Net of Associated Deferred Tax Liability: Notice of Proposed Rulemaking, Sept. 30, 2008, ¶95-422 (ip access user)

Office of the Comptroller of the Currency
Agency Issuances

  • OCC Conditionally Approves First National Bank “Shelf Charter” to Expand Pool of Qualified Bidders for Troubled Institutions, Nov. 21, 2008, ¶95-567 (ip access user)
  • Interim Rule on Bank Purchases of Asset-Backed Commercial Paper from Money Market Mutual Funds, Sept. 26, 2008 ¶95-414 (ip access user)
  • Applications Approved for JPMorgan Chase Bank to Acquire Assets and Liabilities from Washington Mutual Bank, Sept. 26, 2008, ¶95-421 (ip access user)
  • Application Approved for Morgan Stanley Bank to Convert to a National Bank, Sept. 21, 2008, ¶95-409 (ip access user)

Regulations

Office of Thrift Supervision

President’s Working Group

  • President's Working Group announces initiatives to strengthen OTC derivatives oversight and infrastructure, Nov. 14, 2008, ¶95-554 (ip access user)

Securities and Exchange Commission

  • Staff Guidance for Financial Institutions Filing Proxy Statements in Connection with the TARP Capital Purchase Program, Nov. 24, 2008, ¶63-773F (ip access user)
  • Bank Seeks to Exclude TARP Information from Proxy Statement, Nov. 21, 2008, ¶95-581 (ip access user)
  • SEC Comments on FDIC’S Temporary Liquidity Program (Nov. 12, 2008), ¶95-574 (ip access user)
  • SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets, Sept. 19, 2008, ¶95-406 (ip access user)

Treasury Department
Agency Issuances

  • TARP Funds to Be Used for Auto Bailout, Dec. 19, 2008, ¶95-620 (ip access user)
  • Treasury Department Hires Legal Firm Under EESA, Dec. 17, 2008, ¶95-619 (ip access user)
  • Capital Purchase Program Transactions Listed, Dec. 16, 2008, ¶95-616 (ip access user)
  • Treasury Department Releases Latest Capital Purchase Program Transactions Under EESA, Dec. 9, 2008, ¶95-604 (ip access user)
  • Treasury Interim Assistant Secretary for Financial Stability Neel Kashkari Provides Update on the TARP Program, Dec. 8, 2008, ¶95-602 (ip access user)
  • Treasury Department Releases Initial Section 105(a) Troubled Asset Relief Program Report to Congress, Dec. 5, 2008, ¶95-608 (ip access user)
  • Treasury Department Issues Tranche Report Under EESA, Dec. 2, 2008, ¶95-598 (ip access user)
  • Interim Assistant Secretary Kashkari Gives Update on Capital Purchase Program, Dec. 5, 2008, ¶95-596 (ip access user)
  • Treasury Secretary Paulson Remarks on the U.S. Economy and Financial System, Dec. 1, 2008, ¶95-586 (ip access user)
  • Guidelines for Systemically Significant Failing Institutions Program, Nov. 25, 2008, ¶63-773G (ip access user)
  • Treasury Department Releases a Report of Completed Transactions Under the Capital Purchase Program, Nov. 25, 2008, ¶95-580 (ip access user)
  • Paulson Comments on Consumer ABS Lending Facility, Nov. 25, 2008, ¶95-579 (ip access user)
  • Treasury Provides TARP Funds to Asset Banked Securities Facility, Nov. 25, 2008, ¶95-577 (ip access user)
  • IFI Reform Discussed by Treasury Official, Nov. 24, 2008, ¶95-572 (ip access user)
  • Treasury Announces Extension of Temporary Guarantee Program for Money Market Funds, Nov. 24, 2008, ¶95-571 (ip access user)
  • Agencies Issue Joint Statement on Citigroup, Nov. 23, 2008, ¶95-569 (ip access user)
  • Kashkari Remarks on Implementation of the EESA, Nov. 19, 2008, ¶95-566 (ip access user)
  • Paulson Addresses Financial Crisis in Opinion Piece, Nov. 18, 2008, ¶95-560 (ip access user)
  • Treasury Releases Capital Purchase Program Term Sheet for Privately Held Financial Institutions, Nov. 17, 2008, ¶95-558 (ip access user)
  • Treasury Issues Tranche Report Under EESA, Nov. 14, 2008, ¶95-573 (ip access user)
  • Treasury Department Responds to Claimed Lack of Oversight, Nov. 13, 2008, ¶95-548 (ip access user)
  • Paulson Remarks on Financial Rescue Package and Economy, Nov. 12, 2008, ¶95-544 (ip access user)
  • Minutes of Financial Stability Oversight Board Meeting Published, Nov. 9, 2008, ¶95-611 (ip access user)
  • First Tranche Report Under EESA Published, Nov. 4, 2008, ¶95-540 (ip access user)
  • Treasury to Invest in AIG Restructuring Under the Emergency Economic Stabilization Act, Nov. 10, 2008, ¶95-539 (ip access user)
  • Treasury Announces Solicitation for Financial Agents, Nov. 7, 2008, ¶95-538 (ip access user)
  • Interim Assistant Secretary for Financial Stability Neel Kashkari Remarks at the SIFMA Summit on the TARP, Nov. 10, 2008, ¶95-533 (ip access user)
  • Completed Transactions Under the Capital Purchase Program, Oct. 29, 2008, ¶95-528 (ip access user)
  • Additional Information on Capital Purchase Program Issued ,Oct. 31, 2008, ¶95-512 (ip access user)—¶95-519 (ip access user)
  • Treasury, IRS Issue Guidance on Fannie and Freddie Preferred Stock, Oct. 29, 2008, ¶95-505 (ip access user)
  • Capital Purchase Program Rule, Guidance Issued, Oct. 20, 2008, ¶95-479 (ip access user)
  • Guides on EESA Procurement Opportunities, Oct. 20, 2008, ¶95-475 (ip access user)
  • Interim Final Rule Provides Guidance on the Executive Compensation, Oct. 20, 2008, ¶95-474 (ip access user)
  • Treasury Hires Advisers Under the Emergency Economic Stabilization Act (EESA), Oct. 15, 2008, ¶95-460 (ip access user), Oct. 16, 2008, ¶95-473 (ip access user), Oct. 21, 2008, ¶95-483 (ip access user), Oct. 22, 2008, ¶95-484 (ip access user), Nov. 3, 2008, ¶95-527 (ip access user)
  • Treasury Requests Public Input on Establishment of Guaranty Program for Troubled Assets, Oct. 14, 2008, ¶95-464 (ip access user)
  • Treasury Department Announces Executive Compensation Rules under EESA, Oct. 14, 2008, ¶95-463 (ip access user
  • Treasury Department Announces Capital Purchase Program, Oct. 14, 2008, ¶95-462 (ip access user)
  • Treasury Department Assistant Secretary Kashkari Remarks on Troubled Asset Relief Program, Oct. 13, 2008, ¶95-459 (ip access user)
  • Treasury Department Secretary Paulson Issues Statement Following Meeting of G7 Finance Ministers and Central Bank Governors, Oct. 10, 2008, ¶95-458 (ip access user)
  • Minutes of the Financial Stability Oversight Board Meeting, Oct. 7, 2008, ¶95-541 (ip access user)
  • Treasury Department Moves on Asset Purchase Plan, Oct. 6, 2008, ¶95-440 (ip access user)—¶95-446 (ip access user)
  • Fannie Mae, Freddie Mac Control Shifts to Government, Sept. 8, 2008, ¶95-386 (ip access user)—¶95-389 (ip access user)
  • Blueprint to Modernize Financial Regulation Unveiled by Treasury Department, Mar. 31, 2008, ¶95-204 (ip access user)

Regulations

  • 31 CFR Part 30 (ip access user), TARP Capital Purchase Program

FEDERAL BANKING NEWS SOURCES

  • 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.
  • Advance Release Documents, provides federal Banking highlights of significant current events and regulatory activity (See for example, October 22, 2008 (ip access user))
  • The Federal Banking Law Report Summary provides the news of the week (See for example, Federal Banking Report No. 2288, October 16, 2008 (ip access user)).
  • The Federal Banking QuickChart for Current Developments can be used to find and track regulatory action and legislation (See for example., 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, October 2008 (ip access user)).

Consumer Credit Guide

Although Debt Purchaser a “Debt Collector” Under FDCPA, Notice Not Confusing
The U.S. Court of Appeals for the Seventh Circuit ruled that, although a company acquiring loans in default was a "debt collector" for purposes of the federal Fair Debt Collection Practices Act (FDCPA), the company's collection letter sent to a debtor did not violate the FDCPA because the validation notice contained in the letter would not be confusing to "an unsophisticated debtor." The company contended that, since it was collecting a debt that it owned rather than acting on behalf of another creditor, it was a "creditor," not a "debt collector," under the FDCPA and, therefore, not subject to the Act. In rejecting the company's argument, the Seventh Circuit determined that the key factor was that the underlying debt was in default at the time it was acquired by the company. Further, the evidence showed that the company "regularly collected" debts. In reaching its decision, the Seventh Circuit noted that the debtor herself was not confused by the validation notice, and, more importantly, the objective "unsophisticated debtor" would not be confused. McKinney v. Cadleway Properties, Inc. (7thCir), ¶52,206 (ip access user).

ECOA Limitations Period Triggered by Occurrence, Not Discovery, of Violation
In connection with the two-year statute of limitations under the federal Equal Credit Opportunity Act (ECOA), the U.S. Court of Appeals for the Fifth Circuit held that the limitations period begins to run on the occurrence of the violation, not the discovery of the violation. While a lawsuit by consumers was filed more than six years after the financing of their car purchases, the consumers argued that their ECOA claims were not barred by the two-year statute of limitations because the limitations period did not begin to run until their discovery of the alleged violations. The Fifth Circuit disagreed and determined that the plain language of the ECOA provision and its legislative history required a strict two-year running of the clock upon occurrence of the violation. Archer v. Nissan Motor Acceptance Corporation (5thCir), ¶52,210 (ip access user).

State Law Update

California: Amendments to California's security freeze law allow a consumer to request the placement of a security freeze by regular mail and require a consumer credit reporting agency to place a freeze within three business days of receiving a request. The measure also reduces to $5 the fee that may be charged to a consumer for each placement, removal or temporary lifting of a freeze if the consumer is 65 years of age or older. All other consumers, other than identity theft victims, may be charged a fee of no more than $10 for each of these services. In addition, the measure makes certain changes to the written summary of rights that a consumer reporting agency is required to provide a consumer in specified circumstances. The law (Ch. 151) is at California ¶6657B (ip access user) and ¶6661 (ip access user).

Louisiana: An amendment to the Louisiana Consumer Credit Law's definition of “prepaid finance charge” will no longer allow creditors to exclude prepaid finance charges when calculating the contract rate of interest on a simple interest consumer loan or credit transaction. The law (Act 50) is at Louisiana ¶5010 (ip access user).

Oregon: The Department of Consumer and Business Services, Division of Finance and Corporate Securities, has adopted rules clarifying and implementing the Oregon Consumer Identity Theft Protection Act. Regulation beginning at Oregon ¶8510. (ip access user).

Virginia: The State Corporation Commission has amended its payday lending regulations to incorporate changes made by legislation enacted earlier this year (Chapters 849 and 876 of the 2008 Acts of Assembly) that generally amend the Payday Loan. Law beginning at Virginia ¶7453A (ip access user). Regulation beginning at Virginia ¶8310. (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 and quarterly state interest rate modifications for January 2009, including those rates based on the federal primary discount rate—recently reduced by the Federal Reserve Districts.
  • 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

Negative Equity Protected by the Hanging Paragraph
A creditor that financed the purchase of a new vehicle, which included refinancing the negative equity in a vehicle used as a trade-in, held a purchase money security interest (PMSI) in the entire amount borrowed, and its secured bankruptcy claim was not limited to the retail value of the new vehicle. The negative equity in the vehicle was part of the purchase price as value given to enable the debtors to purchase the new vehicle. In re Carlton (Bankr MDAla) appears at ¶56,165 (ip access user).

Negative Equity Not Included in Creditor’s PMSI
Negative equity refinanced by a debtor in connection with the purchase of a new vehicle was an antecedent debt that could not be included in a creditor’s PMSI in the new vehicle. Article 9 of the Missouri UCC provides that a security interest is a PMSI to the extent that the goods secure a purchase-money obligation, which consists of the value given to a debtor that enabled the debtor to acquire rights in the collateral. The creditor argued that the extension of credit to pay off the loan on the trade-in vehicle enabled the debtor to purchase the new vehicle. However, the negative equity in the vehicle was in actuality an antecedent debt, and an antecedent debt that exists prior to the purchase of collateral is not a right in the collateral. Nuvell Credit Co. v. Callicott (In re Callicott) (EDMo) appears at ¶56,164 (ip access user).

Four-Year Limitations Period for Default Action
A lessor could not maintain an action to recover payment on an equipment lease that was commenced more than four years after the lessor accelerated payments for default. Article 2A of the New York UCC provides a four-year statute of limitations period for an action of default under a lease of goods. The limitations period on the lessor's action began accruing when the lessor accelerated the balance. Moreover, although the lessee expressly waived "any and all rights and remedies conferred by UCC Article 2A" in the lease agreement, a statute of limitations period cannot be waived. Cadlerock Joint Venture, L.P. v. Remillard (NYAppDiv) appears at ¶56,166 (ip access user).

State Update

Illinois: The rule authorizing the electronic titling and registration of vehicles in Illinois has been amended in relation to the requirements for vendors and service providers who are enrolled in the program. The new requirements establish an inventory control system for registration, license plates and stickers. They also require vendors to inform customers that using the electronic registration and titling system is optional and may not be used to obtain specialty, vanity or personalized registration plates. Fees collected for electronic registration and titling transactions are nonrefundable by the Secretary of State. The revised regulation begins at Illinois ¶1375 (ip access user).

 

Financial Privacy Guide

Federal Identity Theft Crime Includes Forging Signatures
Forging the signature of another constituted the use of that person's name and qualifies as a "means of identification," as used by the federal aggravated identity theft statute, the U.S. Court of Appeals for the Ninth Circuit has held. A person commits aggravated identity theft if he or she knowingly and without authority transfers, possesses or uses a means of identification of another person during the course of certain felonies. An individual who forged branch manager’s signature on checks written to herself in order to embezzle funds unsuccessfully argued that a forged signature was not a name and, therefore, not a “means of identification.” United States v. Blixt (9thCir) appears at ¶100-411 (ip access user).

Fact Act Requirements Do Not Extend to Internet
Internet retailers that transmit an electronic receipt containing the expiration date of a consumer's credit card to the consumer are not subject to the credit card number truncation requirements of the Fair and Accurate Credit Transaction Act (FACT Act), a federal district court has held. The term "print," as used by the FACT Act, cannot be construed to include receipts or sales conducted over the Internet. A story on Smith v. Zazzle.Com, Inc. (SDFLA) appears in Privacy Extra, Dec. 30, 2008 (ip access user).

Sony Pays $1 Million to Settle COPPA Charges
The Federal Trade Commission has settled Children's Online Privacy Protection Act (COPPA) charges against Sony BMG Music Entertainment (Sony Music). The FTC's complaint alleges that, through its music fan websites, Sony Music improperly collected, maintained and disclosed personal information from thousands of children under the age of 13, without their parents' consent. As part of the settlement, Sony Music has agreed to pay a $1 million civil penalty, matching the largest penalty ever in a COPPA case. A story on the settlement appears in Report No. 90, Dec. 11, 2008 (ip access user).

FTC Issues Report on SSNs and Identity Theft
The Federal Trade Commission has issued a report recommending five measures to help protect Social Security numbers (SSNs) from being used for identity theft. The FTC's recommendations are intended to address both the supply and demand aspects of the issue by proposing actions that would make SSNs less available to identity thieves and to make it more difficult for thieves to misuse the SSNs they obtain. The report states that the most effective course of action is to strengthen the methods by which businesses authenticate new and existing customers. Stronger authentication would make it more difficult for criminals to use stolen information, including SSNs, to impersonate consumers. This would limit the value of a SSN to identity thieves, reducing the demand for it. A story on the FTC report appears in Privacy Extra, Dec. 30, 2008 (ip access user).

Bankruptcy Law Reporter

Debt Relief Agency Provisions Not Unconstitutional
The U.S. Court of Appeals for the Fifth Circuit has determined that Bankruptcy Code Sec. 526(a)(4), which generally prevents attorneys from advising their clients to incur more debt "in contemplation" of bankruptcy, is not facially unconstitutional. Under the doctrine of constitutional avoidance, the statute should be interpreted only to prohibit attorneys from advising clients to incur debt in contemplation of bankruptcy when doing so would be an abuse of the bankruptcy system and has no application to good faith advice to engage in conduct that is consistent with a debtor's interest. The court also determined that attorneys qualify as "debt relief agencies." Section 527(b), which requires attorneys to provide "assisted persons" with written notice of certain basic information regarding bankruptcy proceedings, does not violate the First Amendment. Hersh v. United States of America (8thCir) can be found at ¶81,381 (ip access user)

Debtors Without Car Payments May Claim Ownership Expense
Above-median income debtors who had no monthly vehicle loan or lease payments could nonetheless claim a vehicle ownership expense deduction under the Bankruptcy Code Sec. 707(b)(2)(A)(ii)(I) means test. The statute's use of the word "applicable" to describe the debtor's monthly expenses refers not to the debtor's relevant, actual monthly expenses, but rather to the selection of an expense amount corresponding to the appropriate geographic region and number of vehicles owned by the debtor. Ross-Tousey (7thCir) ¶81,376 (ip access user)

"Current Monthly Income" Focuses on Receipt of Funds
The definition of "current monthly income" contained in the Bankruptcy Code consists of income received during the prescribed six-month period, regardless of whether it was actually earned during that period. Burrell (BankrCDIll) ¶81,377 (ip access user)

 

Individual Retirement Plans Guide

Married Couple Not Allowed to Deduct IRA Contributions
A federal district court has ruled that a married couple was not allowed to deduct IRA contributions for the tax year at issue because the husband was an active participant in a qualified retirement plan and the couple’s modified adjusted gross income exceeded $160,000. The husband, who was reemployed by a state agency after retirement, was required to make mandatory contributions to the state’s employee retirement plan. His contributions made him eligible to receive benefits and participate in the plan, and the lack of benefit from his contributions did not preclude him from attaining active participant status. Tax Court Summary Opinion 2008-140 is reported at ¶10,334 (ip access user).

 

Hot Topic of the Month

This month’s Hot Topic of the Month is Tax Refund Anticipation Loans (RALs). These are short-term cash advances against a customer's anticipated income tax refund. Consumers pay several fees to get a RAL: a fee for commercial tax preparation, a fee to the preparer to process the RAL and a loan fee to the lender. What the consumer receives in hand is the refund minus the loan fee, the administrative fee, and the tax preparation fee. RALs are usually not made by the tax preparer, but by a separate lender, usually a bank. Tax preparers facilitate the loans in partnership with the banks. Coverage of state laws regulating RALs can be found in the Consumer Credit Guide, while implications under federal regulation can be found in the Federal Banking Law Reporter.

The easiest way to find state laws on the topic is to look at the Consumer Credit Topic Smart Chart on Refund Anticipation Loan Laws. Citations provide a list of underlying laws and regulations along with links that allow the researcher to retrieve the entire law in a document list format. For example:

  • Maryland: The Commissioner of Financial Regulation has issued an Advisory clarifying the applicability of the Credit Services Business Act to companies that assist taxpayers in obtaining Refund Anticipation Loans, Advisory Notice 05-08, Maryland ¶9501 (ip access user).
  • New Jersey: Tax Preparation Services Act, effective April 1, 2008, starting at New Jersey ¶7051 (ip access user).

Search Consumer Credit Guide report letters for “refund anticipation” and you will find items of current interest For example:

  • New York legislation, effective Jan. 1, 2009, enacting a consumer bill of rights regarding tax preparers requires tax preparers to provide several disclosures to consumers, including the terms and costs of refund anticipation loans.—Consumer Credit Guide Report Letter No. 1049, Aug. 26, 2008 (ip access user).

In addition to legislative activity, tax refund loan law issues are being resolved by the courts.

  • A Connecticut law that places limits on tax refund anticipation loan interest rates does not apply to national banks or the agents banks use to make those loans, the U.S. Court of Appeals for the Second Circuit has decided. The court decided to adopt an interpretation of the state law that excluded banks and their agents from the law's coverage, since that result was preferable to finding that the state law was preempted by the National Bank Act. Pacific Capital Bank v. Connecticut (2ndCir), Federal Banking Law Reporter Cases, ¶101-045 (ip access user).

Federal banking regulators have also provided guidance on issues arising in connection with tax refund anticipation loans:

  • A tax return preparation business that cashed refund anticipation loan checks it had written to clients would not be a check casher and thus would not be considered to be a money services business. FIN-2006-G005, Federal Banking Law Reporter Agency Letters and Opinions, ¶76-016 (ip access user).
  • In response to a request for a lower risk weight for tax refund anticipations loans, the OCC determined that 100 percent is the appropriate risk weight for this type of consumer lending. OCC Interpretive Letter 959, Federal Banking Law Reporter Agency Letters and Opinions, ¶81-484 (ip access user).
  • Special disclosure rules for refund anticipation loans are found in the Federal Reserve Board’s Official Staff Commentary for the Truth in Lending requirements in Regulation Z. 12 CFR 226.17, Paragraph 17(c)(1), item number 17, Federal Banking Law Reporter Regulations, ¶27-773 (ip access user).